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Aug 23, 2022
Say you’re an online merchant who’s done everything right at each step of the funnel: Ubiquitous branding. Targeted advertising. Fluid user experience on the site with a crack team of customer support agents to help when trouble or questions arise. In short, each department (marketing in particular) has done its job well and brought the customer to exactly where you want them — the payment page.
But all this impressive, successful execution by your well-oiled machine makes it all the more tragic when you lose a sale because of … a declined card transaction. It’s the one part of this business that’s entirely out of your hands, and it’s crushing to see a cart abandoned – a sale lost because of a frustrating payment experience controlled by a third party.
To put it bluntly: The ultimate decision-makers of card transactions are the card issuers. Their job is to help you earn revenue, yet sometimes they decide unilaterally not to allow it.
Now look – sometimes you can’t fault them because there’s a good reason for a card issuer to reject that transaction: the customer clearly has insufficient funds or is highly suspicious, even at a glance. The issuer has proven, trusted systems (their own or third-party) to spot the telltale clues, and when it’s unquestionably a high-risk transaction, you can’t blame them for trying to dodge a delinquent payment. It’s their job, but it’s certainly not the path to optimize payments.
Most banks follow the sage advice of John Stumpf, chairman and CEO of Wells Fargo:
“In financial services, if you want to be the best in the industry, you first have to be the best in risk management and credit quality. It’s the foundation for every other measure of success. There’s almost no room for error.”
Yes, John is right. But very, very often, our “red alert” scenario above is not actually the case; frequently, a transaction is not necessarily high risk, and hence it’s not a black and white decision to reject it.
Why? Because banks are, by their very nature, financially conservative. They need to define their limits broadly, creating an “oversized” gray area in which they only suspect a problem. Beyond a specific, over-cautious threshold, they simply aren’t ready to authorize questionable transactions and then wait to see how it pans out.
And that’s their right.
That’s where it gets interesting. Because when it comes to that gray area, all it takes to save declined transactions is some carefully coordinated cooperation and communication that lets everyone win – you, the issuer, and … the customer.
You see, as the party with a lot more direct, real-time contact with the customer (and after all that work to attract him, plenty to lose), you “know” more about him than the issuer can with own more general data sources. You can contribute two valuable pieces to this puzzle to push through the transaction, helping the issuer get comfortable with the potential risk he perceives.
First, you can let him know that you recognize this moderate element of risk (again, not the clear-cut fraudulent charges or those way beyond a spending limit) and are ready to participate in it. In other words, in the interest of making the sale, you can pay a small premium if he’s willing to “nudge back” the boundary on what he will acknowledge is a gray area.
To make that offer, all you need is a heads-up when the issuer is about to decline your charge in a borderline case – and then you can offer to make it worth his while. Does he have to accept your offer? No – as a matter of fact, he can even tell you what it’ll take – say a few percentage points of the total – and you can decide to pay him that sum. In short, you’re agreeing – together – to face a slightly uncomfortable level of risk.
But here’s where it gets even more intriguing. You actually know plenty about each customer you engage with, as buying patterns and site behaviors give you deeper insight about the person:
• how often they shop with you
• how long they have been browsing your virtual shelves
• what kinds of products they like
• what items keep on their wish lists and actually buy
• how many other credit cards they use with you and how often those fail
• what gifts they give others, and more.
These are just a few of the behaviors that indicate how dependable the customer is. Some of these basic data points can radically “upgrade” the simpler, more superficial analysis that the credit card issuer can conduct, working with much more limited, simplistic data. With enriched, supplementary data, they can make a better call.
In short, it’s terrific to simply offer to share the risk to approve more payments. And it’s even more compelling if you can supplement your offer with hard facts that back up your belief that this customer’s profile indicates much less to worry about than it may seem.
Kipp does this, by the way. With very minimal integration, we play as the middleman to optimize approval rates, communicating the “bid” and “ask” between the two parties to automatically, algorithmically, find the sweet spot. We also collect all that insightful data from you, the merchant, or your own third-party partners, to create a score to enrich the issuer’s decision-making analysis. Our goal is to give them the confidence to accept the transaction, so you don’t lose the sale.
All it takes is some well-organized communication, in real-time, to get all parties to work together for that win-win-win.