Better payment authorisation rates mean greater customer retention
Payment failure is one of the biggest hindrances in online customer sales, writes Jim Magats.
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We are living in a time where the e-commerce landscape is growing multifold, with tailwinds from evolved customer preferences leaning toward convenience and frictionless experiences. Companies, especially small businesses, have pivoted to digital and set up online shopfloors to take advantage of this growing demand.
According to the Global Payment Report 2021 by Wordplay FIS, India’s e-commerce industry will grow 84 per cent to US$111 billion by 2024 as an effect to the demand created by the global pandemic. In Singapore, e-commerce sales are expected to grow to US$10 billion by the end of 2026.
Small and medium businesses (SMBs) are riding this wave, with 48 per cent of them citing a move to online shopfloors in lieu of traditional brick-and-mortar operations during the pandemic, according to PayPal’s online SMB survey in 2021.
Similarly in Hong Kong, the e-commerce market grew significantly in 2020 amid the pandemic and is expected to continue to expand. Hong Kong’s e-commerce market, which has predominantly been driven by mobile-based purchases, is projected to grow by 41 per cent to US$29 billion by 2024. Japan saw an estimated 10-20 per cent growth in online retail across most categories.
The competitiveness within the space calls for focused efforts from SMBs in improving the customer journey to be at par with other e-commerce platforms. It is about turning that consumer into a customer and this journey is all about the user experience. It is not limited to sleek websites or marketing campaigns.
Businesses have a better chance of retaining customers when the end-to-end user experience is well taken care of, right from surfing on the website to the checkout experience.
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Cart abandonment in the final stage of purchase is seen quite often. In the Asia-Pacific region, there is a cart abandonment rate of 73.2 per cent, higher than the global average. A customer may reach the payment section and get stuck – it can be due to lack of convenient payment methods or because of a transaction failure. From my experience in the sector, payment failure is one of the biggest hindrances in online customer sales.
Addressing the problem
To be recognised as a credible business, it is important to solve transaction obstacles. Offering choice in check-out options solves only a part of the problem. It is critical to address the failed transactions to avoid revenue losses.
To be a top performing business online, it is important to focus on the bottom line and refine the end-to-end payment ecosystem, ultimately prioritising customer experience. Improving the authorisation rate can be key to improving the chances of conversion of the transaction and prove vital in simplifying the payment process. This means a better percentage of transactions that successfully pass through the authorisation process to complete a payment.
Most small businesses will come across many failed transactions and declined payments; it is part of doing business online. However, each incomplete transaction needs to be addressed. At the end of the day, better authorisation rates convert into better business and eventually, increased revenue.
After thoroughly analysing the issue, businesses can use the following strategies to align their payment process to increase customer retention.
Know the process
Once the low authorisation rate has been flagged, it is important to understand the reason behind failed transactions. There can be several reasons behind this – suspicion of fraud, insufficient funds, or outdated card information.
With the rise in online shopping and businesses taking to online selling, fraudsters have found new ways to steal customers’ personal information. It is important for businesses to be careful of authorising bad or fraudulent payments.
Small businesses dealing with luxury goods and experiences face more authorisation failures as customers have likely surpassed their credit limit or merchants are wary of fraud. It is this understanding of what is leading to transaction failure that can help businesses work towards a solution.
Ensure easy and efficient transactions
A good payment partner can be the key that unlocks payment efficiencies for a business to create the perfect end-to-end user experience. Beyond higher approval rates, a good payments partner allows your business to monitor for fraud by studying the users card behaviour and identifying potential areas of concern.
Advancements in technology such as machine learning and artificial intelligence helps businesses determine the legitimacy of a transaction, reducing fraudulent transactions.
Having secured methods like network tokenisation can also help push authorisation rates and help with smooth customer experience. Network tokenisation creates a unique credential for the customer’s card to make transactions. The tokenisation helps improve security by making customer credentials more fraud resistant and, as a result, build brand recognition and trust.
Business can also enable digital wallets to help reduce failed transactions. By 2025, digital wallets are projected to overtake credit cards as the most popular online payment method in Hong Kong, accounting for 40 per cent of all online transaction value.
In Japan, digital wallets are predicted to be the fastest-growing payment method in 2023, backed by rising 5G penetration. These come in handy when a customer’s first form of payment is declined. Tools like these help companies understand the root cause of failed transactions and enable a solution-led approach and streamline processes.
While website enhancement and offering product varieties are important for businesses looking to expand, backend enhancements should not be overlooked. While delivering a good user experience is crucial for checkout, businesses need to look at partnering with a good payments company. The focus should be on increasing the authorisation rates while building credibility with customers, and ultimately leading to growth in revenue.
The writer is PayPal’s senior vice-president of payments.
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