The content of this article is provided for informational purposes only. You should always obtain independent business, tax, financial, and legal advice before making any business decision.
It can be extremely important to focus on your front-end and back-end operations when aiming to run a successful business. The front-end is what your shoppers see and experience firsthand with your business, such as a UX-friendly website or an easy-to-navigate app. The back-end operations may power your business and ensure operations run smoothly behind the scenes, so your customers can have the optimal experience on the front end.
Authorization rates are an important part of both sides of this equation. If they’re optimized, your customers can experience a frictionless payment process, while your business can capitalize on capturing as many sales as possible.
Authorization rates measure the percentage of your successfully approved transactions and payments — and they can have significant influence over your revenue. The transactions your customers make must be authorized by their card network and issuing bank. If some are declined, you may be missing out on lost sales.
To determine your authorization 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 authorization rate is 80%. That means 20% of your payments weren't processed successfully, likely frustrating shoppers and costing you money.
Here, we'll outline important details about authorization rate optimization and how it can impact your customer experience and revenue potential.
An authorization rate — also known as an approval ratio — is the number of successful transactions divided by the number of total transactions.
If your authorization rate is high, that possibly means many of your transactions are being approved. If it’s low, then your customers may be experiencing failed transactions. Having a thorough understanding of payment authorization optimization and how high or low your rate is can help identify potential roadblocks during the payment step.
There are many reasons merchants might experience low authorization rates, including:
Authorization 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.
When a customer makes a purchase on your ecommerce site, their transaction must go through an authorization process before it’s approved.
Here's a step-by-step breakdown of what that payment processing looks like:
Tracking authorization rates can help you better understand how the authorization process works, plus identify potential roadblocks along the way.
Improving the authorization process can help reduce declines and capture more revenue. You might consider starting with the following steps to improve authorization rates.
First, analyze the checkout process you currently have and look at potential roadblocks for customers. Do you force them to create an account or let them checkout as a guest? Do you allow them to fill out the least number of fields possible? How mobile-friendly is the checkout page? Your goal is to provide customers with a smooth and intuitive checkout experience to maximize conversion rates.
There are several ways you can optimize checkout:
Card declines can be a result of simple human error. Customers might input the wrong numbers or miss a field on their checkout form. You can reduce payment declines and optimize authorization rates by instantly flagging these mistakes before shoppers submit their orders.
For instance, to increase payment acceptance, you can offer specific, instantaneous feedback like, “please enter a valid phone number,” versus an “invalid entry” message. You could also provide automatic defaults to the correct format, such as for phone numbers or birthdates, and not allow a customer to place an order unless all fields are entered correctly.
These authorization rate optimization strategies may help improve transaction approval rates.
Offering diversified payment options shown to have high conversion rates is one of the payment authorization best practices you can implement.
Small businesses should work with their payment processors to expand their offerings and provide more payment options for customers at checkout. PayPal Expanded Checkout, for instance, is PayPal's leading, single integration. It helps merchants to accept a wide variety of payment methods, including credit and debit cards, PayPal, Venmo, buy now, pay later options, Apple Pay (available in the US only for now), and local payment methods with consolidated settlement and reporting.
When you include numerous payment methods, you’re giving customers one less reason to abandon their carts at checkout and potentially speed up the checkout process. You can also appeal to a wider audience, younger demographics that prefer using a digital wallet or international shoppers who can only use a specific type of payment.
Having multiple payment methods available can improve your overall merchant authorization rates (which includes credit card authorization rates).
Building fraud protection and fraud prevention into your checkout process can help optimize authorization 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 prevent legitimate customers from being turned away at checkout.
PayPal's real-time account updater service securely updates customer card data from Visa, Mastercard, and Discover.
Real-time updates can reduce declines as a result of changing card numbers or expiring cards. Because of this, businesses can help prevent transaction declines and drive authorization rates for higher revenue.
From increased payment methods to 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.
Learn how to add PayPal’s real-time account updater service.
While you may not have control over every aspect of a customer’s purchase, your business can have a positive impact on its own authorization rates. By implementing payment authorization best practices, such as optimizing the checkout page, offering a variety of payment methods, and including built-in fraud protection features, you can make the checkout process as smooth and painless as possible for your customer.
When the customer has a seamless experience and you make accepting their payment easy, it can ultimately drive up your e-commerce conversion rates.