5 ways to boost authorization rate

Boosting authorization rates is a crucial element in optimizing modern payment processing systems. In the e-commerce landscape, the ability to achieve higher successful transaction rates has a direct and significant impact on a company's financial performance and customer satisfaction.

Higher authorization rates increase sales and revenue and play a pivotal role in cultivating trust between merchants and consumers. Businesses can effectively enhance the shopping experience by mitigating transaction declines, improving conversion rates, and reducing cart abandonment.

Moreover, optimizing authorization rates enables companies to uphold a competitive advantage in the market by bolstering operational efficiency and user experience. This, in turn, fosters customer loyalty, encourages repeat purchases, and contributes to sustained brand success in the digital marketplace.

As businesses increasingly rely on digital transactions, the pivotal role of maximizing authorization rates cannot be overstated. It directly influences churn rates, customer satisfaction, and a company's profitability and reputation.

Here are five ways to boost authorization rates.

1. Implementation of Dynamic 3D Secure Authentication

Incorporating 3D Secure 2.0 (3DS2) into payment processes can significantly enhance authorization rates and bolster fraud prevention. 3DS2 utilizes risk-based authentication to categorize transactions based on their risk level. This enables low-risk transactions to be seamlessly processed while subjecting higher-risk ones to additional verification. 3DS2 provides a robust security layer through biometrics and multi-factor authentication without disrupting the customer experience.

Example: Stripe offers a comprehensive implementation of dynamic 3D Secure authentication, helping merchants balance security and user experience effectively. Their system supports 3D Secure 2 (3DS2) and 3D Secure 1 as a fallback, with risk-based authentication powered by Stripe's fraud detection system, Radar.

Stripe's implementation allows seamless integration across platforms, including mobile devices, through their iOS and Android SDKs. Merchants can flexibly control when to trigger 3D Secure authentication using Stripe's API, setting parameters like payment_method_options[card][request_three_d_secure] to any or challenge when creating or confirming a PaymentIntent.

This dynamic approach enables low-risk transactions to proceed without additional authentication. In contrast, higher-risk transactions or those exceeding certain thresholds may require biometric verification, such as a fingerprint scan via a mobile banking app.

Stripe's 3D Secure implementation also helps merchants comply with Strong Customer Authentication (SCA) requirements in Europe, potentially applying for exemptions to minimize the impact on conversion rates. By assessing each transaction in real-time based on regulatory mandates, Radar rules, manual API requests, and issuer soft declines, Stripe's dynamic 3D Secure authentication effectively balances security and user experience, potentially leading to higher authorization rates and improved customer satisfaction.

2. Optimization of Data Collection and Submission

The comprehensive collection and submission of billing information are vital for improving authorization rates. Including as much relevant data as possible in charge requests, such as ZIP codes and Card Verification Codes (CVC), aids issuing banks in verifying legitimate transactions more effectively. However, balancing collecting necessary data and maintaining a smooth checkout process is essential.

Example: Shopify, a leading e-commerce platform, optimizes data collection and submission to improve authorization rates while maintaining a smooth checkout experience. The platform employs dynamic checkout fields that adjust based on the customer's location and payment method, integrates Address Verification System (AVS) and Card Verification Value (CVV) requirements, and uses real-time field validation to ensure accurate data submission.

Shopify also leverages device fingerprinting, stored payment methods for returning customers, and advanced fraud analysis tools to assign risk scores. By implementing 3D Secure authentication when necessary and adapting to regional requirements, Shopify has significantly improved merchant authorization rates. For instance, one large merchant reported a 3% increase in authorization rates after implementing Shopify Payments, which incorporates these optimized data collection and submission features.

3. Utilization of Machine Learning for Fraud Detection

Employing advanced machine learning or AI-based fraud prevention tools can automatically detect fraudulent activities in real-time. These systems can analyze vast amounts of transaction data to identify suspicious patterns more accurately than traditional rule-based systems. By fine-tuning these tools, payment companies can reduce false positives while blocking genuine fraud attempts.

Example: Mastercard, a global leader in payment technology, offers a practical example of utilizing machine learning for fraud detection. Their Decision Intelligence platform uses artificial intelligence and machine learning to analyze over 200 data points for each transaction in real-time. This system examines various factors such as customer behavior patterns, device information, and merchant profiles to assess the risk of fraud. By leveraging advanced algorithms, Mastercard's platform can distinguish between genuine and fraudulent transactions more accurately than traditional rule-based systems.

The AI-driven approach allows for continuous learning and adaptation to new fraud patterns, significantly reducing false positives while maintaining high authorization rates. As a result, Mastercard has reported a 50% reduction in false declines and a 30% improvement in fraud detection accuracy. This implementation demonstrates how machine learning can effectively enhance fraud prevention in the payments industry, balancing security with a seamless customer experience.

4. Deployment of Network Tokenization

Network tokens, which are unique payment credentials that substitute the primary account number (PAN) for online transactions, can be implemented to ensure that the most up-to-date credential is used for each transaction. This reduces declines due to outdated information and increases authorization rates. Additionally, tokenization enhances security by protecting sensitive cardholder data from potential breaches.

Example: A popular streaming service like Netflix has millions of subscribers worldwide. Traditionally, when customers subscribe, they provide their credit or debit card details (PAN) for recurring billing. Over time, cards expire, get lost, or are reissued due to security concerns, leading to failed payments and service interruptions.

To address these issues, the streaming service adopts network tokenization. Instead of storing the customer's actual PAN, the payment network (such as Visa or Mastercard) generates a unique token for each customer, which replaces the PAN for all future transactions.

This token is tied to the customer’s account, but it’s dynamic and can be updated automatically by the card network when a card expires or is reissued. This ensures that the customer’s payment credentials are always up to date without requiring them to update their card information on the service manually.

5. Implementation of Intelligent Payment Routing

Utilizing dynamic payment routing based on historical data analysis can optimize authorization rates. Payment companies can identify which payment service providers (PSPs) have higher authorization rates for specific transaction types or issuing banks. Implementing an intelligent routing system that automatically directs transactions to the most suitable PSP can significantly boost authorization rates while maintaining strong fraud prevention measures.

Example: Adyen, a leading global financial technology platform, has implemented an innovative AI-based Intelligent Payment Routing solution for US debit payments. Launched in September 2024, this system leverages artificial intelligence to analyze real-time transaction data and determine the optimal routing path for each debit transaction. The solution is network-agnostic, allowing transactions to be routed across multiple debit networks to select the least expensive option with the highest approval rate.

n a pilot program involving over 20 enterprise merchants, including eBay, 24 Hour Fitness, and Microsoft, Adyen's Intelligent Payment Routing achieved impressive results: an average of 26% cost savings on debit transactions, a 0.22% uplift in authorization rates, and some cases, cost savings as high as 55% and authorization rate improvements up to 1.15%.

This implementation demonstrates how intelligent payment routing can significantly benefit businesses by optimizing payment processes, reducing costs, and improving overall transaction success rates, particularly in complex payment ecosystems like the US debit card market.

In conclusion, optimizing authorization rates is essential for any business aiming to succeed in today’s highly competitive e-commerce environment. Companies can achieve this by implementing dynamic 3D Secure authentication strategies, optimizing data collection, leveraging machine learning for fraud detection, deploying network tokenization, and utilizing intelligent payment routing. These techniques can help improve transaction success rates, reduce customer churn, and increase revenue. Furthermore, they enhance security and the overall customer experience, leading to greater customer loyalty and repeat business.

If you're looking to optimize your payment processes and increase authorization rates, 40 Consulting can help.