When it comes to authorizing transactions, issuers have historically held the keys to the cardholder kingdom. Card issuing banks made the ultimate choice over whether a payment was approved – and may have done so in an environment of asymmetric information, banking on risk scores from other parties in the payment flow. Today, this decisioning is becoming even more complex, with issuer processors and BIN sponsors fragmenting the issuance market and complicating the question of who truly owns transaction success.¹

Two things are still true: merchants typically hold liability when a payment is charged back, and everyone loses out when a good customer cannot make a payment.

It’s no wonder, then, that the payments industry is laser focused on ways to get more merchant information into issuer’s hands.

So, what are the options for merchants looking to bridge the data gap, and how effective are they?

1. Direct collaboration

Sometimes, there’s no substitute for a conversation. Many merchants notify issuers of upcoming product launches, for example, to prepare them for a spike in volume. Others may share details on their merchant descriptors or notify issuers of refund policies so their call center staff can steer customers towards the merchant’s preferred action for high-chargeback flows.

This targeted strategy may be effective in highly concentrated issuer markets, but it is also reliant on factors such as existing relationships and the merchant’s ability to harness data to tell a cohesive story about mutual pain points. In highly fragmented issuer markets, merchants may lack the relationships, resource or specific data to make these direct approaches a success.

2. Enhanced data flows

Some issuers offer APIs that allow merchants to send additional data – including device, customer, and order data – to the issuer to support in decisioning.² Sharing the right information may allow merchants to protect their most valuable customers, but sharing all optional data in a blanket way may not drive efficient outcomes either. Furthermore, enhanced data solutions are not widely available and could become increasingly fragmented as issuers develop their own APIs and data preferences.

3. 3DS and Data Only

3D Secure is an authentication protocol developed by EMVCo and has become a staple for merchants in markets such as Europe where regulation requires additional authentication online. Many merchants have been nervous of 3DS, in part because it can introduce additional friction for the consumer if issuers ‘step up’ a transaction to require two-factor authentication. In markets where 3DS is not associated with regulatory requirements, there is an additional concern that issuers will mistrust 3DS traffic, assuming the merchant believes it to be high-risk and treating it as such.

The 3DS ‘data-only’ flow is an alternative solution that shares the same shopper data with the card network, but the transaction cannot be ‘stepped up’ since there is no request for authentication (and therefore no liability shift). However, it still requires a full 3DS integration, and issuer adoption varies across markets.

4. Trusted MIDs

Trusted Merchant ID solutions allow issuers to designate a certain merchant’s transactions as ‘trusted’, and therefore more likely to be approved. Today, some merchants achieve this via their payments partners, such as third-party fraud providers, who have relationships that allow them to consolidate low-risk traffic and achieve higher approval rates. Doing this on a one-to-one basis can be time consuming for merchants, and depends on the merchant’s ability to build strong issuer relationships and prove the quality of their own risk mitigation techniques.

Choosing the right collaboration strategy

Ultimately, issuers and merchants are both better off when good customers are able to transact, and in the online world it’s often merchants who know their customers better than anyone. However, collaboration can be challenging and often hinges on access to the right data – whether it’s knowing the card subtypes that pinpoint which customers in an issuer’s portfolio are affected by declines, or knowing which BINs are rented by an issuer processor responsible for authorization. Marrying these to the merchant’s unique customer flows allows for actionable strategies that promise shared success. For the largest merchants, this granularity is key in moving beyond out-of-the-box solutions to a unique strategy that maximizes the profitability of every transaction.

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