Authorization Optimization: How To Improve Payment Authorization Rates

Whenever a payment fails, a decline reason code is created that explains the exact failure reason. These codes can vary between payment processors, although many processors use the same ISO 8583 codes used by Visa and Mastercard. 

As a merchant, understanding these codes is essential for authorization optimization. Once you understand why transactions are declined, you can figure out the best methods for improving your payment authorization rates. 

Issuing banks are responsible for determining if a transaction should be approved or declined based on data quality, payment routing, issuer behavior, and other factors. By controlling these factors, improving your payment structure, implementing smarter retry strategies, and making other key changes, you can increase your overall authorization rates.

To learn more about how to boost your payment authorization success, read on.

TL;DR

• The payment authorization rate measures the percentage of transactions approved by the issuer.
• When authorization rates increase, it boosts your revenue and helps you avoid lost sales.
• Card declines can be categorized as soft declines, hard declines, and customer-action-required declines.
• Often, you can prevent soft declines by requiring more transaction data, updating your payment infrastructure, and using smart logic to retry transactions.
• When there are CVV errors, missing billing details, inaccurate card numbers, and other data quality issues, it can lead to card declines.
• With smart retry logic, you can recover failed transactions. For example, you can retry at a different time or through a local processor.
• Digital wallets and tokenized payments are known for having high authorization rates.
• Using local processors and multiple acquirers can boost authorization rates.
• Account updaters and tokens can prevent card declines from occurring due to expired or replaced cards.

Through low fraud and chargeback rates, merchants can improve their long-term authorization performance.

What Are Payment Authorization Rates?

The payment authorization rate is the percentage of transactions that are successfully approved by the issuer. Each transaction goes through a similar authorization process.

1. First, the customer submits their payment.
2. Then, the payment travels through the payment gateway, acquirer, card network, and issuer bank. 
3. The issuer must decide whether to approve or decline the transaction.
4. The approval or decline is relayed back through the entire chain. If it is denied, the merchant will be given a decline reason code that explains why.

Authorization rates are calculated by dividing the number of approved transactions by the number of authorization attempts. For instance, if a merchant submits 1,000 transactions and 930 are approved, then they have an authorization rate of 93%.

Your authorization rate matters because it demonstrates how efficiently you are converting attempted transactions into payments. If your authorization rate falls, it can reduce your revenue, harm customer loyalty, and lead to higher operational costs.

How Authorization Rates Affect Your Revenue

When authorization rates go up, it can improve your revenue stream. A declined transaction often means that the customer won’t end up completing the transaction. The good news is that many of these declines are completely preventable. 

You can basically group card declines into hard declines, soft declines, and customer-action-required declines. 

• Hard Declines: Hard declines shouldn’t be retried because they’re due to reasons that cannot be easily changed by you or the customer, such as lost or expired cards. 
• Soft Declines: Meanwhile, transactions that involve soft declines can often be retried successfully if the problem is fixed. 
• Customer Action Required: Any code that requires customer action is likely to go through as well, but it requires the customer’s involvement to fix the issue. 

Soft declines and customer-action-required transactions can be retried successfully, allowing you to regain declined transactions. If you regularly process large transactions, boosting your authorization rate by just 1% to 2% can easily lead to significant amounts of recovered revenue. 

Plus, authorization optimization can enhance your customer experience. It can reduce your customer churn rate and increase the likelihood that customers will want to make a subsequent purchase in the future. 

What Are the Main Drivers of Authorization Outcomes? 

Before you can improve your payment authorization rates, you first need to understand the factors that are driving each authorization outcome. While you can control or mitigate some authorization issues, other factors are outside of your control.

• Data Quality: Data quality involves the accuracy and completeness of transaction data. If the address, CVV, or other information isn’t included, it can trigger a card decline. Including more comprehensive data can help prevent card declines from happening.
• Issuer Behavior: Whether a transaction is approved or not depends significantly on the issuing bank and how aggressive they are about declining transactions.
• Fraud Controls: All issuers strive to prevent fraud and chargebacks because these problems impact their bottom lines. For the best fraud management, there must be a balance of good conversion rates and strong security.
• Authentication Strategy: Authentication measures are used to verify that the transaction is genuine. While authentication reduces the risk of fraudulent transactions, it can also add unnecessary friction for legitimate transactions. 
• Retry Logic: Retrying the transaction can be successful if a soft decline is involved. Customized rules can help you increase the likelihood of success. For example, you can set retry rules that route the transaction through a different payment service provider if the first attempt fails.
• Routing/Failover: How a transaction is routed can impact its approval rate. For example, a transaction may be subsequently approved after a decline if it is routed through an acquirer based in the same geographic region.
• Payment Method Mix: Different payment methods have varying approval rates. While digital wallets and tokenized transactions have the highest authorization rates, card-not-present and international transactions tend to have much lower rates.

Top Decline Causes and Fixes

Before you optimize your payment authorization processes, the first step is understanding why your company’s transactions are getting declined. Having insufficient funds for the transaction, entering incorrect payment information, or getting flagged for potential fraud can all lead to card declines. When this occurs, the issuer will provide an error message that contains a two- to three-digit reason code that represents why the transaction failed.

The following reason codes are from ISO 8583, which is the framework commonly used by Mastercard and Visa. The actual numerical code you see after a failed transaction may vary because payment processors can use their own proprietary codes. However, the different reasons for a card decline are still due to the same common causes.

Category	Code	Decline Reason	What It Means	Optimization Strategies
Issuer Declines	05	Do not honor	This code is fairly generic and can mean there are insufficient funds, multiple denied payments in a row, or other issues.	Avoid retrying it immediately. Update and verify authorization data. Then, use smart retry timing.
	51	Insufficient funds	There aren’t enough funds in the account to process the transaction.	Adopt a smart retry system that retries the transaction hours or days later so that funds can be deposited. Alternatively, ask for an alternative payment method.
	61	Exceeds approval amount limit	This code means the cardholder has exceeded the spending limit for the card.	Split payments between different payment types or suggest reducing the transaction size.
	65	Exceeds withdrawal frequency limit	There have been too many transactions during an issuer-set period of time.	Don’t retry the transaction. Avoid repeated transactions in short timeframes.
Fraud and Risk Triggers	59	Suspected fraud	The issuer has flagged the transaction for fraud concerns.	Use more transaction data and step-up authentication measures. Make sure merchant descriptors are accurate.
	75	PIN attempts exceeded	There have been too many failed authentication attempts.	Have the cardholder retry the transaction later or call their issuer to sort out the problem.
Data Quality Issues	14	Invalid account number	The card number was entered incorrectly or is invalid.	Ask the user to re-enter the correct card details.
	54	Expired card	The card has expired.	Incorporate card updater features so that customers are automatically notified when a card update is required.
	82	CVV validation failure	The card’s security code doesn’t match.	Get the customer to enter their CVV again.
Retry Opportunities	91	Issuer or switch unavailable	The issuer system is temporarily unavailable.	Use automated retry logic to retry the transaction after waiting a short period of time.
	96	System error	There has been some type of payment processor or network error.	Implement retry logic to retry the transaction when the gateway or network is functioning properly again.
Routing and Network Issues	92	Unable to route transaction	The network can’t find a path to the issuer.	Route transactions through different acquirers or processors when a single pathway fails.
Card and Usage restrictions	57	Transaction not permitted	The card is not allowed to make this kind of purchase.	Ask the customer to use another card or reach out to their issuer for permission.
	62	Restricted card	The issuer has placed restrictions on the card or merchant type.	Get the customer to use an alternate payment method. Alternatively, try using a local acquirer instead.

Top Methods for Optimizing Your Authorization Rates

Once you understand the most common reasons why your transactions are declined, you can begin crafting a plan for boosting your authorization rates. From smart retry logic to increased authentication measures, there are a few techniques that you can use to effectively prevent future payment declines and recover more transactions.

Use Smart Retry Logic

With smart retry logic, you can successfully retry soft declines. For example, a leading reason for transactions failing is insufficient funds. By timing subsequent attempts right after paydays, you can increase the likelihood of success. Spacing retry attempts and limiting the number of attempts are also essential for recovering transactions that would have been lost otherwise. You should be constantly monitoring your retry attempts to track which retry rules are effective and where you need to make changes.

Verify Information Accuracy 

To improve your payment authorization rates, you should make sure that the payment data is correct. If the card number, security code, expiration date, or billing address is off, the issuer won’t be able to approve the transaction. Address verification measures and input formatting checks are just a few of the ways you can validate payment information before the authorization request is sent.

Accept Digital Wallets

As a part of your authorization optimization approach, consider adopting digital wallets. Apple Pay, Google Pay, and other leading wallets include tokenization as a part of the platform. Through tokenization, digital wallets can prevent cybercrime and fraudulent transactions. 

Digital wallets experience fewer data entry errors, better security, and a lower risk of fraud. For all of these reasons, they offer a smoother customer experience. 

Work With a Local Processor

When a cross-border transaction is involved, decline rates are often higher because of the added risks and regional processing issues. One way to improve authorization rates with these cases is by using a local payment processor or acquirer. The transactions can be routed through familiar issuing banks, decreasing the odds of a declined transaction. 

Implement More Security Layers

For secure payment processing, payment processors have to balance increased authentication measures and an easy purchasing experience. 3DS and multifactor authentication (MFA) are two of the most popular authentication technologies for identifying legitimate transactions and preventing fraud. With adaptive 3DS, machine learning algorithms are used to spot high-risk transactions so that low-risk customers aren’t impacted.

Submit Additional Billing Information

Address information, postal codes, and other billing details give issuers more signals for determining if a transaction is legitimate. In turn, this can increase the likelihood that the issuer will authorize the transaction.

Use an Account Updater

When customers receive new cards in the mail, they often forget to update their old card information. Unfortunately, this can lead to declined transactions. Account updaters can automatically renew expired card information and update any changed information, so transactions aren’t declined because of incorrect or expired data. This type of tool is especially important for subscription-based businesses that rely on stored payment details.

Maintain Low Rates of Fraud 

If a merchant has a history of risky transactions, issuers may decline a higher percentage of their future transactions. By adopting strong fraud prevention measures, you can maintain a healthier authorization rate over time. A good payment processor will offer fraud prevention tools that help you detect, prevent, and mitigate instances of fraud before they affect your revenue.

Enable Network Tokens

With tokenization, sensitive card numbers are replaced with a token in the card network. Then, this token is used whenever the card is processed. This prevents the exposure of card data, reducing the likelihood of fraud. Additionally, tokens are automatically updated when underlying card credentials change, so they are less likely to be declined for incorrect card data. Due to all these reasons, transactions that use network tokens receive higher approval rates. 

How PayCompass Supports Higher Authorization Rates

To improve your payment authorization rates, you first need to understand what is going wrong. With the help of PayCompass, you can review your decline reason codes and figure out the best processing setup. From helping you select a payment gateway to performance monitoring, PayCompass can help you set up a better payment infrastructure. 

Our payment experts analyze your system to determine the type of intelligent routing, risk management, and integrations you need. Often, poorly configured payment flows and ineffective processor connections result in unnecessary friction. We work with merchants to design smarter routing strategies for the card type and region involved. For example, we can route transactions to regions where authorization rates are higher. 

As part of our risk and dispute management, we can monitor your transactions and identify high-risk transactions. Through chargeback monitoring, our team can help you prevent chargebacks and manage disputes. Plus, smart authentication measures ensure fewer cases of fraud while avoiding unnecessary friction on legitimate transactions.

Final Thoughts

For your business to succeed, you need strong authorization optimization. Smart retry logic can help you recover lost revenue. Meanwhile, implementing better authentication measures, digital wallet support, and tokenization can boost your authorization rates.

By learning more about the drivers of authorization outcomes and the best optimization strategies, merchants can avoid declines. In turn, fewer declines can lead to smoother payment experiences and better revenue.
For help optimizing your payment flow, reach out to the payment processing experts at PayCompass today.