By Galit Shani Michel, Head of Payments at Forter
In today’s digital economy, a staggering 70% of online shopping carts are abandoned before purchase, with complex checkout processes being a primary culprit. As economic headwinds intensify and technology evolves at breakneck speed, this invisible leak in the sales funnel is separating winners from losers in the marketplace.
Behind the scenes of successful businesses, payment optimisation has emerged as a secret weapon, yet one that remains largely overlooked by companies struggling to boost their bottom line.
The pandemic didn’t just change shopping habits; it triggered a seismic shift, with global e-commerce sales surging by 38% in a single year. The new digital-first consumer expects seamless experiences from browse to buy.
Yet the painful reality for many businesses, is that the final step — payment — often becomes the breaking point. When a customer encounters payment friction, they don’t just abandon their purchase; they frequently abandon the brand altogether. According to Forter’s 2024 Trust Premium Report, 20% of consumers abandoned their cart due to payment verification and/or multifactor authentication.
The question facing forward-thinking businesses isn’t whether payment optimisation matters — it’s how quickly they can implement it before competitors do. So, what exactly does effective payment optimisation look like in today’s market?
Adding new payment methods
Creating personalised check-out experiences is vital to ensuring conversions. Part of this includes offering payment methods that align with what customers are using.
With 53% of consumers now using digital wallets more often than traditional payment methods, methods including Apple Pay and Google Pay are favoured for their ease and convenience.
However, these payment preferences aren’t universal. They vary dramatically across markets, what works in the U.S. might fall flat in Germany, where bank transfers dominate, or in regions of Asia where mobile payment apps reign supreme.
This regional variation creates both a challenge and an opportunity. Businesses that conduct thorough market research to align payment offerings with local preferences can gain a competitive edge.
But adding new payment methods isn’t just a simple fix. Digital wallets, for example, come with fraud risks that often go unnoticed or misunderstood, leaving businesses vulnerable.
The benefits of offering varied and emerging payment methods can only fully be realized when the associated fraud risks are considered and addressed holistically.
Leaning Into AI to Reduce Friction
Friction is one of the main barriers to conversions at checkout.
Businesses operating within the European Economic Area (EEA) must comply with PSD2, which requires them to perform strong customer authentication (SCA) on all transactions that don’t qualify for an exemption. The most popular technology for enabling SCA is 3DS.
However, many businesses find it challenging to determine when to apply authentication or use regulatory exemptions without compromising issuer authorization rates. Over-applying authentication increases customer friction, leading to cart abandonment and reduced conversions. On the other hand, fully utilizing exemptions for eligible transactions can open up a merchant to chargeback risk and negatively impact issuer authorization rates.
A better approach is to optimize how 3DS is applied with a dynamic model that considers transaction risk, customer ability to complete a 3DS challenge, issuer preference, and processor TRA allowance to decide which transactions should undergo 3DS, data-only 3DS, frictionless 3DS, or be fully exempt. For instance, some issuers may prefer authentication for specific segments, leading to higher authorization rates when applied. Conversely, for legitimate customers who meet exemption criteria, it may be more advantageous to skip authentication.
Predictive Payment Routing
Another area of opportunity for businesses is around their payment decisioning. Many businesses manage authorization rates, costs and processor performance manually. This makes it difficult to determine the best routing decision – which should take into account cost, authorization rate, retry strategy, risk and more – for each transaction at scale.
Instead, predictive routing automates payment decisions by optimizing transactions based on real-time data, balancing risk, cost and conversion rates. By dynamically recommending the best processor, card network, and use of network token for each transaction, it unlocks the ability for merchants to retry declines across different PSPs, optimise for availability, and more – all while reducing friction, increasing authorisations and lowering costs.
As payments continue to evolve, merchants who embrace data-driven, AI decisioning will be in the strongest position to reduce costs, improve authorization rates and enhance customer experience.
Payment Optimisation is the key to seamless customer experience and maximising revenue
As economic headwinds intensify, leveraging payment optimisation has the potential to separate winners from losers in the marketplace.
In using the above methods in tandem, companies can minimise fraction, maximize conversions and deliver an unbeatable customer experience.
