On the face of it, the continued movement to card-not-present transactions is a positive for commerce. Consumers can buy the goods and services they need, when they need them, round the clock, and merchants get to reach an ever-widening consumer base.
Bank of America SVP and Payment Network Executive Sara Walsh told PYMNTS’ Karen Webster that there’s been a bit of turbulence in the mix: The great digital shift has introduced challenges with authorization rates.
Walsh said that card-not-present declines are three times higher than declines with card present transactions. So: friction abounds.
Additionally, as more consumers eschew cash and check and traditional one-time card payments for clicking “buy buttons” and peer-to-peer (P2P) payments, merchants — and even issuers — may not be completely aware of why authorization rates are lower than they could be.
The Common Misconception
Walsh said there’s a common misconception that card issuer declines are driven by fraud.
“That’s really not the case for the majority of declines,” said Walsh. Issuers are becoming more sophisticated in their use of text messaging and other ways to contact customers and get reassurance that the party on the other side of the transaction is who they say they are.
Merchants have also developed their own fraud strategies that prevent the authorization from ever getting to the issuer. This makes sense, as fraud also migrates from card-present to card-not-present channels. In turn, there are fewer fraud attempts for the issuer to decline.
The stakes are high, as a recent study found that 44% of falsely declined shoppers stopped or reduced shopping with that retailer. As Walsh noted: “When customers are declined, it’s embarrassing, it’s frustrating and seriously inconvenient to the buyer.”
Related: In Bid to Raise the Checkout Bar, PayPal Urges Industry to Boost Authorizations
At the onset of COVID in 2020, as measured between March and April of that year, card-not-present volume across the payments industry increased by as much as 25%. This card-not-present split has maintained. In 2021, as restrictions lifted and economies reopened, Walsh said a hallmark of retail commerce has been the onset of “revenge spend.”
What people were not able to spend on travel and other in-person services, they spent on goods. Those spending patterns have shifted a bit in recent months and consumers are spending more money on travel, entertainment, and dining out — and much of this spend is generated from mobile devices. Payments, in other words, have been integrated into a number of far-flung experiences.
But drill down a bit and as consumers navigate daily life across online and offline channels, Walsh said they need to have confidence that their card payments will be approved.
To get a sense of what’s at stake, consider the consumer who’s booking a trip with an online travel agency, navigating through several online pages’ worth of data fields, picking seat locations and flights and hotels … only to have the payment declined. Odds are high that the agency has lost a would-be client and the customer is less likely to use that card product again. At the very least, a servicing call will result.
Similarly, a cardholder racing against the clock to book concert tickets may fall short of having a wonderful evening out when the transaction is declined. Why should these consumers be exposed to these declines — and by extension, why shouldn’t the merchants close those sales?
Walsh said the largest reason for declines in the card-not-present space is due to a retailer, service or subscription provider trying to send an authorization request for a closed or reissued account number. Of course, there are also instances when there are insufficient funds in the holder’s accounts, particularly where a debit transaction is involved.
When asked by Webster what the best tools are to make sure that transactions are authorized and approved — and that conversion rates improve — Walsh said that advanced technologies can help merchants in a variety of ways.
Tokens make it easier for all parties to approve and interact — it is much easier for an issuer to communicate a card credential change via token, and facial recognition and PINs add more layers of security to token processed transactions. Token processed transactions also have lower fraud claims associated, and Walsh said that merchants see as much as 5% higher approval rates when processing token payments.
See also: Collaboration, Education and Payments Orchestration Key in the Battle Against Fraud
There are also network and processing services available to keep card credentials current, for card on-file, recurring and installment payments. These services can be implemented in batch or real time and feed new card information from the issuer to the merchant.
Merchants can also be proactive in communicating changes to their processing to others in the payments community. For example, anticipated promotions and social media-related activities, or new or updated merchant IDs, can be shared so that issuers can adjust their strategies and authorizations are not stymied.
Lastly, merchants are encouraged to ensure their merchant category code accurately reflects their business and are included as part of the transaction, including indicators such as card on-file, recurring or installment.
Walsh shared a best practice of reviewing approval rate metrics, at a variety of different levels. Opportunities can be identified by issuers and merchants by completing comparison approvals across processors, networks, issuers and participating in competitor benchmark analysis.
“Utilizing these services and indicators can communicate details about the transaction being processed,” Walsh said. “The more we know about a transaction, the more accurate we can be in our approval strategies.”
Based on new Payment Network rules, issuers, merchants, processors and the networks themselves are working together to move beyond “do not honor” codes. More specific decline reasons from issuing banks, as of last year, fall into a series of categories that determine whether merchants can retry transactions — and provide the merchant better insight on what to do with the decline.
Looking ahead, better lines of communication between issuers and merchants will improve the end user experience, especially with heightened data analysis. There is much work in the industry dedicated to improving the details shared with transactions. Improving authorizations by even a few tens of basis points results in millions more transactions getting through.
As Walsh told Webster, “As an industry — across issuers, retailers, acquirers — we all have a mutual interest in making sure legitimate card transactions are approved.”
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