Voice of the Industry

Payment optimisation strategies for better acceptance rates

Friday 19 January 2024 07:30 CET | Editor: Raluca Ochiana | Voice of the industry

Gabriel Lucas and Chaira Mekkaoui, Associate Directors at Redbridge, discuss payment optimisation strategies for better acceptance rates.


The current payment acceptance landscape on ecommerce

One of the main concerns for merchants operating in the growing ecommerce space is how they can provide shoppers with the best customer experience to maximise revenues and customer retention. This is particularly complex in the European Economic Area (EEA), where the Second Payment Services Directive (PSD2) introduced strict requirements to fight against fraud, resulting in additional friction for customers, especially if this process is not managed efficiently.

Before we go any further, what does ‘acceptance rate’ refer to? What seems to matter the most for merchants is how much new income they capture – therefore, the acceptance rate should be calculated as the number of successful captures over the number of attempts. The events that occur after the capture (i.e., cancellations, refunds, and chargebacks) must also be optimised.

In this context, it is key for merchants to understand the payment flow – whether it is customer-initiated transaction (CIT) or merchant-initiated transaction (MIT) – and how to optimise this process.

Strategies to optimise acceptance rates

When looking at CIT, every transaction typically starts with a risk analysis, where merchants must decide whether they should block the transaction, trigger SCA, run a manual review, or request an exemption (when applicable). The issuer then validates authentication and authorisation, followed by the capture. However, the payment journey is not always straightforward, and transactions do not always get approved, which is why each payment step must be assessed in-depth.

1. Blocked transactions

Merchants must find the right balance between blocking suspicious transactions as soon as possible to keep traffic clean and avoiding refusing legitimate transactions (i.e., false declines). This requires a payment fraud strategy which defines the right policies and processes and implementing the most suited and advanced technology.

2. Manual reviews

In some cases, merchants may consider having transactions reviewed by analysts; however, manual review is not always beneficial, especially when non-risky transactions fall into this longer process or when the decision made by the analyst can be easily automated with technology. The real value in having human analysts usually comes from being able to contact the customer for additional checks, otherwise most of the decisions can be automated.

3. Authentication 

Merchants must decide whether SCA should be triggered or not, and whether an exemption should be requested when applicable. Triggering SCA in all transactions will most likely result in losing good customers that encountered an issue during this process (something very important that is commonly missed is the monitoring of drop-offs during the SCA process, which some payment providers are not even able to track). On the other hand, not triggering SCA requires proper fraud management to avoid future chargebacks, in which case the merchant would assume liability. 

One of the most effective and relatively easy to implement solutions to improve acceptance rates is to propose digital wallets like Google Pay or Apple Pay, as they benefit from a smooth authentication process. At the same time, launching a white-label wallet or private card could prove an interesting alternative for merchants, as they are out of PSD2 scope. 

Another important action merchants can take to optimise authentication is to send a 3DS version that will more likely be accepted by each issuer. This implies monitoring issuers’ behaviours and relies on payment providers having the capability to automatically send the most relevant version. 

When it comes to the exemptions, the most used exemption is ‘low value payments’, as it only requires transactions to be below EUR 30. The exemption that is currently being developed the most is the ‘transaction risk analysis (TRA)’, which allows merchants to obtain exemptions for transactions up to EUR 500, although the current best threshold is at EUR 250. 

This exemption is particularly complex as it requires acquirers to remain below certain fraud thresholds to be eligible, which results in acquirers further refining their onboarding policy and fraud strategy. At the same time, some acquirers with full access to issuing data are developing solutions that maximise exemptions – also applicable to three-corner model payment methods.

Other exemptions like ‘trusted beneficiaries’ and ‘delegated authentication’ do not currently seem to be as developed, although some of the most innovative acquirers have started to build solutions around this. 

4. Authorisation 

This step mostly depends on the issuer, but there are still various other actions merchants can take to maximise acceptance rates – such as sending additional data in payment requests, being connected to different acquirers and routing transactions to the one more likely to accept each transaction, or even working closer with issuers through third parties such as acquirers or specialised fintech. 

One of the latest trends when defining a multi-PSP strategy with smart routing is to rely on a payment orchestration layer to delegate the technical burden while benefiting from a no-code and user-friendly interface to set workflows. 

5. Capture 

The main reason a failed capture occurs is due to the capture being delayed because the authorisation expired or got cancelled upon customer request. This can also happen for reasons related to the merchant (i.e., product out of stock). 

When it comes to MIT, in theory, it has a more straightforward process as SCA is only required in the first transaction. However, the main challenge merchants face is deciding when to process the transaction and how to manage declines. The most innovative technologies allow merchants to trigger MIT transactions during specific days when transactions are more likely to be accepted, followed by smart retries in case of failure. Another way to maximise acceptance rates is network tokenization, as the token will remain available even if the card is lost, stolen, or expired.

This editorial piece was first published in the Payment Methods Report 2023, which provides an in-depth overview of the latest worldwide developments in how people pay, the payment methods space, the innovative technologies that these methods work upon, and the best strategies on how to win at conversion and retention.

About Gabriel Lucas

Gabriel Lucas has been providing strategic advice to international and multichannel merchants in their payment transformation and optimisation journeys since 2020. He previously worked for four years as Chief Operating Officer at TSI Payment, a France-based fintech specialised in alternative payment methods.



About Chaira Mekkaoui

With almost 15 years of experience in payments, Chaira joined Redbridge in 2022 to help bring the payment practice to the next level. After a few years working as a payment consultant, she worked at Visa for 10 years as Fraud Manager and Business Analyst.



About Redbridge 

Redbridge Debt and Treasury Advisory is a leading financial management partner to corporations around the globe. It is committed to providing each client with all the information required to make the best decisions and optimise their financial performance. Redbridge’s teams are located in Houston, New York, Paris, Geneva, and London.

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Keywords: payments , payment methods, ecommerce, PSD2, merchants, SCA, fintech, tokenization, authorisation rate
Categories: Payments & Commerce
Companies: Redbridge
Countries: World
This article is part of category

Payments & Commerce


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