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CHARACTERISTICS OF A SUCCESSFUL PAYMENT METHOD: SECURITY
Approvals Alongside the increased fraud risk in card-not-present environments, ecommerce transactions face another challenge: high false decline rates. Lower conversion rates and decreased revenue are both consequences of declined authorizations when left unresolved. 36 Merchants can monitor their approval rate to gain insight into how effective they are processing transactions. 37 The approval rate can be calculated by dividing the number of approved transactions by the total number of attempted transactions. ii In this section, we will review what types of transactions merchants are accepting and assess the inherent challenges online merchants face when balancing between approval rates and fraud. First, there are two ways a merchant can charge a customer – a merchant-initiated transaction (MIT) or a customer-initiated transaction (CIT). MITs include most subscription services where a merchant can initiate the transaction based on previous customer consent. CITs include most other transactions where the customer initiates the transaction and provides payment details to complete the transaction including entering new payment method details or selecting to make a purchase through a credential- on-file. 38 Next, let’s consider why CNP environments are more susceptible to higher decline rates. The separation of a buyer from a merchant’s physical location has a couple of implications here.
ii Calculating approval rates can become complicated when accounting for retry strategies and dropped authorizations, for example
“CMSPI generally sees better approval rate performance for CIT stored credentials versus manual key entry, which makes sense because the credentials have worked before, so barring an incident between then and now, they will work again. For MIT, we see some more variation. Some merchants can have really aggressive retry strategies, which would make the gross approval rate for these stored credentials appear lower (even if the strategy itself is ultimately helping revenue). Other merchants have well developed life cycle management and other mechanisms for customer engagement that result in strong MIT auth rates.”
CJ BROWN | DIRECTOR OF CONSULTING, ECOMMERCE & DIGITAL SOLUTIONS, CMSPI
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