The Retailer Winter edition_2020

finace and payments

Transaction Declined: Maximising Online Payments Approvals

ROBBIE MACDIARMID SENIOR ECONOMIST cmspi

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 – 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 – 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, 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 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. On average, just 10% of these false declines were the merchant's fault - 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. What is an Approval Rate? The value (or number), of successful authorizations, divided by the total value (or number) of authorization attempts.

Figure 1: Who is at fault for false declines?

• issuer

merchant

other suppliers

54 | winter 2020 | the retailer

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