The content of this article is provided for informational purposes only. You should always obtain independent business, tax, financial, and legal advice before making any business decision.
To run a successful business, it’s important to focus equally on your front-end and back-end operations.
On one end, the customer-facing side is what your shoppers see and experience when they interact with your business — from a UX-friendly website or app to creative marketing tactics.
On the other hand, your back-end platform is what powers your business, ensuring your operations run smoothly behind the scenes.
That’s where authorization rates come in.
Authorization rates measure the percentage of your successfully approved transactions and payments — and they can have significant influence over your revenue. Every transaction your customers make must be authorized by their card network and issuing bank. If some are declined, you may be missing out on lost sales.
To determine your authorization rate, you can divide the number of approved transactions by the total number of attempted transactions. If you had 1,000 attempted payments, for example, but only 800 payment approvals, your authorization rate is 80%. That means 20% of your payments weren't processed successfully, likely frustrating shoppers and costing you money.
Here, we'll outline what you need to know about authorization rate optimization.
An authorization rates — also known as an approval ratio — is the number of successful transactions divided by the number of total transactions.
If your authorization rate is high, that means many of your transactions are being approved. If your authorization rate is low, then your customers may be experiencing failed transactions.
There are many reasons merchants might experience low transaction authorization rates, including:
Authorization rates can also vary depending on the type of transactions you process, such as cross-border versus local transactions, or new acquisitions versus renewed payments.
When a customer makes a purchase on your ecommerce site, their transaction must go through an authorization process before it is approved.
Here's a step-by-step breakdown of what that payment processing looks like:
Tracking authorization rates can help you better understand how this process works, plus identify potential roadblocks along the way.
Improving the authorization process can help reduce declines and capture more revenue.
You can start by taking these steps to drive authorization rates:
Provide customers with a smooth and intuitive checkout experience to maximize conversion rates.
You can optimize the checkout process by:
Card declines can be a result of simple human error. Customers might input the wrong numbers or miss a field on their checkout form. Optimize authorization rates by instantly flagging these mistakes before shoppers submit their orders.
Offer diversified payment options that are shown to have high conversion rates.
Small businesses should work with their payment processors to expand their offerings and provide more payment options for customers at checkout. PayPal Advanced Checkout, for instance, is PayPal's leading, single integration that enables merchants to accept a wide variety of payment methods, including credit and debit cards, PayPal, Venmo, Buy Now Pay Later options, Apple Pay (available in the US only for now), and local payment methods with consolidated settlement and reporting.
Building fraud protection into your checkout process can help optimize authorization rates. For instance, you might use fraud management tools based on machine learning, device fingerprinting, and address verification checks to detect fraudulent transactions in real time.
Proper fraud protection can also help you decrease the number of false declines and prevent legitimate customers from being turned away at checkout.
PayPal's real-time account updater service automatically securely updates customer card data from Visa, Mastercard, and Discover.
Real-time updates can reduce declines as a result of changing card numbers or expiring cards. Because of this, businesses are able to help prevent transaction declines and drive authorization rates for higher revenue.
And that’s just the start: From increased payment methods to third-party integrations, PayPal can help improve your back-end platform with a host of tools and a network of partners, making the transaction process quick and seamless.
Learn how to add PayPal’s real-time account updater service.
In partnership with three expert business owners, the PayPal Bootcamp includes practical checklists and a short video loaded with tips to help take your business to the next level.
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