Softjourn

How Smart Payments Routing Can Stop False Declines

False declines hurt everyone involved in the payment process; here’s how smart payments routing can offer a solution

November 06, 2020 by Softjourn

E-commerce is exploding due to the pandemic; as sales grow, so does fraud. One solution for this issue is smart payments routing, which is designed to help everyone in the payments value chain.

Even before the pandemic, false declines resulted in the rejection of 2.6% of all e-commerce orders.1 As a result, thousands of dollars are lost every year not only in missed sales but also in wasted marketing efforts. It’s possible that false declines could also put the U.S.’s economic recovery at risk if a solution is not implemented. Clearsale anticipates that the amount lost to false declines could amount to $443 billion by 2021. That's far more than the annual cost of fraud, which is $6.4 billion. 

Payment service providers can use transaction routing to automate the process of optimizing transaction approvals, grow revenue, and improve customer relationships.

How Smart Payments Routing Works

Smart routing is technology that sends transactions through the channel where they are most likely to be approved. Payment service providers that offer transaction routing technology are well positioned for international merchants and cross-border payments.

Softjourn’s smart routing solution can direct a transaction to the payment gateway, merchant account, or acquirer that works best for the type and size of a transaction. By routing transactions to the optimal payment service, businesses optimize conversion rates and revenue.

A smart payment routing solution can route payments according to several factors, including card type, currency, and the shopper’s location.

Smart payment routing funnels transactions through the gateway most likely to approve the payment, increasing approval ratings and lowering fees. 

Payment gateways vary across markets and geographies, so acceptance rates are affected by a transaction’s data. This data can include: What payment type is it? Is it domestic or international? What card brand is it?

With our smart payments routing solution, payment processors, card issuers, and merchants can lower transaction fees, reduce decline rates, and improve the user experience. We can help you define the best rules for different kinds of transactions to help improve your approval rate. It’s important to create flexible rules that can cover a range of scenarios. 

How Cascading Payments Work

Smart payments routing solutions can also examine a failed transaction and reroute it to another gateway to get the transaction approved. Such transactions are often referred to as “failover transactions” and rerouting them is known as “cascading.”

Our smart routing solution can rank for multiple destinations to see what will work best. It analyzes the failed transaction’s data and ranks potential alternates according to those statistics. By examining the data related to the failed transaction, it’s possible to identify another pathway that has a better chance of resulting in an approved transaction.

Cascading payments means to route a declined transaction through a different payments pathway, seeking approval.

Using cascading payments can have a positive impact on revenue due to more approved transactions and lower transaction fees.

Using cascading payments can have a positive impact on revenue due to more approved transactions and lower transaction fees. It can also make for a more positive user experience for the customer. By lowering the chances of a failed transaction, customers don’t have to deal with their purchase being declined or having to input their payment details again.

When cascading payments are set up correctly, pre-defined rules can send your transaction approval rate soaring. Another long term benefit is that gateway downtime is no longer an issue. By cascading payments, transactions can be rerouted to a different gateway. Cascading payments can be thought of as an insurance policy against losing transactions due to degradation of performance. 

Why Do Payments Fail?

Payments can fail for three main reasons:

  • Technical
  • Financial
  • Risk Assessment

Financial reasons are fairly straightforward. The cardholder has reached the end of their card limits, or they simply do not have enough funds to cover the transaction.

Technical and risk assessment reasons are more complicated. Transactions can fail due to downtime from a key entity involved in a transaction, but they can also fail due to a bad connection. Sometimes, risk assessment solutions can falsely flag a transaction as fraudulent due to lack of data or other reasons. 

It is not always easy to identify why a transaction was not approved, but actions can be taken to mitigate their impact and frequency. A smart payments routing solution is one of those actions.

Smart payments routing can help mitigate payment failure before it happens.

Payments can fail due to three main reasons: technical, financial, or risk assessment.

Smart Routing Optimizes Transactions

Customers who are told their payment has been declined often take their business elsewhere; in 2019, they did that to the tune of $13 billion.2 That, or they give up on a purchase entirely; in 2019, that cost merchants, acquirers, issuers, and processors $7.6 billion.

Payment processors can meet their merchants’ needs by offering a smart payments routing solution that ensures a transaction goes through the gateway most likely to result in an approval.

Sixty-two percent of merchants say their false decline rate rose over the last two years. This was even before the onset of the pandemic and how it has affected consumer behavior. Issuing banks might be more suspicious of transactions because of unemployment rates and tightened budgets due to the economic downturn. It's difficult to fine-tune a rule set to such an unanticipated situation.

Clearsale's research noted that payment gateways and credit card networks are the most common source of declines. This can be due to the considerable number of rules sets that transactions must be measured against to prevent card-not-present fraud. 

As consumers are stuck at home and having groceries or other items delivered, purchases typically made at a grocery store are now made at a residential address. Filters that flag never-before-seen emails, varied location activity, and other unusual behaviors now have the potential to drive away new customers with false declines. 

What can merchants do to mitigate the potential of a false transaction? Credit card networks are out of their reach, so the next thing to focus on is the payment gateway. Smart payments routing helps automate the process of ensuring a transaction is routed in the best manner possible.

Benefits of Smart Payments Routing

  • Lower transaction fees by determining the best payment service provider to use immediately
  • Allows merchants to increase their global authorization rate through cascading and smart retries
  • Improve user experiences by decreasing payment failures and user manual retries

Conclusion

Merchants don’t want to decline good buyers just because there’s no rules or buying history in place for them! The thought that two-thirds of declined transactions were harmless and could have brought revenue to the merchant is difficult to stomach.

With cascading and smart payments routing, payment processors can both mitigate and resolve the issue of false positives.

Softjourn is a global technology services provider with over 10 years of experience working with Cards & Payments service providers. We've built creative solutions or augmented in-house technical teams to provide support and project-specific expertise resulting in revenue-generating features.

 

1.  2017 MRC Global Fraud Survey. (n.d.).
2.  Businesses will risk recovery unless $20 billion online payments hole is plugged. (2020, July 08).

 

 

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