Payment optimization wasn’t a term on most companies’ radars, let alone a priority on their roadmap, until relatively recently. That all changed as consumer purchasing behavior evolved and businesses began to realize the importance of payment process optimization to maximize cost, performance, and the customer experience. 

Gone are the days when payments were an afterthought or an inconvenient step in the purchasing process. Today, electronic payments are a strategically vital aspect that can give businesses a competitive edge when optimized correctly. Payment process optimization is no longer just about reducing friction—it’s about achieving operational efficiency, increasing conversion, and enhancing the overall user experience. 

But what exactly does optimizing payments mean? How do you go about payment process optimization in your business? And what do you need to consider when undertaking a payment optimization project? This blog answers those questions. 

What is Payment Optimization? 

Payment process optimization involves refining your payments strategy, technology stack, and processing logic to achieve several critical goals: reducing costs, improving authorization rates, minimizing fraud, and providing a seamless customer experience. This process is about improving both the backend and frontend aspects of payment processing, ensuring a smooth flow of electronic payments that benefits both the business and the customer. 

These improvements can range from minor adjustments—like rearranging payment methods at the checkout page—to larger-scale changes, such as integrating new processors or implementing advanced orchestration strategies that contribute to process improvement. Given the complexity and diversity of the payments ecosystem, businesses have a wide array of options available to enhance their payment processes. Success in payment process optimization comes from understanding your business’s unique objectives and tailoring your approach to meet those needs. 

Four Key Areas of Payment Optimization 

Optimizing for Conversion 

The goal of your checkout page is clear: encourage customers to complete their payment. Streamlining transactions at this critical juncture is both an art and a science. 

The art lies in ensuring that the design of your checkout page is on brand, builds trust, and provides a delightful experience across all devices. This is foundational—get this wrong, and you’ll find potential customers clicking away. The science comes when you think about your customers—where they are and their preferences. For example, selling a watch to a customer in Hong Kong means offering a mix of cards and mobile wallets as payment methods, all while displaying the price in HKD. On the other hand, a sale in Germany might call for payment options like SOFORT and GiroPay, with the price in EUR. 

Optimizing this part of the electronic payments experience requires regular testing and constant process improvement. By staying up to date on changing customer behaviors, you can continuously improve your checkout flow and ensure your payment process optimization strategy leads to high conversion rates. 

Optimizing for Authentication 

In today’s world of Strong Customer Authentication (SCA) in Europe and the increasing use of 3D Secure, authentication is a key factor in online safety. However, this added security can sometimes create friction, leading to cart abandonment if not optimized correctly. 

Optimizing authentication is a balancing act. There isn’t a one-size-fits-all solution, so merchants must tailor their approach to their unique risk profile and business goals. Thankfully, there are tools available to help strike this balance. For example, SCA regulations allow merchants to apply for exemptions, enabling certain payments to be processed without requiring customer authentication while still benefiting from liability shifts. 

Beyond Europe, the latest 3D Secure protocols offer the concept of frictionless authentication. By leveraging customer information in the 3DS2 flow, merchants can identify situations where no additional customer input is necessary to authenticate a payment, further enhancing operational efficiency. 

Optimizing for Authorization 

This is where things get complicated. Even if a customer presses “pay” and authenticates themselves, it doesn’t guarantee a successful payment. There are many potential roadblocks: system outages, issuing bank declines, or insufficient funds in the customer’s account. 

While there’s no foolproof way to eliminate these issues, proactive strategies can mitigate their impact: 

  • PSP outages: A backup processor ensures that if your primary processor fails, transactions can seamlessly switch to an alternate processor, maintaining operational efficiency. 
  • Issuing bank declines: If a bank declines a transaction due to suspected fraud, you can recover the payment by requesting the customer authenticate via 3DS. This added layer of security can reassure the issuing bank and boost transaction approval rates. 
  • Declines due to expired cards: Declined payments due to expired cards are common, particularly for businesses with subscription models. Using network tokens or an account updater solution can help reduce declines and improve payment success rates, further streamlining transactions. 

For subscription-based businesses, ensuring seamless recurring billing is essential to reducing payment failures. A recurring billing software can help manage automated payments, reducing churn caused by declined transactions and enhancing customer retention.

Optimizing for Cost 

Reducing the cost of accepting electronic payments is a primary goal for many payment teams. There are various strategies available to help achieve this: 

  • Meeting minimum volume requirements: By meeting the minimum transaction volume set by payment service providers (PSPs), businesses can unlock discounts, reducing the cost per transaction. 
  • Fraud and chargeback reduction: Lowering instances of fraud and chargebacks can lead to savings on processing costs, fines, and fees. Implementing robust fraud prevention measures like 3D Secure can be key to this goal, ultimately leading to more cost-effective payment processing. 
  • Streamlining internal processes: Using automation for tasks like reconciliation can help simplify operations and enhance accuracy, making process improvement a core element of operational efficiency. 

For SaaS businesses, choosing a cost-effective and scalable recurring billing software is crucial to managing subscriptions efficiently, optimizing revenue collection, and reducing overhead costs.

It’s crucial to note that while cost reduction is often a focus, businesses should also view payment optimization as a tool for enabling growth, not just cutting costs. By implementing effective payment strategies, businesses can unlock significant financial benefits beyond mere cost savings.

Barriers to Payment Optimization Success 

While focusing on one area of optimization can deliver impressive results, there are barriers that can hinder your payment optimization efforts. 

Limited Access to Consistent and Reliable Data 

Starting a payment optimization project requires strong data foundations, including benchmarking current performance and measuring the impact of changes. Having consistent, reliable data throughout the payment process is essential. However, this is often challenging, especially when working with multiple providers that structure data in different ways. Without solid data, process improvement efforts may be undermined, making it difficult to measure the true effectiveness of changes. 

Technical Debt and Resource Constraints 

Optimizing payments often involves testing various solutions for incremental improvements. However, businesses with legacy technical infrastructure may struggle to implement even minor changes. If your business is facing such technical debt, addressing flexibility within your payments stack should be a priority before embarking on optimization initiatives. Balancing operational efficiency with legacy system constraints is key to successfully optimizing payments. 

Payment Optimization as an Ongoing Strategy 

Payment process optimization is a critical, ongoing process for businesses looking to remain competitive. As the payments ecosystem and consumer behaviors evolve, continually refining your payment strategies can result in reduced costs, higher transaction success rates, and a superior customer experience. To stay ahead, businesses must prioritize flexibility and innovation within their payment infrastructure, consistently improving streamlining transactions, and maximizing operational efficiency. 

By leveraging tools like UniBee, companies can enhance their billing processes through automation, electronic payments, and streamlined workflows, helping them improve process improvement and operational efficiency over time.

FAQ 

How can payment process optimization impact customer retention? 

Payment process optimization can reduce friction during transactions, leading to a smoother, faster checkout experience. This improves customer satisfaction, minimizes failed payments, and ultimately increases retention rates.

For subscription-based businesses, ensuring that recurring payments are processed seamlessly and without disruption is crucial. Implementing an advanced recurring billing software helps automate billing, reduce payment failures, and recover declined transactions, ensuring a friction-less customer experience and long-term retention.

Can payment process optimization reduce fraud? 

Yes, by implementing advanced security features like 3D Secure and monitoring for suspicious activity, businesses can significantly reduce the risk of fraud during payments. 

How do I choose the right payment processor for my business? 

Look for a processor that aligns with your business needs, considering factors like transaction volume, cost, supported payment methods, and security features to optimize your payment process. 

What role do payment gateways play in payment process optimization? 

Payment gateways facilitate secure transaction processing between customers and businesses. Optimizing your gateway helps ensure smooth transactions, reducing failures and enhancing customer trust. 

Is payment process optimization only relevant for large businesses? 

No, payment process optimization is important for businesses of all sizes. Even small businesses can benefit from streamlining transactions to reduce costs, improve efficiency, and boost customer satisfaction.