Your checkout experience may appear to be going smoothly. You’ve found what you’re looking for, you’ve clicked “pay” or tapped your credit card at the point-of-sale terminal. Your bank, meanwhile, approves the transaction.
Then — nothing.
Something in the process breaks down, and your transaction fails. Whether you’re shopping online or holding up the line at the grocery store, the experience can be maddening.
It happens all too often. Legitimate customers check out using cards they know to be good, only to have a charge declined — or worse, the order first goes through and then gets canceled afterward with no clear explanation. As consumers, we’d rather not ponder why: We just want to go on with our day. But more often than not, a breakdown in card authorization flow is to blame.
Darrell Esch, senior vice president and general manager of Venmo and head of checkout at PayPal, spends a lot of time thinking about faulty authorization flows so customers don’t have to. He calls it a “broken link in the customer journey,” which can cause the chain to break at checkout. To combat it successfully, PayPal leans heavily on massive amounts of transaction data.
“[Data] ultimately helps us make the best yes/no decision, based on all of [our] experience of the probability of a transaction being good,” he said in an interview with PYMNTS’ Karen Webster. “Ultimately, you want to say ‘yes’ as much as you can. Customers end up feeling alienated if you tell them ‘no’ when it was a good transaction.”
Pointing to recent studies finding that PayPal outperforms other platforms by up to six percentage points in terms of approval rates, he said this is “based on all of this experience and artificial intelligence we have. For every hundred transactions coming through, the opportunity to get maybe six more of them over the finish line matters substantially.”
Authentication at checkout is a major line of demarcation, and companies are justifiably strict about it. In the study “Monetizing Digital Intent,” a PYMNTS and Neuro-ID collaboration, close to 40% of businesses said the adoption of digital authentication solutions is an exigent priority today, with 35% of firms saying that existing digital processes too often choke at checkout.
Get the study: Monetizing Digital Intent
Data and Risk-Reward Decisioning
Noting the many reasons that good transactions go bad — from overzealous fraud detection to foul-ups with payment processors and more — Esch said it’s about controlling variables.
“I think of four variables that are really important to driving conversion, and those are trust, choice, ease of use and transaction approval. Authorization, that’s just one step,” he explained.
Calling for more streamlining of processes across all areas, Esch told Webster, “For transaction approvals, among the things you can do as a retailer to drive conversion is get a trusted brand upfront early on your pages, so customers know how they’ll be able to pay.
“Transaction approval is a hard-fought, long-learned road,” he added. “It’s very tempting to dial down [and] loosen your approval standards to get more customers through. But the flip side is that every time you’re wrong and fraud happens, you’ve got to get a lot of good transactions to make up for that bad one.” It’s better to rely on data for more of this decisioning, he said. “Data manages so, so much,” he noted.
Beyond a thumbs-up or thumbs-down from an issuer on a transaction, Esch said data is taking more friction out of checkout by reading signals from IP addresses to device data and more.
“Ultimately, this balances trying to get as many approvals as one can while also managing fraud out of the system,” he said. “At PayPal, in every single transaction, hundreds of models are running, using hundreds of thousands of variables to make that right risk-reward decision that leads the retailer to the best outcome with the highest approval rates and minimized fraud.”
See also: PayPal, Wix Team on Pay Later Offerings for Merchants
Fixing Cart Abandonment With Trust, Choice and Ease
Because trust is vital in every payment scenario, Esch said, “who the payment provider is will make a big difference” when it comes to checkout.
“At our scale of $1.2 trillion in [payments] volume over the past year, having those models and learnings going in real time in every transaction is going to benefit the merchant,” he explained. “This is something that a retailer is probably not going to develop, design and master on their own. This is a case where it’s best to bring in help.”
After trust — or perhaps right alongside it — is payments choice.
“Customers want choice on how they’re going to pay, so it’s easy for merchants to make sure they’re maximizing that choice,” Esch said. “It’s tempting to want to just vault that credit card, which helps you get a fast checkout the next time — but if the consumer can’t use that card for some reason or doesn’t want to use that card, it ends up creating more friction.”
It’s one reason that options like buy now, pay later (BNPL) are so hot — and PayPal gets that. Esch noted that PayPal’s Black Friday 2021 was up nearly 400% year over year on buy now, pay later usage, coming in at roughly 750,000 transactions “on that one day alone.” He added that PayPal is “bringing longer installment plans to market here in 2022.”
The platform is also allowing more passwordless transactions that recognize known and trusted customers “earlier in a transaction flow. We’re always fighting latency, taking milliseconds out of transactions. Every one of those milliseconds ends up mattering. Then we continue to incorporate our models.”
Esch noted that it is both hard and expensive to get customers to shop on a brand’s website, so the last thing they want is to lose what they’ve worked so hard to get at the very end – and there is also the time lost by the consumer who has taken the time to fill their basket.
“It’s been reported that as many as three out of four carts ultimately get abandoned. This whole process of how the payment systems work will matter a lot to the bottom line of the retailers.”
See also: PayPal Sees Uptick in BNPL Spending for Black Friday
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