How the post-checkout process is losing European retailers billions

With European merchants losing an estimated EUR 40.8 billion in 2021 to false declines¹ as retail transitions to the online arena, merchants must now battle against new challenges specific to the digital environment. In Part 1, we ran through how we help merchants across the world optimise their pre-checkout processes², but what about after the consumer clicks ‘pay’?

First of all, how does a transaction fail? Let’s take fashion retailers as a case study, which in the UK alone lost an estimated almost GBP 620 million³ in 2021 to ‘false declines’ – where good transactions are rejected, and revenue is lost during the payments flow (Figure 1). While merchants across sectors struggle with greater online volumes subject to Strong Customer Authentication (SCA), with the rising use of APMs such as Buy Now, Pay Later (BNPL), and widespread return and refunds fraud, fashion retailers often see a high concentration of challenges common across the industry. 

So, how to take back control of your payments approvals processes to minimise lost sales and keep revenue flowing in? Read on for our top three tips to optimise your post-checkout process.

1. Ask yourself: are your fraud tools turning away good customers?

While many fraud systems retain an element of manual checking, most fraud checks can now come through automated systems, whether in-house or external. 

Automated fraud tools will generally operate through either a rules-based or a machine learning model, and they are key to both risk and revenue in the online space.

In the case of automated tools, it’s vital that you routinely check that they aren’t rejecting good customers based on restrictive rules. For machine learning software, which runs on a set internal logic, keeping an eye out for changes to the market or to your transaction base allows you to ensure your tool is working with the most up-to-date information and you aren’t turning away loyal customers.

For a low-ATV fashion retailer, abnormally-high transaction values can be a red flag for fraud, so rules may be adjusted to implement an upper value limit – for example, EUR 250. However, as high inflation continues to increase the price of fashion goods, that upper limit may be more easily reached by a good customer – and the retailer must be in direct communication with their payments partners to avoid turning their buyers towards a competitor.

2. Don’t lose out to SCA

The introduction of additional verification requirements in the form of SCA regulation across Europe brought an increase in abandonments, failed transactions, and false declines, as many customers became frustrated or untrusting of new procedures⁴ – but could there be a solution?

One option is an exemption strategy to bypass SCA on certain transactions, particularly on a Transaction Risk Analysis (TRA) basis – whereby merchants may process some transactions deemed ‘low-risk’ without the additional verification methods required under SCA. Following high losses to false declines as a result of SCA, for many merchants a strong exemptions strategy will be vital, with some retailers saving tens of millions annually⁵. 

As fashion retail volumes shift to online, consumers are increasingly spoilt for choice and likely to abandon merchants following a negative online experience⁶ – meaning the pressure to act fast is high. Implementing SCA exemptions could be the difference between a successful transaction and losing revenue to competitors who are now only a few clicks away.

A key element to consider is your chargeback levels – you might not be eligible for TRA exemptions if your acquirer has a high fraud rate⁷, and merchants with a high chargeback level may find that this limits their access to exemptions, so remaining vigilant here is vital.

3. Don’t lose data to your supply chain

Many fundamental issues in your post-checkout process can be solved with careful coordination between you and your payments partners. Inefficient data sharing is a major driver of false declines – so make sure you’re working with your suppliers to capture and submit all relevant information, such as data needed for CVV or AVS checks, along with the authorisation request.

It's also vital that you and your payments partners regularly scrutinise your data in order to spot any new patterns or inefficiencies in your declined transactions – or risk continuing to reject good customers.

A good example of this is BNPL, which we often find exhibits lower approval rates than other payment methods, and which is becoming increasingly prevalent in online fashion retail. CMSPI has been able to resolve these issues for retailers by targeting the failure points directly with BNPL providers themselves. Data points such as decline codes can help navigate issues in the post-checkout process – but if this is not being effectively shared further down the chain, then retailers may miss this opportunity to improve their top line.

Act now to avoid peak season disappointment

Ultimately, there is no one-size-fits-all solution for optimising your checkout. CMSPI uses data-driven insights and benchmarks to identify issues in the increasingly complex post-checkout space and to optimise our partners’ revenue. Key to the process is a strong understanding of your post-checkout arrangements and a strong balance between the three core pillars of cost, revenue, and risk.

With merchants increasingly squeezed by inflation, post-checkout optimisation can not only give a significant boost to revenue, but also prevent you from losing loyal customers in favour of competitors – therefore, it’s key to act now, so you don’t end up paying later.

1. CMSPI estimates and analysis

2. https://thepaypers.com/reports/payment-methods-report-2022/r1257772

3. CMSPI estimates and analysis 

4. CMSPI estimates and analysis

5. CMSPI estimates and analysis

6. https://www.finextra.com/newsarticle/40588/survey-finds-uk-shoppers-are-frustrated-with-sca

About Katharine Evans

An Economist as part of CMSPI’s Insights and Advocacy Team, Katharine’s role is to analyse the payments industry from the macroeconomic perspective, providing strategic insights to merchants across Europe.

About CMSPI

At CMSPI, our payments experts provide advisory services and powerful analytics. Our ultimate goal? Supporting a more innovative and productive payments ecosystem. For hundreds of clients across the globe, our insights help improve performance and create positive change.