What is transaction success rate and its importance for businesses?
In the world of digital payments, a scary phrase for most vendors is transaction failure. Hence businesses often mention many terms to measure the quality of payments they receive.
One such term you might hear often is transaction success rates. But what is the transaction success rate exactly, and how can you calculate that?
Transaction success rate denotes the percentage of successful transactions received and completed. It denotes the value of how many successful transactions have happened for every 100 payments they receive.
The success rate cannot directly represent your revenue, as customers might try to pay failed payments again.
If a business has received 70 successful payments out of 100 attempted transactions, then the transaction success rate is 70%. Transaction failure can happen due to many reasons. And it is one factor that businesses have the least control over.
You must also know that around 33% of failed transactions have been made to the repayment process and affects your overall sales and revenue.
Even though you have no control over this, you will still have to monitor your transaction success rate. It can impact your business in many ways and have negative consequences. Some of them are.
The customer’s churn rate is the score at which your customer leaves your site or walks out of your shop and stops purchasing from you. But in an ideal world, we can assume and expect customers to repay after a payment failure encounter.
Customers want a seamless shopping experience, and a payment failure might deter them from pursuing again. This only leads to cart abandonment and the loss of a customer who might have turned into a regular.
28% of cart abandonment issues are only because of payment-related issues. Customers didn’t quit voluntarily but were made to.
When a transaction doesn’t fully happen, there isn’t going to be any loss as the product/service won’t get delivered. But there isn’t any profit too.
You have lost a sale and a customer who believes you have a broken payment acceptance system. At the end of the day, your revenue is estimated only through the number of sales and not with impressions and purchase attempts.
Hence, transaction failures don’t contribute and are counted only as a loss.
Retargeting abandoned customers and walking them back to the store is expensive. It takes marketing or sales effort to convince the annoyed customer.
If you have sales targets, you must regain the lost customers' trust or bring in new ones. And both will require money and effort to happen.
If your business is a very specific niche that sells only to a limited customer base, it will be harder to persist in this case. On top of that, you need to spend on your website to enhance the customer experience too.
Businesses must consider transaction success rates for other reasons too. There are places where finding this factor can give you more clarity and help you choose the best accessory for your site.
Payment gateway integration is crucial while setting up your website and accepting payments. There are many providers, and their plans and features can be unalike. You can choose two payment gateway providers, and A/B test them.
While A/B testing, you can measure transaction success rate to find which platform has more favorable results and choose that.
You cannot market your product to everyone. Segmentation is important to segregate and ship the ineligible ones out. The transaction success rate can be kept as a factor in understanding your customers, and the segments that have low values or zero can be kept away from your marketing outreach.
You can receive a penalty token from your merchant account provider if your transaction success rate keeps declining to low scores. A low score is usually associated with fraudster attempts where stolen credit cards are tested. With no fault of your own, you will be blamed and penalized.
67.5% of failed transactions happen due to customers due to the following reasons.
• They might have taken longer than expected to finish the payment process.
• They might have canceled the transaction in between.
• The bank or network has declined the transaction.
It can be a deliberate attempt to cancel the purchase or happen inadvertently due to low balance or other technical reasons. Sometimes, the credit card provider doesn’t authorize the transaction, assuming that as a fraudulent try.
They could have also entered the wrong information in a hurry or taken a long time to finish the two-factor authentication process.
But the customer is not always at fault, and even the points listed above might not be known by them beforehand. The payment service provider or the customer's bank accounts for 27% of transaction failures.
Payment is a combined effort of many intermediate bodies. There is the card provider, bank, and payment initiator (Wallets, payment apps). Anyone in-between can be held responsible for the failure too.
The server could be down or slow in any of the above networks. In some cases, payments get declined altogether if the bank server is bombarded with many requests.
Transaction success rates don’t mean the same for all. Depending on the industry, the effects and impact vary. Hence each industry value and weigh transaction success rates alternatively and the definition of what is transaction success rate can vary accordingly.
It’s an everyday scenario for eCommerce companies to face cart abandonment issues and payment failures. But they don’t take it lightly and give more importance to this customer segment.
They mostly attempt retargeting as the customer was initially interested in their products. With the wide number of competitive sites in the race, a customer can easily switch to another site when their purchase is interrupted.
A declined payment can also alarm them that the site might be suspicious. Hence, eCommerce companies spend their best efforts to win lost customers back.
They also give equal importance to transaction success rate scores and maintain them above 75%.
Similar to eCommerce sites travel websites also have many competitors. And they all strive to provide the best deals to customers. A customer might have many related sites open to check which has the affordable package and best deal.
If they stumble upon declined payment message, they simply switch to another website and book their travel deal with them. A low transaction rate might mean that they are losing customers and turning them away.
Therefore, travel industry companies must take transaction rates seriously and work on them.
Food tech denotes the companies that accept and deliver food orders. The customer intent to buy food is usually higher once they move closer to the payment process.
Hence, there won’t be any deliberate cancellation of payment from the customers’ end. The repayment rate after a decline or cancellation is also high in this case.
This is why the food industry, in general, has higher transaction success rates compared to other industries.
Observing low transaction success rates and want to improve them to gain more customers? Do the following to achieve higher transaction success rates.
Be clear about where the customer will be led during the checkout process. The checkout process of every website is different, and the customer might be new to your site.
Give clear and concise instructions on what they should do next. Misleading buttons, fields, and icons can easily push a customer away or send them off the website before purchase.
Don’t stuff your website with too many words too. A clear website with precise instructions will lead the customer peacefully from the shop to checkout to the complete purchase page.
Websites or applications that ask for more details during the checkout and payment process are huge turndowns. The payment page should carry fewer fields or have only the mandatory fields.
You can get the important details only if you need to ship something and cut to the chase directly. Keeping the payments as the first option and later requesting them to fill in personal details will also increase the success rate.
Include a guest shopping option for those who want to skip the unnecessary sign-in or sign-up process.
Static payment routing means transferring payment to a fixed payment processor. In case of server failure or downtimes, the payment will be a failure, too, as it cannot be transferred anywhere.
Dynamic and smart routing denotes shifting the payment process to the provider with the highest success factor.
By not having a pre-defined route and opting for dynamic routing, you can save a transaction by routing to a processor that’s likely to succeed. Thus, you can make a sale and increase your transaction success rate.
Run tests to find out if your checkout process is smooth and seamless. There can be pages that take time to load or lead to 404 error pages.
Check their response time as well. Work on your checkout site design and correct the flaws to render a smooth checkout experience.
It can be a flaw with your payment gateway provider too. Test it fully, identify the problem areas, and get them fixed sooner.
If your website has auto-filling enabled, it will reduce the time taken during the checkout process. Auto-filling for personal data and banking information can be programmed for repetitive customers with their consent to simplify the payment process.
Customers hate it when they have to search for their cards and enter 16-digit random numbers. If they input the wrong numbers by mistake, it will only lead to low transaction success rates.
Auto-saved values instantly populate, and it’s only the CVV that they have to enter. This is the no-brainer way to have a successful transaction.
Credit and debit cards are the common payment modes. But there are many other methods that are simpler and quicker than the traditional ones.
Integrate your website to accept a wider range of payment options. Customers should be able to pay through wallets like PayPal, UPI, BNPL, cash on deliveries, and other methods.
This way, they can choose the most successful one and finish the transaction in seconds. For instance, they save time and increase the payment success rate by connecting their PayPal account with your site.
Even if one method fails, you can offer to pay through a different method.
In conclusion, even a single transaction failure can lead to a huge drop in your transaction success rate if your total number of sales is lower. And that affects your sales too.
Hence, you must seriously consider transaction success rates as they can impact many important factors. This is how you can keep your customers intact and not lose them in the competitive landscape.
Suggested read: Accounts payable software features for your business