Optimizing Payment Authorization Rates, Fraud Prevention

Consumers now expect a simple, convenient and streamlined online shopping experience, so merchants are striving to catch up. To provide an enriched shopping experience, an efficient and safe payment process is key. If the payment process is difficult, customers will quickly switch to another seller, which is why it is essential for platforms to balance optimal authorization rates with fraud prevention. 

“Around US$18 billion are lost due to the abandonment of shopping carts. This situation occurs because the consumer does not trust the checkout, the process is not friendly, extra distribution costs are added or the user is forced to create an account,” said María Paz Olaso, Vice President of Sales, dLocal.

The future of commerce relies on generating and perfecting a unified experience. The easier it is for a customer to acquire a product while not wasting precious seconds during the payment process can add value and generate repeat sales for online merchants. “The more transparent the process is for both businesses and consumers, the greater the probability of making a purchase. In addition, an added value or a superior benefit must be offered,” said Pedro Rivas, General Manager Mexico, Mercado Pago.

The COVID-19 pandemic brought several opportunities. “Prior to the pandemic, 50 percent of the transactions were made with a debit card and the other half were made with a credit card. However, after the pandemic, about 70 percent of transactions are linked to debit cards,” said Christian Leon, Managing Director Latin America, Signifyd. 

E-commerce’s skyrocketing growth took many sellers unprepared but created opportunities for companies willing to look for new ways to facilitate this process. “We created more products to facilitate the interaction between individuals and digital providers. We granted credit so people could have access to the consumption levels they were used to before the pandemic,” said Rivas.

E-commerce now seems here to stay. “Many people changed shopping habits. More than 50 million people who bought online for the first time maintain that behavior,” said Paz. But while the practice brought numerous opportunities, it also exacerbated existing problems such as fraud, which has reached record highs. “During the pandemic, Mexico increased its level of e-commerce participation and started to present itself as a country that is becoming digital. However, this also brought opportunities regarding fraud prevention,” said Erick Mckinney, Country Manager, Adyen.

This fraud-prone environment is making some sellers nervous. “The relationship between fraud and conversion generates a lot of mistrust today. There is a huge opportunity for collaboration and consumer education,” said Diego Creel, Senior Vice President LATAM, Incode.

Payment service providers are justifiably obsessed with beefing up their defenses against fraud but preventing this practice is not necessarily straightforward. “The main challenge to avoiding payment fraud is not differentiating between good and bad transactions, but differentiating between what needs a human to review and what does not. Ideally, it would be best if companies automatically accepted as many transactions as possible, reviewing only a relatively small number,” according to fraud prevention platform Seon.  

While the situation may seem dire, businesses have a growing host of options available to them to prevent and fight fraud. “Thanks to smartphones, today’s businesses have a lot of information to know the risk profile of their consumers,” said Paz. 

Fraud is not the only growing challenge, however. “The acquisition cost has increased a lot; the delivery experience is increasingly demanding and users are continually looking for new experiences. Businesses are under these pressures, but the checkout is where these processes can be optimized,” said Leon. “The checkout experience is essential to gain the trust of the user so they buy again,” added Creel.

The optimization of payments and the improvement of customer experience can help companies increase revenue and improve their network acceptance rates. For this reason, numerous SMEs are planning to increase their investment in technology and security by 2023.

“There are alternative payment methodologies emerging and 80 percent of people are willing to try them. For example, in Asian countries, payment with facial validation has become very common,” said Creel. “The world is moving toward linking identity and payments. This not only leads to less transaction friction and fraud but it also creates trust,” he added.