In this article, we take a closer look at three key elements of authorization for online retail. Read on to discover targeted actions that you can take to optimize your acquiring set-up, helping boost conversion and generate more revenue for your business.
Whenever a transaction is rejected by an acquirer, it will come with a rejection or error code. Analyzing these codes can help you understand why certain transactions are being rejected.
One of the most common rejections that merchants receive is “Do Not Honor”. These non-specific rejections are often referred to as soft declines, and they can account for up to 50% of rejections received by merchants, according to our analysis. A large number of these non-specific rejections result from technical issues or complexities that arise in the payments ecosystem. They can be triggered by specific issuing banks, acquirers, geographies or card types.
The good news is that soft declines are often a temporary, fixable issue, and a Payment Services Provider (PSP) can help you recover some of these previously rejected transactions. If a payment has been rejected due to technical issues, one effective option is to route the transaction through a secondary channel for a retry.
In tandem, your PSP can reach out to issuers and acquirers to obtain more details about why certain transactions have been rejected. With deeper analysis and some adjustments to your acquiring set-up, you can boost authorization rates and generate more revenues.
Most ecommerce authorizations involve a two-step process where an authorization is made, and funds are reserved. This is known as a pre-authorization or authorization hold. It puts a temporary hold on the customer’s funds, but does not actually debit their account.
When good are shipped and the funds need to be debited from the customer’s balance, a second step “capture” request is made. This converts the hold to an actual charge.
The duration of the authorization hold will differ depending on how a transaction is flagged. For example, transactions marked for some products as “final authorization” will only be held against the customer’s balance for seven days, whereas transactions marked as “pre-authorization” are held for up to thirty days.
It’s also worth noting that transactions marked as final can only be captured for the same amount as the authorization. In contrast, pre-authorizations may be captured for a lower partial amount.
Should your business model require both an extended hold period and partial capture of transactions on occasion, understanding these flagging differences and when they should be applied is very important. If you fail to settle a transaction within the relevant time limit, the card scheme will impose a misuse of authorization fee.
By making smart use of pre-authorization, you can keep your customers happy while reducing costs for your business. If customers know that their cards won’t be charged until their order is shipped, it promotes a feeling of trust and helps fight cart abandonment. At the same time, if a customer decides they want to cancel an order before the transaction has been settled, the funds are simply released from hold. You avoid the hassle of issuing a refund as well as any refund fees.
Making sure that your ecommerce transactions are flagged correctly will go a long way towards improving your conversion rate. Besides marking transactions as final or pre-authorization, merchants can apply a number of different flags to transactions, including:
Card on file payments can also be broken down into a further two streams:
There are many benefits of clearly identifying transactions, which have a direct impact on the approval process. Inconsistent or incorrect flagging can cause issuers to reject otherwise valid transactions-negatively affecting your authorization rate. Using the above flags correctly provides card issuers with greater visibility of transaction risk levels, streamlines the customer experience, reduces complaints and helps increase overall conversion.