No matter the size or reach of your company, credit card authorization rates matter. That’s especially true in global eCommerce, where credit cards are a fundamental pillar of online payments. Simply put, this rate measures what percentage of the credit card transactions that your business handles are authorized, as opposed to declined.
If your customers’ cards are declined, they can’t complete that transaction — and for big ticket items or high traffic seasons, that’s a huge problem. In other words, credit card authorization rates reflect how much business you may be losing to declined cards.
There’s another issue here, too: with low authorization rates, you’ll waste time and resources tracking down the cause, chasing down that lost business or manually following up with customers to collect missing recurring charges. It’s not just a case of lost business — it’s also a case of lost time and money because of the associated organizational headaches.
To top it off, many payment providers offer inadequate support around the issue of low credit card authorization rates. Traditional payment providers like banks often simply don’t have the technical expertise required to advise your business on the cause of your low rates, so you’re stuck with low rates and no clear path forward.
So what causes low authorization rates, and how can you improve those rates?
Causes of Low Credit Card Authorization Rates
Changing data laws
New laws coming into effect across the globe, like PSD2, can lower authorization rates. These laws stipulate new authorization methods like Strong Customer Authentication, and those new requirements can muddy the waters when it comes to authorizations.
For instance, the authorizing bank will need to sift through the type and origin of each transaction to determine whether it’s required to have that two-factor authentication stamp of approval, if it’s an exempt transaction or whether PSD2 has been enforced in that region yet. Those complicating factors can lead to an increase in declines, especially if your transactions aren’t clearly flagged.
Poor fraud screening
In theory, credit card declines are supposed to target potential fraud. The higher the likelihood of fraud, the higher the chance that transaction is declined. If you have poor fraud prevention, you’ll see more declines because more transactions will be flagged as potential fraud, and credit card declines will rise to prevent that fraud. And of course, more declines means a lower authorization rate.
High-risk industry or transaction categories
If you operate in a high-risk industry — for instance, paid credit score checks or an industry with more fraudulent traffic — or you process payments through multiple providers, your authorization rates will go down. The higher the likelihood of fraud, the higher the chances cards get declined.
Payments that originate from a different country than the processing bank are often declined at a higher rate. For instance, a payment using a German-issued credit card that’s processed by a US-only or regional bank is more likely to be rejected. Cross-border payments that aren’t routed to a local bank in their region are flagged for declines more frequently than within-region transactions.
Similarly, currency mismatches can cause low authorization rates in out-of-region payments. Generally speaking, transactions across different currencies — especially those with fluctuating exchange rates — are more likely to be declined. It’s a best practice to have local currencies available as much as possible.
Customer account changes
As credit card technology evolves, millions of new cards are issued every year to incorporate features like tap-to-pay. That means customer credit card information is changing more frequently, and if your database doesn’t automatically collect those updates, you may see more frequent declines. For instance, if you have recurring monthly or annual charges but the customer’s credit card information is no longer accurate, the payment won’t be authorized.
If your payment provider or bank uses older technology, you’ll see low credit card authorization rates because older technology fails to address all the factors above. Older tech gateways are less likely to have local routing systems, strong fraud screening, automatic data updates, retry or failover systems and so on. The latest software will have systems in place to address common causes of low authorization rates; out-of-date providers won’t.
How to Improve Credit Card Authorization Rates
Despite the many intertwining factors that cause low rates, there are a number of steps you can take to improve those rates. Here are our top 5 actionable tips:
- Know your current payments situation
- Know your shoppers
- Know your network tags
- Know your data usage
- Know what to look for in a payments partner
Each of these steps begin with understanding your company’s situation to identify the origin of your low authorization rates; from there, you can work to improve these categories and raise your credit card authorization rates.
1. Know your current payments situation
Before you can begin to improve, you need to know where you currently stand. Talk to your current payments provider to fully understand which metrics they use, what data is included in your payment reports, what those metrics mean and what your current rates are. If your provider isn’t transparent about this information or doesn’t make it accessible, you may want to consider switching.
It’s important to nail down the nomenclature here. Some providers track authorization rates while others track decline rates, potentially over different time periods. They’re two halves of the same coin, but you can use and assess them differently, so nail down which one primarily used and what that percentage is. Similarly, make sure you understand what your provider means by payment conversion rates: it can mean anything from the percentage of site hits that turn into a sale to the number of completed transactions after an item is added to the cart.
You should also dig into the type of payment processing technology that your provider uses. If the provider or its associated banks rely on older technology or doesn’t have a powerful fraud detection system in place, you may see low authorization rates simply because of that. If your provider is causing you soft declines because of that inadequate tech, it’s time to upgrade.
2. Know your shoppers
If you have shoppers in multiple countries, you need to optimize for that international business. Check whether your declined credit cards tend to originate overseas or route through multiple countries. If those transactions have lower authorization rates, consider changing the functionality of your payments solution to account for that business.
To improve authorization rates, you need to work with a payments provider that can capture your business as it actually happens, including across different regions. Otherwise, you’ll see low authorization rates simply because you haven’t set up your payments to incorporate where and how your customers are truly shopping.
3. Know your network tags
Your processing bank may decline transactions because they have a higher likelihood of fraud or don’t match the established tag for that transaction. For instance, if you have a recurring monthly payment but you flag it as an eCommerce transaction rather than a recurring transaction, the bank may decline future payments on the grounds of potential fraud. Those systems are in place for customer protection; you just need to know how to use them to your advantage.
Dig through your network tags to ensure that they align with transaction type. Tags that match transactions lead to higher authorization rates. Ideally, your payment provider should have the ability to flag these transactions accordingly to ensure they are processed accurately.
4. Know your data usage
As data and privacy laws loom large, you need to know how to manage your data to work within those new systems. New laws like PSD2 are all about more carefully processing and managing data, including payment transactions.
Here’s the crucial piece of that puzzle: the more data you can offer the processing bank to verify a transaction, the more likely the bank is to approve it. Analyze your data tracking to assess how you can improve your data usage, and thus boost your authorization rates.
5. Know what to look for in a payments provider
If your payments provider is causing or contributing to your low authorization rates, that payments provider is holding you back and costing you valuable business. You shouldn’t have to settle for lower rates when your business has improved its own practices. You also shouldn’t have to search far and wide for useful, personalized advice on improving those rates.
Your payments provider should instead enable you to identify the root cause of your low rates and offer strong tips to improve your credit card authorization rates. Similarly, a partner that’s well-versed in laws like PSD2 will strive to document different transaction categories and be fully responsive so that new regulations don’t impact your business success. The right partner will also have tools in place to do everything possible on their end to improve authorization rates; this should include powerful fraud prevention, analysis of past declines, device fingerprinting, automatic updates of customer information, transparent data and ongoing analysis of global transaction types.
If your payments partner isn’t meeting your needs, it’s time to consider a solution that does. Check out our Switch Kit below for a step-by-step guide to switching providers, as well as a detailed look at all the benefits you’ll see by switching to a solution that’s right for you.