Payments as a Profitability Driver

Galit Shani-Michel, VP Payments, Forter
Apr 15, 2024

With the changing macroeconomic environment, merchants are prioritizing profitability and challenging their teams to find optimization opportunities. Traditionally, payments has been viewed as a cost-saving area of the business, focusing on reducing chargebacks and processing fees. However, more and more payment teams are starting to be seen as drivers of profitability by increasing conversions and customer lifetime value — while also continuing to drive down costs.

When considering avenues to increase the profitability of your payments ecosystem, here are four areas to consider: 


1. Implement 3DS Strategically

In the U.S., 3DS is often avoided due to fear of friction. When applied strategically, however, 3DS is a valuable tool to increase approvals on riskier transactions that would otherwise be declined due to suspected fraud. For these riskier transactions, an additional 3DS challenge can help verify the customer identity and help issuers with their authentication response.

For less risky transactions, merchants can implement frictionless 3DS authentication, shifting chargeback liability to the issuing bank without introducing 2-factor authentication to good customers. Because each issuer has a different risk appetite when receiving authentication data, testing and learning which issuers can leverage this strategy to balance risk and authorization rates is critical.

Strategically applying 3DS boosts profitability by maximizing risk approval rate and minimizing fraud on riskier transactions while providing a friction-free experience for your good customers.


2. Share Context with Issuers

Forter primary research shows that roughly 1 in 5 bank declines occur because of suspected fraud, and 2 in 5 bank fraud declines happen to legitimate customers. Why? Banks do not have access to the same quantity of data that merchants do during a transaction and need merchants to share additional data during the authorization process to make sound risk decisions. While the authorization protocol is limited, there are other ways to share data with issuers, among them are direct integration and the 3DS protocol.

By sending additional context to banks, merchants enable issuers to make smarter risk decisions that allow them to approve more genuine customers and increase conversions.

This ultimately translates into a 1-3% increase in overall authorizations, improving merchant profitability and the customer's overall experience.


3. Leverage Tokenization

Managing card data can be costly and risky to a business. Between the cost of infrastructure, PCI compliance, and the ever-looming fear of a data breach - it’s no wonder that PCI tokens are a standard in the payment ecosystem today.

Increasingly, merchants are also leveraging tokens to drive profitability. Network tokens are directly updated by the card networks to ensure that merchants can continue to process payments, even if the card becomes expired or outdated. This protects recurring revenue and provides a frictionless customer experience during the checkout, as known customers do not need to re-enter payment card details. This translates to increased authorization rates due to lower fraud risk and updated card data. In fact, Visa has shared that merchants can expect a 3% expected authorization uplift from leveraging network tokens, which can be a large profitability driver.

It’s important to note that there is still growth and learning required with network tokenization. Not all issuers accept network tokens today and, in some cases, merchants are still seeing better performance when leveraging PANs over tokens. It’s important, therefore, to apply a test and learn approach when implementing network tokens to ensure that you are leveraging them on the right transactions to have the best impact.


4. Intelligent Routing with Processors

Finally, more merchants are looking at how to strategically route transactions to different processors to maximize authorization rates while minimizing processor costs. Currently, most merchants rely on a set of rules to determine their processing decisions (i.e., if payment method = x, process the transaction with y processor).

If you are using multiple processors, there may be an opportunity to leverage automation and AI to dynamically route transactions between processors to balance both costs and conversions. It also unlocks the ability to retry transactions intelligently after a decline. This will allow you to unlock a true multiple-processor strategy that maximizes profitability.


About Forter

Forter is the Trust Platform for digital commerce. We make accurate, instant assessments of trustworthiness across every step of the buying journey. Our ability to isolate fraud and protect consumers is why Nordstrom, Instacart, Adobe, Priceline and leaders across industries have trusted us to process more than $1 trillion in transactions. Our deep understanding of identity and use of automation helps businesses prevent fraud, maximize revenue and deliver superior experiences for their consumers. Learn more about Forter here.

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