Calculating Acceptance Rates

The acceptance rate calculates the percentage of successful transactions out of the total attempted transactions, helping merchants, acquirers, and PSPs to evaluate their payment system’s performance.

By attempted transactions, we refer to all the customer attempts to finish the shopping checkout by inserting their payment credentials and clicking “pay”. Attempts will turn into successful transactions or into failed transactions if declined.

Shortly, if 20 out of 100 transactions fail, the business’ acceptance rate is 80%.

But is 80% a good acceptance rate?

The answer depends on the transaction context like the payment method used or the country where the transaction was performed. For example, the average acceptance rate for card payments in Europe is set around 85% and around 95% for payments with Paypal.

So rather than analyzing the aggregated metric with all transactions, you should segment acceptance rates considering specific contexts like payment methods, country, billing cycle (eg. monthly or annually), payment type (eg. one-time or recurring).

After calculating and segmenting your acceptance rate, try to understand the reasons why transactions are failing so you can take action accordingly.

Why Do Transactions Fail?

From customer reasons to technical issues to stakeholders’ risk assessment, there are many distinct variables contributing to failed transactions:

Lack of available funds.

This is one of the most common reasons for transaction failure. It usually means that the customer might have exceeded their credit card limits or have no funds available in their account.

Wrong authentication inputs.

If the customer fails to indicate the correct payment details the transaction can’t go through. The same result goes for recurring payments if the payment credentials are not up to date.

Checkout abandonment.

If the website displays a confusing checkout form, if the customer is not sufficiently educated to perform an additional step, like two-factor authentication, or if they need to make an extra offline effort to complete the transaction, like going to an ATM, there’s being created friction that could lead customers to abandon the checkout page and leave the transaction incomplete.

Technical issues.

Technical issues may happen when a payment service provider (PSP), acquirer, acquirer processor, or any other provider involved in the transaction flow is down. Reasons can go from scheduled downtime for maintenance, to sudden outages, to failure in communication between any given pair of stakeholders’ system. If a merchant connects with a single payment provider, in case the PSP is down, there’s no other network where the transaction could flow to be accepted.

Acquirer risk assessment.

Payment gateways, PSPs, and acquirers may require additional parameters to avoid fraudulent transactions. These parameters can include 3D-Secure verification, address verification (AVS), BIN (Bank Identification Number) ranges, customer email, or customer tax ID. If the customer profile mismatches any of the security parameters, the transaction is blocked to ensure compliance with card schemes’ regulation or internal risk policies.

Issuer risk assessment.

Issuers also have their ways of detecting and blocking fraudulent transactions. They can decide what are considered high-risk transactions depending on the merchant category code (MCC) — a four-digit number, distinctly defined by each major card network (Visa, Mastercard, Discover, and American Express), used to classify the business goods and services. For example, merchants that operate in industries like gaming or gambling are usually assigned the same MCC that classifies them as “high-risk”. To prove the legitimacy of transactions and be accepted, high-risk businesses are required to provide additional payment data.

Adding to the MCC, issuers can block transactions depending on other risk variables like the business authentication security level and country. Depending on the country where the transaction takes place, merchants might be required to send additional security parameters.

Other parameters that issuers use to identify high-risk transactions include transaction amount limits, currency, customer’s shipping address, device ID, or previous transactional data.

How Can You Increase Acceptance Rates?

A 100% acceptance rate is almost an impossible achievement for any merchant that processes big volumes of transactions but uplifts of only 1% have proven to represent multiple thousands in recovered revenue. There may be dozens of variables that are impossible for you to control but the tools you use and how you prepare to handle them can put you ahead for decreasing the negative impacts and optimize acceptance rates.

Here are some things you can start doing to help you increase acceptance rates:

Create an error-proof checkout.

Adding unnecessary fields to the payment checkout will only cause added friction during the checkout experience so make sure to include only the minimum required parameters for transaction acceptance in your checkout form. The mandatory parameters to include will mostly depend on the payment method selected by your customer, your payment provider security requirements, and the shipping carrier used.

Some shipping carriers may require a phone number from the customer. Excluding these cases, avoid adding parameters that ask for personal information as it increases customers’ skepticism and the odds of cart abandonment.

Including the necessary fields will provide the right information that payment providers need to verify the legitimacy of the transaction. High-risk merchants are usually required additional parameters like the client’s birth date, surname, and postcode.

The checkout page should give a security and transparency sense to customers and project a legitimate process. Incorporating the brand design in every step of the flow, identifying the price parcels that apply to each service (eg. shipping), and communicating customer’s privacy rights can help you along in creating a secure checkout page.

Enable security checks.

Different countries may require different payment information for acceptance and the same goes for checkout security checks. If you’re accepting card payments in Europe, following the 3D-Secure protocol is mandatory to respond to the Strong Customer Authentication (SCA) requirements. 3D-Secure works as an extra layer of customer authentication to secure online payments performed via debit or credit card and, by allowing it, you can prove the legitimacy of the transaction and facilitate payment acceptance. 3DS 2.0 version even introduces a ‘frictionless’ customer authentication and improves the user experience compared to version 1.0.

Other security checks to improve payment acceptance include the Address Verification Service (AVS), a technology that verifies if the billing address submitted by the customer at the checkout matches the cardholder’s billing address on record at the issuing bank. AVS is most commonly used in the US, Canada, and the United Kingdom.

Although enabling security checks plays an important role in securing transactions and complying with regulations, they were obviously designed to block fraudulent transactions. Implementing a risk strategy that prevents fraud and minimizes false positives — payments that were mistakenly identified as fraudulent — can result in direct declines or indirect declines through abandonment by friction. In that case, the disputes you managed to avoid should compensate for your losses from declined transactions.

Communicate with your customer.

Reach out to your customers to understand if it’s possible to remedy a failed transaction. Maybe they weren’t even aware that the transaction didn’t go through or they might have unintentionally used a payment method from a blocked or empty account. You might benefit from sending automated emails to customers who performed failed transactions so they have a chance to retry the payment.

Accept alternative payment methods.

Customers prefer using payment methods that they’re familiarized with. Not only because these are the ones they probably trust the most but also because they already know every step of the way for completing transactions. For example, Alipay is a preferred payment method in China, while the Netherlands mostly uses iDEAL. If you operate at an international scale or just entering new markets, you should work on the payment methods that are most preferred locally.

Along with that, there are some payment methods that, by their flow, can lead to higher acceptance rates. This is the case of digital wallets like Google Pay or Apple Pay which help in increasing acceptance rates thanks to two-factor authentication.

Tokenize payment data for a seamless checkout.

Tokenization has been increasingly adopted in the payment industry as it allows for the pseudonymization of cardholder data to comply with PCI compliance standards. In other words, through tokenization the payment card data (PAN) is substituted by a random value that can be securely used by the customer for future e-commerce transactions or recurring payments.

With tokenization, you can save your customers’ payment details as tokens so that the next time the same customers make a purchase they don’t need to re-enter all their payment credentials again.

To help increase acceptance rates in recurring payment models, like Netflix, network tokenization becomes an ideal tool. This type of tokenization is done on the card network side—and not on the issuer or acquirer side—so, whenever there are changes in the card information, like expiration date, the payment details remain up to date.

Partner with local providers.

Local acquirers are better adapted to local market needs, conditions, and regulations. Partnering with them becomes especially beneficial when entering new markets.

For card processing, the average acceptance rate for European merchants who partner with international acquirers is usually set around 86%. For Brazil, the rate is set around 20%. This happens because Brazilian issued cards are restricted for domestic use and purchasing from a merchant that uses an international acquirer in Brazil would be similar to purchasing abroad. When partnering with local acquirers in countries like Brazil, acceptance rates can increase up to 90%.

Partner with different providers.

Integrating with different providers can give you the necessary flexibility to leverage your payment structure while optimizing your acceptance rates. It’s possible to increase the efficiency of your transactional flows by dynamically routing payment transactions between payment providers you’re connected to.

For example, if for any reason, a transaction fails, the authentication parameters can be reused and sent to a subsequent provider you’re connected to without any disruption on the checkout flow.

From data at Switch, fallback workflows have proven to capture up to 50% of the amounts declined by the first provider in the client’s network and recover hundreds of thousands in lost revenue.

In our previous article, we explain all about routing rules and how you can optimize acceptance rates through Dynamic Routing.

In conclusion, acceptance rates should be tracked as a way to evaluate the quality of the payment structure and to assure sales volumes reach their maximum potential.

From a long-term perspective, acceptance rates should be consistently monitored and adjustments should be seen as continuous work for optimization. As the payment industry evolves, you might find more challenges along the way but you will also find more partners, technology, payment methods, and tools to help you evolve.

How Switch Helps You Along the Way

Switch is a payment orchestration platform created to optimize payment operations through a single integration flow. Besides helping businesses connect with multiple providers and payment methods, Switch offers a range of value-added services proven to optimize acceptance rates:

• Dynamic Forms. Once integrated with this API, it allows you to add the payment methods that best suit your customers' needs without any changes to your code.

• Risk. Create risk rules for specific parameters and enable requests for 3DS authentication.

• Dynamic Routing. Provides real-time switching capabilities that allow you to select the best provider for a given transaction.

• Vault. Allows for tokenization of any sensitive information for secure storage and later use.

• Analytics. Allows you to track and segment your acceptance rate by parameters among country, payment method, or device.

Are you facing issues of failed transactions or want to know more about payments optimization? Switch can help. Reach out to us.