Payments Orchestration Tracker® Series Report

Into the Vault: Optimizing Payments

March 2024

Vaulting data is a well-established practice, but organizations have only recently unlocked its full potential by leveraging vaulted payment data for customer life-cycle management, transaction routing and other key features that drive customer engagement.

PYMNTS
01

Vaulting has been proven to provide a streamlined and convenient payment process while also enabling stringent anti-fraud security measures. Merchants have only just begun to tap its potential to aid in customer retention, better authorization rates and cost reduction.

02

Vaulting offers considerable cost savings for companies in the long run by leveraging customer data to mitigate potential sources of payment failure. Preserving these revenues — along with the customers they represent — is most crucial to subscription businesses.

03

Personalized goods and services generate significant revenue for many organizations, including payment providers. Vaulting allows firms to leverage customer data to offer tailored experiences to individual customers.

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    Customer payment data is in many ways a merchant’s most valuable asset, offering key insights into consumer habits and transactional patterns. However, this data also contains sensitive payment information, posing considerable risks to merchants and customers alike if it is ever exposed to the public. Vaulting — the secure retention of customer payment data — is a requirement for merchants that want to process customers’ payments in a way that is both convenient and compliant with Payment Card Industry Security Standards Council (PCI SSC) rules.

    Merchants are only beginning to realize the true potential of vaulted data, however. While the concept of vaulting is not new, what is new is how merchants are using it strategically to improve the customer experience, save money and leverage its insights to maximize revenue and customer value.

    Vaulting Improves Customer Retention

    Vaulting has been proven to provide a streamlined and convenient payment process while also enabling stringent anti-fraud security measures. Merchants have only just begun to tap its potential to aid in customer retention, better authorization rates and cost reduction.

    More than 1 in 10

    ONLINE TRANSACTIONS PROCESSED BY eCOMMERCE COMPANIES FAILED IN THE LAST 12 MONTHS.

    Nearly 82% of firms say they struggle to understand why their payments fail.

    Failed payments are a significant source of customer attrition, eroding both customer satisfaction and profitability. According to a recent PYMNTS Intelligence study, more than 82% of executives surveyed cited identifying the sources of payment failure as their primary challenge in addressing these frictions, as they do not have a holistic view of consumer data that could lead to these failures. Such complications can result in significant revenue losses. In the last 12 months, more than 1 in 10 online transactions processed by eCommerce players failed, amounting to approximately $31 billion in lost online retail sales in Q3 2023 alone.

    The opportunity cost of these unsuccessful payments can be even more devastating than the failed transactions themselves. In fact, the same study revealed that more than two-thirds of eCommerce firms struggled to recover customers lost to this friction.

    Vaulting helps payment providers boost authorization rates.

    Anyone operating a business that deals with customer payment data has faced the challenge of keeping stored payment data secure and up to date. For merchants and merchant aggregators, finding a payment vaulting solution with the features that can secure this payment data is critical. Network tokens represent an exciting opportunity in securing and transacting with card payments by enabling merchants to easily protect sensitive information while optimizing costs and acceptance rates.

    Network tokenization is a process that replaces primary account numbers (PANs) used in payments with a token that represents the PAN. Each network token is associated with a singular domain belonging to a specific merchant and keeps the payment details represented by the token secure and private throughout the payment process. Unlike a third-party token or processor token, network tokens are provisioned in partnership with the card networks and issuing banks.

    Recurring payments that require up-to-date payment data or card-on-file information can rely on network tokens for this purpose and do not require customers to interact with their accounts to remain updated. This can significantly help with customer retention and lower churn.

    Vaulting’s Money-Saving Capabilities

    Vaulting offers considerable cost savings for companies in the long run by leveraging customer data to mitigate potential sources of payment failure. Preserving these revenues — along with the customers they represent — is most crucial to subscription businesses.

    $129B+

    Amount subscription businesses could lose by 2025 due to involuntary payment failures

    Failed payments can cost subscription companies billions in lost revenue.

    Although the subscription industry is expected to hit $1.5 trillion in value by next year, payment delays and failures caused by substandard payments orchestration could have devastating effects on the industry. By 2025, subscription companies could lose more than $129 billion due to involuntary payment failures, such as expired cards or gateway outages. This problem uniquely impacts the subscription industry, as failed payments may go unnoticed by many customers who are not actively managing their subscriptions. Vaulting can help merchants identify these failed payments and proactively correct them.

    Payments vaulting could be a key competitive differentiator for subscription-based companies.

    Payment declines are a major cause of customer churn for subscription businesses. When customers experience these declines, they may opt to cancel their subscriptions altogether instead of taking steps to resolve their payment issues. In a recent interview with PYMNTS Intelligence, Spreedly vice president of product Joe Meuse highlighted how vaulting ensures that payment details are digitally maintained, actively managed and promptly updated. These measures not only help to minimize declines, thereby reducing churn and revenue losses for subscription businesses, but also provide a level of transparency to customer data that benefits merchants and consumers alike. “[Merchants] want to provide clarity on just what that payment is for, so there are no unnecessary problems or chargebacks later,” he said.

    Vaulting to Leverage Customer Data

    Personalized goods and services generate significant revenue for many organizations, including payment providers. Vaulting allows firms to leverage customer data to offer tailored experiences to individual customers.

    85%

    of customers say their favorite brands treat them like individuals.

    Brands need to deliver on personalization, according to a recent study.

    Eighty-five percent of customers say their favorite brands recognize them as individuals, and 82% believe these brands actively build relationships with them. These personalized experiences are major contributors to customer loyalty, which translates directly into improved revenue. In fact, 63% of customers say they will pay more to patronize brands to which they are loyal. Another 69% of customers prioritize product and service quality — which personalization can deliver — over price.

    Vaulting payments gives firms the data they need to offer personalized services and improve payments.

    Vaulting enables payment providers to leverage more insights about their customers. For example, the Payment Account Reference (PAR) was introduced in 2014 by EMVCo as the push to remove PANs from the payments landscape and the rise of tokenization were creating new problems for merchants. The more places that record and transmit PAR in the payments ecosystem, the more value it has, enabling better customer experiences and stronger security.

    With PAR data, organizations can tie together customer behavior even when using various credit cards, wallets and so on. This can be a powerful tool in customizing experiences as well as in offering cross-sell and upsell opportunities. Additionally, bank identification number (BIN) metadata can be included in a well-structured vault and used in a variety of ways. BIN data contains a number of details about the payment methods a given customer is using, like card brand, issuing bank, card type and category. Merchants can use this data to avoid issues down the line.

    For example, a subscription business can use BIN to identify when a cardholder is using a gift card for recurring transactions and prompt them to use a more dependable payment method.

    Also, businesses operating in regions requiring 3D Secure checks or data portability requirements can identify cards issued and used in specific regions. This allows rules-based 3D Secure checks or data-portability functionality to be offered.

    Additionally, by accessing BIN data, businesses can better understand their customers. Credit versus debit use and cash back versus premium reward card status can link to demographic information or cost-control opportunities for processing-cost optimization.

    Why Merchants Should Choose Vaulting to Maximize Revenue and Customer Value

    Merchants that leverage their payment vaults as a valuable tool as opposed to overhead can gain significant advantages by enabling the use of customer data to smooth payment experiences, identify payment failures and offer personalized experiences to customers.

    By securely storing payment details, providers can facilitate one-click or recurring payments and seamlessly route payments through the proper gateways without intervention from customers or merchant staff. This can significantly reduce payment failures and ensure a smooth customer experience. Analyzing transaction data stored in the vault can also allow merchants to quickly detect opportunities to improve authorization rates.

    Lastly, merchants can leverage the wealth of customer data stored in the vault, gaining insights into spending habits, preferences and behavior patterns. Once equipped with this information, they can tailor payment experiences and promotional offers to individual customers, enhancing engagement and loyalty. All of these benefits provide a significant competitive edge to merchants that partner with payments orchestration providers for vaulted payment data.

    About

    Spreedly’s Payments Orchestration platform enables and optimizes digital transactions with the world’s most complete payment services marketplace. Global enterprises and hyper-growth companies grow their digital business faster by relying on our payments platform. Hundreds of customers worldwide secure card data in our PCI-compliant vault and use tokenized card data to enable and optimize over $45 billion of annual transaction volumes with any payment service.
    www.spreedly.com

    PYMNTS INTELLIGENCE

    PYMNTS Intelligence is a leading global data and analytics platform that uses proprietary data and methods to provide actionable insights on what’s now and what’s next in payments, commerce and the digital economy. Its team of data scientists include leading economists, econometricians, survey experts, financial analysts and marketing scientists with deep experience in the application of data to the issues that define the future of the digital transformation of the global economy. This multilingual team has conducted original data collection and analysis in more than three dozen global markets for some of the world’s leading publicly traded and privately held firms.

    The PYMNTS Intelligence team that produced this Tracker:
    Managing Director: Aitor Ortiz
    Senior Writer: Andrew Rathkopf


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