What are authorisation rates and how to help optimise them for higher revenue
To run a successful business, it’s important to focus equally on your front-end and back-end operations.
On one end, the customer-facing side is what your shoppers see and experience when they interact with your business — from a UX-friendly website or app to creative marketing tactics.
On the other hand, your back-end platform is what powers your business, ensuring your operations run smoothly behind the scenes.
That’s where authorisation rates come in.
Authorisation rates measure the percentage of your successfully approved transactions and payments — and they can have significant influence over your revenue. Every transaction your customers make must be authorised by their card network and issuing bank. If some are declined, you may be missing out on lost sales.
To determine your authorisation rate, you can divide the number of approved transactions by the total number of attempted transactions. If you had 1,000 attempted payments, for example, but only 800 payment approvals, your authorisation rate is 80%. That means 20% of your payments weren't processed successfully, likely frustrating shoppers and costing you money.
Here, we'll outline what you need to know about authorisation rate optimisation.
What are authorisation rates?
An authorisation rate — also known as an approval ratio — is the number of successful transactions divided by the number of total transactions.
If your authorisation rate is high, that means many of your transactions are being approved. If your authorisation rate is low, then your customers may be experiencing failed transactions.
There are many reasons merchants might experience low transaction authorisation rates, including:
- Processing issues with the merchant's bank or customer's bank
- Lack of support for customer payment methods
- Back-end issues
- Outdated or expired card information
- Fraudulent Transactions
Authorisation rates can also vary depending on the type of transactions you process, such as cross-border versus local transactions, or new acquisitions versus renewed payments. If you sell cross-border, where authorisation rates can sometimes be lower, it’s especially important to do all you can to optimise the process.
How does the transaction authorisation process work?
When a customer makes a purchase on your ecommerce site, their transaction must go through an authorisation process before it is approved.
Here's a step-by-step breakdown of what that payment processing looks like:
- A customer checks out and enters their payment information, such as for their credit or debit card.
- That information is sent securely through a payment gateway to your payment processor or merchant bank.
- Your payment processor connects with the customer's issuing bank to approve the payment.
- If the customer has enough funds or credit, and the transaction is deemed valid, the issuer approves the payment. If the customer doesn't have enough funds or credit, or there is a risk of fraud, the payment is denied.
- If the payment is approved, the customer's bank sends the funds to your payment processor. The payment processor then deposits the money into your merchant account.
- If the payment is denied, the customer will be notified. They can either try to complete the transaction again with the same payment method or a different payment method, or they can abandon their cart and leave your site.
Tracking authorisation rates can help you better understand how this process works, and identify potential roadblocks along the way.
4 ways to help optimise and drive the authorisation process
Improving the authorisation process can help reduce declines and capture more revenue.
You can start by taking these steps to drive authorisation rates:
1. Optimise checkout
Provide customers with a smooth and intuitive checkout experience to minimise abandoned transactions and maximise conversion rates.
You can optimise the checkout process by:
- Making your checkout page easy to navigate.
- Reducing the number of checkout process steps.
- Ensuring customers' credit card information and Card Verification Value (CVV) numbers are clearly visible to them, reducing input errors.
- Safely storing payment information for return customers so they can pay easily and securely without manually entering card numbers and address every time they check out.
- Automatically updating old payment information and removing expired cards from payment options.
2. Provide instant feedback and minimise declines
Card declines can be a result of simple human error. Customers might input the wrong numbers or miss a field on their checkout form. Optimise authorisation rates by instantly flagging these mistakes before shoppers submit their orders.
3. Focus on high-converting payment methods
Offer diversified payment options that are shown to have high conversion rates.
Small businesses should work with their payment processors to expand their offerings and provide more payment options for customers at checkout. PayPal Advanced Checkout, for instance, is PayPal's leading, single integration that enables merchants to accept a wide variety of payment methods, including credit and debit cards, PayPal, Apple Pay®, Google PayTM, and local payment methods with consolidated settlement and reporting. PayPal also enables you to accept payments in 135 different currencies in over 200 different markets.
PayPal itself is a widely recognised and trusted brand around the world. Nearly three-quarters of PayPal users say they prefer to pay with PayPal when its available.1 More that half say they are more likely to complete a purchase from an unknown merchant when PayPal is present1 and more than 1 in 5 have abandoned a purchase because PayPal wasn’t present at checkout.1 If you sell across borders to international customers it’s important to offer payment methods that your customers know and trust.
4. Avoid overly complex fraud protection
Building fraud protection into your checkout process can help optimise authorisation rates. For instance, you might use fraud management tools based on machine learning, device fingerprinting, and address verification checks to detect fraudulent transactions in real time.
Proper fraud protection can also help you decrease the number of false declines and save legitimate customers from being turned away at checkout.
How PayPal checkout can help optimise authorisation rates
From its globally recognised and trusted brand, customer-friendly checkout experience and increased payment methods to built-in fraud protection and third-party integrations, PayPal can help improve your back-end platform with a host of tools and a network of partners, making the transaction process quick and seamless.
Speak to our experts to learn more about how PayPal can help optimise authorisation rates. +65-6510-4541.
1 Nielsen, commissioned by PayPal, Nielsen Attitudinal Survey of UK (June 2023) with 2,000 recent purchasers (past 4 weeks) from SMB merchants, including 1,000 PayPal transactions & 1,000 non-PayPal transactions. Base N. PayPal users = 1,568.
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