Many businesses see their payments processes as a box to be ticked as they establish themselves online, forgetting about them once they’re in place. But with online payments declined nearly four times as much as in-person card authorisation, by doing so they ignore the huge impact that their payment approval ratings can have on their growth, as well as their bottom line.
Someone who knows a lot about this is James Diaz, director of payments at BlueSnap, a global payment technology company. BlueSnap provides an All-in-One Payment Platform designed to increase sales and reduce costs for B2B and B2C businesses. The Platform includes access to 110 payment types, including popular e-wallets, built-in world-class fraud prevention to protect sales and detailed analytics to help businesses grow.
Here, James shares why ignoring your approval rating is a bad idea and the importance of improving your rating as soon as possible.
Do you know what your payment approval rate is? If you say yes, and that it’s 100%, you’re either a genius or lying. Why? Because no business can have all of their payments approved every time. There are too many variables in play, and more importantly, too many businesses see their payment processes as a box to be ticked as they establish themselves online – and then promptly forget about them.
But what does an average approval rate look like, and why does it matter? For the former, it very much depends as rates can vary across industries, payment models, and even between businesses targeting other companies and those that sell to consumers. It is in this variation that the answer to the second part of the question lies, but to give you an idea, subscription models see an average of 15% of recurring payments declined, while other sectors can see double that.
Lost revenues and Poor Experiences
In other words, depending on the business and payment models a company has, they could be missing out on anywhere up to an additional 30% of revenue. How many sectors have margins above that figure?
According to one analyst, the top ten sectors in the UK had a profit margin of between 44% and 34% – that means that there’s an awful lot of industries that would see their profits wiped out by a high payment decline rate, and even those in the top ten would see their margins cut drastically.
In the longer term, it could have another potentially more devastating impact for businesses. A declined payment is a poor customer experience, whether the fault lies with the purchaser or the vendor. If an individual were to have a three in ten chance that their payment, and therefore purchase, was going to be declined, would they continue to visit that retailer?
What does ‘good’ actually look like?
Therefore, it is critical that businesses pay attention to their payment approval rates and quickly address any adverse trends. However, to do that they need to be aware of why a payment might be declined. These can include incorrect or outdated forms of payment information (such as cards or account number), a lack of the necessary funds, poor or no network availability, fraud and risk mitigation tools of card network, merchant or card issuer, or an unspecified ‘do not honour’ decline by the issuer.
Clearly, some items on this list are out of the merchant or vendor’s control. But, how often do businesses know the exact reason for a decline, and are they confident in their systems and processes to be able to say for certain that it is a problem at the customer’s end, rather than at theirs?
To answer that question requires greater oversight of payment processes and knowledge of what a good payment approval rate actually looks like. For instance, a B2B-focused software-as-a-service company would expect to see an approval rate of around 80%, while a business services firm would expect closer to 90% approval. Clearly, there are opportunities for improvement in both – to a degree, the greater rate of declines for the SaaS company can be attributed to the higher rate of declines among subscription models.
That said, neither business should accept where they currently are. But where can they start in improving that approval rate? From the payment solution used to the localisation of currency and business logic, there are a number of areas that can be addressed – fix them, and that SaaS company could improve its approvals by 15%, while the business service company could add another eight percent to its approvals.
Another thing that needs to be considered is the payments provider itself. As well as helping identify areas within the vendor that need addressing, a provider committed to improving approval rates will also be able to deploy measures that go some way to addressing end-customer factors, which have been traditionally out of reach for businesses.
These include having a built-in failover for customer-initiated transactions and similar integrated retries for subscription renewals. These can help approval rates by overcoming platform limitations, such as network outages or temporary cardholder circumstances that cause insufficient funds or fail to honour payments. By taking these steps, approval rates can be improved in the region of 10% or more, a significant bump for any business.
Driving better margins and experiences
Payment processes may seem like something that works but, for businesses that forget about them, they represent a potential hole into which significant revenue can be lost. Different sectors and business models may be affected to varying degrees. But working with a payment provider that proactively looks for ways to solve both internal and external gaps in processes will reduce payment declines.
With competition fiercer than ever, those companies that take steps to secure and improve their payment approval rates will increase their margins and, more importantly, deliver a better customer experience.