How to Optimize Payment Authorization Rates for Recurring Transactions

Subscription businesses rely on seamless payment processing to maintain steady revenue and customer retention. However, failed transactions can lead to involuntary churn, frustrated customers, and lost revenue. According to one report, subscription businesses lose 9% of their revenue from failed payments. 

Optimizing recurring payment authorization rates is essential for reducing failed transactions and improving overall payment success rates. In this article, we will explore actionable strategies to enhance payment success rates and reduce involuntary churn.

What Is the Payment Authorization Rate and Why Does It Matter?

Also called payment approval, the payment authorization rate is the number of approved transactions (by the issuing bank) divided by the number of attempted transactions over a set period. It measures how often customer payments go through successfully.

For example, if a company processes 10,000 subscription payments per month and 9,000 are approved, the approval rate is 90%.

But why does the payment authorization rate matter?

A low approval rate means lost revenue. Even top-performing e-commerce businesses, including subscription models, may be missing out on thousands of dollars simply because their approval rate isn't as high as it could be.  

When a transaction is declined, the impact reaches far beyond that one sale. According to a report, only 25% of customers will try another card when they experience a failed transaction, and 39% will abandon it altogether. 

Many factors can lead to stagnant or declining sales, but changing payment strategies can address some issues—such as payment declines. By improving your subscription billing authorization rate, you can recover lost revenue and boost overall sales.

What Causes Payment Authorization Failures in Recurring Transactions?

Before exploring strategies to improve payment success rates, it is important to understand the common reasons for payment failures.

Some of the causes include:

• Expired Credit Cards: One major reason for payment failure is expired cards. Many customers forget to update their card details, resulting in unsuccessful payment attempts.
• Insufficient Funds: Customers may not have adequate funds in the account at the moment of the transaction. This may be due to budgeting mistakes, undisclosed charges like taxes, or sudden expenses.
• Technical Issues: Sometimes, payments fail due to errors within processing systems, such as payment gateway errors or outages.
• Bank Issues: At times, banks block transactions they consider suspicious. This could lead to failed payments.

By identifying root causes, subscription businesses can customize their recovery strategies to reduce failed transactions and increase their bottom line. 

Now that you know what causes low payment authorization rates, let’s find ways to overcome this issue.  

What Strategies Can Subscription Businesses Use to Increase Authorization Rates?

Let’s look at five recurring payment optimization tips and strategies that can help improve payment success rates.   

Use Automatic and Delayed Retries

A payment retry strategy is an excellent method for boosting payment approval rates. Automatic retries can resolve transient technical issues, like network connectivity errors or issuing bank server outages, allowing payments to succeed.

Here's how you can best use automatic retries: 

• Develop Smart Retries: Build (or use) an intelligent retry system with an adaptive system that can identify the reason for the initial failure and the optimal time to attempt again.
• Custom Retry Rules: Different types of failures require different approaches to retrying. For example, if your first payment service provider is temporarily down, you will try again immediately with a second PSP in a last-ditch attempt to save the transaction.
• Monitor Retry Performance: Monitor your retry success rate and change your rules and strategy accordingly.
• Customer Notification: Notify customers of the status of their transactions and actions taken to resolve problems.
• Retries Combined with Other Strategies: Automatic retries are most effective when combined with strategies like payment orchestration and fraud detection optimizations.

Use Adaptive 3DS

Adaptive 3DS (3D Secure) is a tool that offers anti-fraud capabilities and adds an extra layer of protection to online purchases. It helps secure your checkout process and eliminates the threat of fraudulent orders. 

Here are a few ways you can use it to drive higher authorization rates:

• Understand the Advantages: Adaptive 3DS offers real-time risk assessment and frictionless customer experience. By mitigating false declines and streamlining manual authentication, you also enhance customer experience.
• Select the Right 3DS Solution: Select an adaptive 3DS solution that offers a variety of methods, such as biometrics, one-time passwords, and push messages.
• Leverage Risk-Based Authentication: Adaptive 3DS technologies employ machine learning algorithms to determine the risk level for every transaction. By using risk-based authentication, you can make sure that only high-risk transactions are verified further, minimizing friction for low-risk customers.
• Optimize and Monitor: Monitor your adaptive 3DS performance and review the data to see if it requires improvement. 
• Fit into Your Payment Stack: Make sure your adaptive 3DS solution can be seamlessly integrated with your payment gateway and the overall payment infrastructure.

For instance, an SMB in Canada partnered with PAAY to implement EMV 3DS authentication, which increased acceptance rates by 11%. This showcases the effectiveness of advanced authentication measures in reducing fraud and improving authorization rates.

Use Account Updater Services to Keep Card Information Current

When customers get a new card due to expiration, fraud, or loss, their stored payment details become invalid. This often leads to declined transactions.

Account updater tools automatically refresh stored card information with updated details from card networks (e.g., Visa, MasterCard, and American Express). This ensures that even if a customer gets a new card, their subscription payment can still go through without interruption.

An example is BlueSnap, whose Subscription and Recurring Billing solution includes features like an automatic account updater and automated retries. This helps businesses secure recurring sales and ensures transactions will be approved, reducing failed transactions and improving authorization rates. 

Prevent Fraud-Related False Declines

Fraud protection is essential, but sometimes banks mistakenly decline legitimate transactions. These false declines hurt approval rates and frustrate customers.

Make sure to work with your payment processor to fine-tune fraud detection settings. Here’s what you can do: 

• Use machine learning fraud detection to identify real threats while allowing legitimate transactions.
• Implement 3D Secure (3DS) authentication for high-risk transactions.
• Whitelist trusted recurring transactions with issuing banks.

Optimize Payment Routing for Higher Success Rates

Different banks and payment processors have varying success rates depending on customer location, transaction type, and card issuer. Routing payments through the right channel can improve payment success rates.

An advanced payment system can analyze past transaction data and route payments to the best-performing processor based on the following:

• Customer’s card issuer (some banks approve certain types of transactions more easily).
• Location-based routing (European customers may see better success rates with a European-based processor).
• Transaction value (large payments may require additional verification).

Reach is a successful case of payment routing optimization. Reach collaborated with Checkout.com to implement Intelligent Acceptance technology, which resulted in a 9.5% overall increase in authorization rates. This approach highlights the impact of tailored payment routing and authentication strategies.

Work with Issuing Banks

Issuing banks play a key role in whether payments get approved. When you collaborate with them, it can help reduce declines.

Subscription businesses can:

• Provide clear merchant descriptors so customers recognize charges.
• Share transaction insights to help banks refine fraud detection.
• Enable real-time transaction messaging to notify customers of declines and suggest next steps.

Communicate with Customers Proactively

Sometimes, customers forget about their subscriptions or don’t realize a payment is due. Proactive communication can prevent subscription billing authorization failures.

Make sure to send friendly reminders before a payment attempt, giving customers the time to:

• Ensure they have enough funds.
• Update their payment details if necessary.
• Avoid service interruptions.

This small step reduces failed transactions and improves customer satisfaction.

Conclusion

Now you know how to optimize the right way. 

For subscription businesses, failed payments mean lost revenue and higher churn rates. By implementing strategies like smart retries, account updates, and optimized routing, you can reduce failed transactions and improve payment success rates.

Additionally, businesses should collaborate with issuing banks, use advanced fraud prevention tools, and offer seamless customer support to keep subscription payments running smoothly and experience involuntary churn reduction.