Transaction Declined: Maximising Online Payments Approvals
From the high street to the world wide web - using payments to ensure a seamless customer experience online.
As more customers choose to shop online rather than on the high street, the increased volume of ecommerce spend often results in lost sales, abrasive customer journeys and higher costs for merchants. In 2019 alone, 16,073 UK store units were forced to close[1] – a figure we expect to rise in 2020.
The shift to ecommerce carries unique challenges for traditionally store-based merchants. In addition to considering new payment methods – such as Klarna, Paypal and Amazon Pay – retailers must create an entirely different customer journey.
As a primary factor affecting online sales, ensuring a seamless customer experience has never been more important. With 17.8% of UK retail sales being made online in 2018 – an increase from 10.6% in 2012[2] – the online payments setup is becoming crucial to securing long-term customers.
As a result, the way retailers think about payments is changing. Completing a transaction is no longer a guarantee – and with Strong Customer Authentication (SCA) on the horizon, false declines are likely to be a growing problem for merchants. With Visa’s latest Card Not Present (CNP) scheme fee increases being estimated to cost European merchants around €75 million annually[3], retailers could be facing a war on both fronts as costs rise and sales decline.
False Declines
A merchant’s efforts to convert an online customer can be entirely wasted when the customer tries to pay, only for the transaction to be unnecessarily declined.
False declines are both frustrating for customers and costly for merchants. Research suggests more than half of consumers will go to a competitor if their payment[4] is declined: and in the age of ecommerce, it’s easy to find a similar product elsewhere.
However, it’s not just about one transaction: a poor online payments experience can deter repeat business from a customer, damaging revenue in the long- and short-term. Optimising approval rates, without increasing fraud, is therefore essential to remaining competitive online.
Despite a merchant’s efforts to minimise false declines, many will hit a wall with their suppliers. We estimate almost one fifth of transaction declines are false[5]. On average, just 10% of these false declines were the merchant's fault[6] - contradicting the common supplier message that these are caused by the merchant's internal set up (Figure 1). With SCA looming, these figures are expected to become even more worrying.
Coming into effect on 14th March 2021 in the UK, SCA is expected to disrupt the online experience by rejecting further transactions. Requiring customers to be authenticated via 2 out of 3 available methods, CMSPI estimates SCA in its current form could cost European merchants €68 billion in failed and abandoned transactions in the year following implementation.
The answer comes down to visibility and preparation. By benchmarking approval rates against peers and understanding the reasons behind every failed transaction, merchants can engage with their supply chain to maximise online revenue and enhance the checkout experience – without increasing fraud exposure. Planning is crucial, and retailers who build a comprehensive compliance and exemption strategy, minimising the volume of the consumers who go through SCA, can expect to reduce the impacts to approvals.
Hidden Costs
In addition to the risk of lost sales, the shift towards ecommerce and SCA comes at a cost. The most commonly-used tool to facilitate the 2-factor authentication required by SCA is 3D-Secure – an EMVCo product created to reduce fraud. Despite the European Banking Authority’s decision that 3D-Secure is not fully SCA-compliant and will require an authentication method in addition to One-Time Passcodes, it remains the chosen industry standard of handling SCA.
With the use of 3D-Secure set to soar, Visa and Mastercard introduced a fixed per-transaction fee for using the authentication method in August 2019 – costing merchants an estimated €37 million a year. In 2020, Visa and Mastercard will also introduce a non-compliance fee for merchants that have not implemented 3D-Secure. The injustice of this is clear when we consider that 3D-Secure is not the only tool available on the market.
Merchants can hope to minimise friction at the checkout by achieving exemptions from SCA. Although putting fewer customers through the SCA process can streamline the customer journey, 3D-Secure is still likely to be required to process the transaction – making it difficult for merchants to avoid the new fees.
These charges come in addition to other fees keeping the cost of online transactions high – including rising scheme fees, high interchange caps, alternative payment methods, and the rate of returns and chargebacks seen in ecommerce. For merchants who are continuing to see their customers shift to online, staying on top of these additional costs will be essential.
Conclusion
The growing trend towards online shopping shows no signs of slowing down. The risk to both sales and costs should not be taken lightly. Merchants must assess every payment solution available on the market and consider a range of factors – including customer base, fraud profile, budget and technical requirements – in order to build a payments architecture that is fit for purpose. With the right payments solution, merchants can optimise approvals, minimise costs and build a comprehensive SCA exemption strategy – maximising the opportunity in ecommerce.
The move from high street to online comes with multiple challenges, and merchants must ensure their payments arrangements are not neglected in order to remain competitive. By ensuring a seamless customer journey, retailers can boost revenue and secure long-term customers – whilst keeping costs low.
Contact Details:
For more information on the shift to online payments, as well as all of the challenges and opportunities that come with it, please get in touch via email (rmacdiarmid@cmspi.com) or phone (+441616416035).
ROBBIE MACDIARMID
cmspi.com
[1] Net figure https://www.retailresearch.org/retail-crisis.html
[2] https://www.retailresearch.org/online-retail.html
[3] Based on CMSPI data
[4] https://www.javelinstrategy.com/coverage-area/e-commerce-payment-acceptance-optimization-study
[5] Based on CMSPI data
[6] Based on CMSPI data
To find out more about CMSPI and the services they provide to the retail industry, click here.
This article was originally published in The Retailer, our quarterly online magazine providing thought-leading insights from BRC experts and Associate Members.