This article is an excerpt from The Paypers’ 8th edition of the Payment Methods Report, which delves into the latest worldwide developments in payment methods, innovative technologies, and best practices for optimizing checkout and boosting customer conversion – explore the full report here.
The current payment acceptance landscape on ecommerce
One of the main concerns for merchants operating in the growing ecommerce space is how they can provide shoppers with the best customer experience to maximize revenues and customer retention. This is particularly complex in the European Economic Area (EEA), where the Second Payment Services Directive (PSD2) introduced strict requirements to fight against fraud, resulting in additional friction for customers, especially if this process is not managed efficiently.
Before we go any further, what does “acceptance rate” actually refer to? At the end of the day, what merchants care about is how much new income they really capture . Therefore, acceptance rate should be calculated as the number of successful captures over the number of attempts. The events that occur after the capture (i.e., cancelations, refunds, and chargebacks) must also be optimized but those will not be addressed in this article.
In this context, it is key for merchants to understand the payment flow – whether it is customer-initiated transaction (CIT) or merchant-initiated transaction (MIT) – and how to optimize this process.
Strategies to optimize acceptance rates
When looking at CIT, every transaction typically starts with a risk analysis, where merchants must decide whether they should block the transaction, trigger SCA, run a manual review, or request an exemption (when applicable). The issuer then validates authentication and authorization, followed by the capture. However, the payment journey is not always so straightforward, and transactions do not always get approved, which is why each payment step must be assessed in-depth.
- Blocked transactions
Merchants must find the right balance between blocking suspicious transactions as soon as possible to keep traffic clean and avoiding refusing legitimate transactions (i.e., false declines). This requires a payment fraud strategy which defines the right policies and processes and implementing the most suited and advanced technology.
- Manual reviews
In some cases, merchants may consider having transactions reviewed by analysts; however, manual review is not always beneficial, especially when non-risky transactions fall into this longer process or when the decision made by the analyst can be easily automated with technology. The real value in having human analysts usually comes from being able to contact the customer for additional checks, otherwise most of the decisions can be automated.
- Authentication
Merchants must decide whether SCA should be triggered or not, and whether an exemption should be requested when applicable. Triggering SCA in all transactions will most likely result in losing good customers that encountered an issue during this process (something very important that is commonly missed is the monitoring of drop-offs during the SCA process, which some payment providers are not even able to track). On the other hand, not triggering SCA requires proper fraud management to avoid future chargebacks, in which case, the merchant would assume liability.
One of the most effective solutions to improve acceptance rates and relatively easy to implement is to propose wallets like Google Pay or Apple Pay since they benefit from a smooth authentication process. Quite interesting to explore is launching a white label wallet or private card as they are out of PSD2 scope.
Another important action merchants can take to optimize authentication is to send a 3DS version that will more likely be accepted by each issuer. This implies monitoring issuers’ behaviors and relies on payment providers having the capability to automatically send the most relevant version.
When it comes to the exemptions, the most used exemption is “low value payments” as it only requires transactions to be below 30 euros. The exemption that is currently being developed the most is the “transaction risk analysis (TRA)”, which allows merchants to obtain exemptions for transactions up to 500 euros, although the current best threshold is at 250 euros. This exemption is particularly complex as it requires acquirers to remain below certain fraud thresholds to be eligible, which results in acquirers further refining their onboarding policy and fraud strategy. At the same time, some acquirers with full access to issuing data are developing solutions that maximize exemptions –also applicable to three corner model payment methods.
Other exemptions like “trusted beneficiaries” and “delegated authentication” do not currently seem to be as developed, although some of the most innovative acquirers have started to build solutions around this.
- Authorization
This step mostly depends on the issuer, but there are still various other actions merchants can take to maximize acceptance rates. Such as sending additional data in payment requests, being connected to different acquirers and routing transactions to the one more likely to accept each transaction, or even working closer with issuers through third parties such as acquirers or specialized fintech.
One of the latest trends when defining a multi-PSP strategy with smart routing is to rely on a payment orchestration layer to delegate the technical burden while benefiting from a no-code and user-friendly interface to set workflows.
- Capture
The main reason a failed capture occurs in due to the capture being delayed because the authorization expired or got cancelled upon customer request. This can also happen for reasons related to the merchant (e.g., product out of stock).
When it comes to MIT, in theory it has a more straightforward process as SCA is only required in the first transaction. However, the main challenge merchants face is deciding when to process the transaction and how to manage declines. The most innovative technologies allow merchants to trigger MIT transactions during specific days when transactions are more likely to be accepted, followed by smart retries in case of failure. Another way to maximize acceptance rates is network tokenization, as the token will remain available even if the card is lost, stolen, or expired.