A payments leader looks at their computer screen, satisfied with the authorization rate staring back at them: 89%. They know getting a perfect 100% is impossible. Up 14 percentage points from last year’s average, 89% may seem like the ceiling. There will always be customers who don’t get approved.
They may not realize that they can continue to increase authorization rates.
Forter data shows that the optimized eCommerce authorization rate falls between 91 and 96% depending on the industry. When payments and fraud leaders align, invisible levers emerge that can keep authorization rates climbing.
Why merchants don’t move to pre-auth, and the impact they underestimate
Many merchants do fraud checks post-auth simply because that’s the system they inherited. Some are intimidated by the amount of work it would take to move to pre-auth. Others are laser-focused on getting the customer to the checkout screen, prioritizing conversion rate instead. They worry that moving the fraud check earlier would increase friction and decrease conversions, even though an optimized fraud solution should catch the majority of risky customers the bank would have declined anyway.
But by doing your fraud checks post-auth, you’re leaving revenue on the table.
Say a fraudster gets 10,000 stolen card numbers from a breach and runs a card testing attack. If your check happens after the order was created, you’ll pay a fee if the transaction is approved. You’ll pay another fee to create a token and vault the card. If the transaction is automatically retried, that’s another cost.
Then there are the downstream costs. If a prospective customer sees a fraudulent authorization attempt in their account that is associated with your brand, you lose their trust before you’ve ever had the chance to gain it.
A pre-auth fraud check filters those stolen card numbers out of your ecosystem before they get to the bank for processing. You’ll spend less money on fees and protect your reputation as a trustworthy brand, and automatically increase authorization rates.
How merchants and banks view fraud rules differently
Merchant fraud rules are designed to address patterns specific to that merchant’s customer base. They’re a combination of blatant fraud prevention and strategic risk tolerance, often tuned to maximize conversion while accepting some financial loss. The bank is more objective in its decisioning. The question is simply, “Do we think this is fraud?” These disparate evaluations can lead to a misalignment between bank decisioning and business decisioning — which comes second.
Performing a fraud check pre-auth can bring these decisions into closer alignment. The bank understands that you are making the effort to protect them and their customers. In contrast, if the bank decides you’re not vetting your customers enough — the default of a post-auth fraud check — they will become more restrictive with your traffic, essentially defining your risk tolerance based on their own. Unless you’ve gone through a restriction with a particular issuer, you probably won’t even be aware that it’s happening. The bank’s risk decisioning is invisible, only revealing itself in the authorization rate.
Say a particular issuer declined a large number of your customers at a specific dollar amount due to the quality of that customer segment. Then the pattern of your traffic changes. If the issuer has a large stratification of customers across income levels and generalizes your customer quality, the same restrictions can be applied to all customers. If you suddenly go viral on TikTok, you may attract more affluent customers — but they could be stopped from completing their transactions.
When you send fraud checks post-auth, the bank — not the business — owns the first decision about what is fraud and what your risk tolerance is. You can’t fully capitalize on virality or a successful marketing campaign. The bank will have already made its decision and, effectively, your decision before you ever get a say.
How alignment between fraud and payments increases authorization rates, conversion rates, and completion rates
Fraud impacts everything payments leaders care about: increasing authorization rates, conversion rates, completion rates, number of transactions that are going through. The cleaner the customers look from a fraud standpoint, the better the payments numbers.
Payments and fraud leaders have different KPIs, which can lead to misconceptions. Fraud leaders might think that if the bank filters out bad customer, they’ll have less manual work to do. Payments leaders may not be fully aware of the workstreams that lead customers toward checkout. It’s crucial they understand each other and work cross-functionally. Otherwise, the wrong people may be funneled to the “buy now” button.
When a customer clicks that button, everything that’s evaluated to pass their transaction through — or decline it — on the fraud side should factor into your payments strategy. What combination of variables provide the best opportunity to get that transaction approved? Which payment rail should it be processed on? Should you use a Network token or PAN? Does it make sense to authenticate via 3DS?
These levers can only be pulled if the merchant understands the customer before sending them to the bank. Merchants can only optimize for payments if they know who they’re optimizing for, which is exactly what fraud prevention tools should be built to do.
The benefits of a pre-auth fraud check beyond increasing authorization rates
When merchants apply fraud prevention solutions before the bank authorization to make accurate, real-time risk decisions, the benefits are immediate. With less fraud, they increase authorization rates immediately. Merchants also benefit from:
- Better issuer relationships: Sending less bad traffic improves the perception of trustworthiness.
- Cost optimization: Removing fraud from the system drives down costs related to payment authorization attempts, voids and refunds, vaulting of bad credentials, and operational upkeep.
- Reduced tech debt: Early prevention of traffic that will ultimately result in a decline eases the burden on internal systems.
- Better customer experience: When the fraud check happens earlier, merchants can optimize for good customers, rather than all customers.
These benefits only compound over time. If a merchant has $560 million in bank declines, moving to pre-auth could reduce those by 1%, resulting in an estimated impact of $5.6 million per year.
Assess your payments maturity
Merchants often assume they can’t increase authorization rates because they don’t realize there are levers they can pull, often without changing customer-facing UX. Once payments and fraud leaders are fully aligned, they can create experiences that prioritize funneling the right customers to the end, improving their authorization rates.
An assessment of your current payments capabilities is a great way to understand your opportunity. Our Payments Benchmark Assessment evaluates your payments approach across processor routing and orchestration, vaulting and tokenization, and 3DS readiness. Ten questions produce a benchmarked score and a prioritized list of where to improve.
