How can Credit Card Authorization Rates Impact a Merchant’s Business?

The immediate and most apparent answer is that authorization rates, specifically poor authorization rates, can impact your top-line revenue and increase expenses. But there are other, more subtle impacts that can have a negative effect on the growth of your business.

Customer LTV

We all know that the most valuable asset that a marketing company can have is their list of customers.  You’ve invested in driving new customer acquisition in the hopes of monetizing that new customer down the road.  Low authorization rates add friction to this relationship and ultimately can cost you customers.  If you’re a subscription merchant, well… the end outcome of low authorization rates is too obvious to require any elaboration.

Affiliate Relationships

If you use affiliates to drive traffic to your site, know that these affiliates have options in terms of how they spend their time and treasure to drive traffic.  They’re in the business of driving this traffic on the promise that you’re going to be able to close the sale.  Low authorization rates can lead to these trusted partners finding greener pastures for their traffic.

Customer Experience

The experience your customer enjoys with your product or service can be impacted by low authorization rates as well.  Why can’t I use my service?  Why are you now billing me for 3 months of service at once?  All of these things lead to poor customer experience and can damage the brand you’ve worked so hard to build.

Payment Processor Relationships

Lastly, low authorization rates are a signal to your payment partners that something could be wrong with your business operations.  It could be as simple as an operational error or it could be as nefarious as a rogue affiliate driving garbage traffic.  Consistently low authorization rates can and will be flagged by your processor and, in some instances, cause a review of your account and, in some instances, cause a merchant to lose their processing. 

While the direct impacts of low authorization rates (revenue and expense) are easily monitored, ignoring low authorization rates can clearly have other immeasurable impacts on your business.

July 18, 2024