Payment gateways are an integral part of the digital commerce landscape, and as financial transactions are increasingly borderless and consumers demand seamless, secure payment experiences.
Payment gateways have become more than just transaction processors – they are now complex and multifaceted platforms that underpin global commerce.
Payment declines, particularly false declines, present a growing problem that costs merchants billions annually.
These occur when legitimate transactions are mistakenly flagged as fraudulent, leading to immediate revenue loss, frustrated customers, and operational inefficiencies.
Common causes of card declines arise for reasons including insufficient funds, incorrect card details, and geolocation mismatches.
These issues not only cause frustration but also damage trust, often leading consumers to abandon purchases or switch to competitors.
Even though some declines are a result of necessary fraud prevention, up to 70% of declined transactions are legitimate, representing an enormous challenge for businesses.
Declines can be categorised into soft and hard declines.
Soft declines are temporary issues like insufficient funds or technical glitches, which can be retried. Hard declines, such as invalid card details or blocked accounts, require immediate resolution.
Improving Authorisation Rates
Merchants can deploy several strategies to reduce false declines and improve authorisation rates. Here’s how:
Intelligent Routing: Direct transactions to the payment processor with the highest likelihood of approval. Payment gateways should use intelligent routing based on historical success rates, geographical factors, and transaction amounts, ensuring the best possible outcome for each transaction.
Multiple Payment Gateways: By integrating more than one payment gateway, merchants create redundancy, improving resilience and allowing for higher approval rates in the event of downtime or regional restrictions. Having multiple gateways also enables businesses to offer localised payment options, which enhances the customer experience.
Offering Multiple Payment Methods: The global rise of digital wallets and alternative payment methods (APMs) offers businesses the chance to cater to evolving consumer preferences. By 2026, digital wallets are projected to become the dominant payment method for e-commerce globally, accounting for 54% of transactions. Offering a variety of options, such as wallets, bank transfers, and credit cards, increases the likelihood of successful payments.
Use of Machine Learning for Fraud Detection: Advanced fraud detection tools that use machine learning can significantly reduce false declines by analysing real-time data and identifying patterns associated with fraudulent and legitimate transactions. These tools are more effective than traditional rule-based systems, enabling businesses to approve more transactions while keeping fraud risks in check.
Enhanced Authentication Protocols: Implementing solutions such as 3D Secure 2.0 and biometric authentication helps reduce declines and improves security by providing an extra layer of verification. This helps increase customer trust and decreases the likelihood of false declines due to security concerns.
Retry Mechanisms for Soft Declines: For soft declines, having a system that automatically retries a failed transaction after addressing the issue (e.g., insufficient funds) is essential. Using alternative gateways or scheduling retries at different times of the day can significantly improve success rates.
Localised Payment Gateways: Offering region-specific gateways can increase approval rates, as customers are more likely to trust and use payment methods familiar in their local region. This approach minimises cart abandonment and boosts conversion rates, especially in cross-border transactions.
Matching Billing Information: Ensuring that billing information entered by customers matches the data on file with the card issuer reduces declines due to mismatched details. Simple checks like the Address Verification System (AVS) and Card Verification Value (CVV) verification can prevent declines and improve approval rates.
Future of Payment Gateways
As digital payments continue to evolve, the role of payment gateways will become even more critical in reducing declines and improving customer experience.
Emerging technologies such as artificial intelligence (AI), machine learning, and blockchain are transforming payment ecosystems.
These technologies enable real-time fraud detection, enhanced security, and personalised payment experiences, further increasing transaction approval rates.
Blockchain, in particular, has the potential to enhance payment gateways by offering transparent, secure, and immutable records of transactions.
By leveraging blockchain’s distributed ledger technology, payment gateways can reduce transaction costs, improve cross-border payments, and provide better fraud protection, further supporting business growth.
In addition, Open Banking and Account-to-Account (A2A) payments are gaining popularity, with some regions showing up to 97% authorisation success rates for these types of transactions.
As alternative payment methods rise, the dominance of traditional card payments may diminish, prompting merchants to seek flexible gateways that can accommodate these new trends.
While a perfect authorisation rate is a lofty goal, businesses can take practical steps to reduce false declines and improve transaction success.
By leveraging multiple gateways, offering diverse payment methods, implementing intelligent routing, and using machine learning to detect fraud, merchants can not only enhance their bottom line but also provide customers with a more seamless payment experience.
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