The challenges with online payments — & key factors to consider when they fail

The physical checkout experience itself precludes the failure of most in-person payments. If a consumer’s

card is declined during an instore transaction, they most often will present a different card or payment

method. This experience is hard to replicate with online payments.

Decline rates underscore the challenge with online payments. However, they’re a challenge that can

be solved by addressing the primary reasons that cause the declines in the first place. And it’s critical

for merchants. Online payments—whether for a one-time transaction or a recurring payment for a

subscription—drive business growth. While the eCommerce purchases by consumers in the U.S. continues

to grow at approximately 16 percent annually, the cost to acquire and retain customers is also growing.

Increasing approval rates corresponds directly to optimizing eCommerce and online payments conversion.

Online/mobile shoppers are much more likely to be frustrated when a payment transaction fails. And, with

a bevy of alternative products, services, and sites just a couple of clicks away, those consumers will simply

abandon their shopping carts.

Merchants cannot afford to lose consumers who are ready to buy, whether online or via subscriptions or

installments. You’re investing in your customers' lifetime value and if their payments don’t convert, you’ve

lost on your investment.

What causes the uncertainty with online payments? Let’s look at the principal causes for failure of online

payments and what you can do about it.

With a 96%1

average

approval rate for

card present

payments, compared

to 85% for card not present

payments, in-person

card transactions

possess something

that online payments

simply don’t—enviable

approval rates.

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Hitting the buy buttonAccording to a recent study by Baymard Institute, overall cart abandonment is 68.8 percent. What stops

consumers from hitting the buy button? What leads to non-conversion? The chart below provides detail

on the reason(s) users abandon shopping carts.

There weren’t enough payment methods

Delivery was too slow

1,044 resonses | US Adults | 2016 | © baymard.com/checkout-usability

Have you abandoned any online purchases during the checkout process in the past 3 months? If so, for what reasons?

Answers normalized without th e”I was just browsing” option

61%Extra costs too high (shipping, tax, fees)

27%Too long / complicated checkout process

22%Website had errors / crashed

16%

8%

35%The site wanted me to create an account

24%I couldn’t see / calculate total order cost up-front

18%I didn’t trust the site with my credit card information

10%Returns policy wasn’t satisfactory

Reasons for abandonments during checkout

Taking back the cart Your payment operations and payment providers can influence, if not drive, wholescale improvement

across all your checkout experiences to limit cart abandonment.

What are the factors for cart abandonment that you can influence?

• Consumers’ preferred payment options or currencies aren’t offered

• A less-than-optimal user experience (UX)—e.g. confusing interface, unnecessary data requests, or

consumer hesitancy due to perceived security weaknesses, etc.

A prime example of

misalignment is false declines,

also called false positives.

According to research firm

BI Intelligence, false declines

cost U.S. eCommerce

companies $8.6 billion in 2016.

That eclipses the $6.5 billion

in prevented fraud, meaning

false declines must be

reduced for merchants’ fraud

prevention strategies to be

cost effective. However, this

data refers primarily to overly

aggressive fraud filters by the

merchant and or its processor,

based on fraud decisions and

the like. It doesn’t include

false declines by issuer(s)

and others on the flip side of

transaction.

As a merchant, you need to

work with your processor

to insure fraud detection

tools and techniques are as

sophisticated as possible,

while being aware that many

transactions you collectively

determine to be “good” are

subsequently falsely identified

as fraudulent by the rules in

issuers’ systems.

Reducing payment declines is multi-faceted problemWhile cart abandonment is an issue, it doesn’t explain the 15 percent1 of authorization attempts that issuing

banks decline. At the time of an initial authorization attempt, the primary causes for declines are:

• Out of date card/account information

• Insufficient funds

• Fraud/risk mitigation by the merchant, the card networks, and/or the issuer/issuer processor

• Unspecified "do not honor" declines by issuers

• Network unavailability

While these all may be legitimate reasons for declines, there’s a significant amount of ambiguity and

misalignment among parties across the payments ecosystem that can lead to failed payments that simply

shouldn’t have failed.

Misalignment within the Payments Ecosystem

CustomerMerchant

Processor / Acquirer

Issuer ProcessorGateway Network Issuer

Overly aggressive fraud filters

False positive declines

Inconsistent funding rules for cardholders

Mis-keyed CVV, billing address

Slow adaptation to network ID changes

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Solving for value across the lifecycle of every payment

What if you were constantly seeking conversions improvement across every payment? What if you used

insights from processing billions of transactions annually to identify ecosystem inefficiencies? You can, by

working with your processor and a high-performing payments platform with broad and deep solution

sets that help you influence outcomes and yield higher payment conversions.

You should look for solutions that span across five critical payment dimensions:

Optimizing acceptance and approvals/conversions

Minimizing costs

Minimizing time-to-revenue

Mitigating risks

Extracting payments and card / shopper intelligence

While each of these dimensions is important, we’ll focus here on the challenge of driving high conversions

across the payments lifecycle.

The current and developing solutions described in the following pages address different aspects of the

conversions challenges at different points of the payments lifecycle.

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4

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5

Using a universal checkout solution

The point in the user experience

where payment options are offered

is the most fragile step along

the payments journey. Despite

a merchant’s efforts to acquire a

customer and get them to the point

of transaction, if that customer

“loses faith” at the point of payments

acceptance, they won’t complete

the transaction. Among the chief

reasons consumers fail to convert to

buying customers are:

• Overly complicated

checkout process

• Lack of trust in the site

• Lack of their preferred

payment options

A universal checkout solution

addresses each of these problems.

Through a multi-purpose, hosted

iframe a single checkout area can

encompass all payment functions.

Implementing a universal checkout

solution that also tokenizes sensitive

payment information at the point of

initial capture, can preclude data theft

and reduce merchants’ PCI scope. It’s

a function that is transparent to the

buyer/customer.

A robust tokenization framework

reduces the integration workload

of merchants who want to add

digital wallets, including Apple Pay,

Android Pay/Pay with Google, and Visa

Checkout. Pre-integration with those

digital wallets lets merchants begin

accepting digital wallets with just a

few lines of code, overcoming a major

pain point that has inhibited merchant

adoption of digital wallets in the first

place. Be sure to find a solution that

handles the decryption of the digital

wallet payload so that you don’t have

to do it yourself.

In addition to pre-integrated digital

wallets, an evolving universal

checkout solution should also include

an integration that facilitates eCheck

and other domestic and international

alternative (non-card) payment

methods.

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Doubling down on routing for card-not-present

Payment providers with strong

debit network connections can

help merchants achieve savings and

improve authorization rates through

PIN-less debit network routing.

Sophisticated debit routing engines,

which consider multiple factors for

every transaction and each individual

merchant, can help determine the

optimal network route to minimize

debit acceptance cost and enhance

conversion.

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3 Activating a high conversions solution

Some payment processors offer

data-informed services designed to

maximize the likelihood of approvals

on authorization attempts. These so-

called high conversion solutions can

accomplish better approval rates by

changing key attributes in real time,

prior to submitting authorization

requests to the card networks.

Data science, combined with

analysis of billions of historical

transactions, determines the data

elements of an authorization that

can be adjusted – within network

compliance rules – to optimize

approval rates. The logic is applied

optimally at the level of the account

range (the first nine - eleven digits of

the card) based on predicted results

for each issuing bank and each

card product. The account range-

specific authorization packaging

considers numerous factors.

Getting ahold of issuer performance data

An often-overlooked route to more

conversions is the insights obtained

from the authorization approval data

from issuing banks. These data points

shine a light on the variances and

performance of each issuer and card

product a merchant transacts with,

revealing specific areas of concern

and actions merchants can take to

yield higher approval rates or help

refine payment strategy.

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Recovering potentially lost sales, automatically

Processors offer fully-managed

account updater and recycling

services that can boost recurring

revenue by 2-5 percent1.

Since these services keep track

of a card’s history, merchants can

submit transactions using the original

account information obtained from

the cardholder; the provider ensures

that the current account information

is used for the authorization. Look

for one that automatically checks

with the major card brands to see if

there are any changes to the account,

and then applies any updates before

the transaction is submitted for

authorization. The solution should

also include a recycling function,

which retries declined authorizations

based on an optimal schedule for

that specific transaction. Recycling

retries each transaction until it

obtains an approval or reaches the

limit of allowable retry attempts.

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SummaryData-driven approaches to solving customer conversion challenges

for some of the world’s foremost merchant businesses are changing

the face of eCommerce and online payments. Partnering with

your processor to develop for data-driven payment solutions and

strategies is the key to more approvals, higher conversions, and

improved online payments success.

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