In part two of this series on approvals, we continue our deep dive into approvals and navigating their growing complexities. Hidden fees or inefficiencies and expensive solutions – among other pitfalls – can make it hard to decide what steps to take after evaluating approval rates. Emerging payment methods and asymmetric information create obstacles for merchants as they strive to create a strategic plan to increase their approvals.

Emerging Payment Methods

Innovation is vital to the payments industry by providing competition for both consumers and merchants. New payment methods entering the merchant’s payment mix can create challenges within their data impacting the overall approval rate. Often, merchants do not directly choose to accept new payment methods but still see the impact of alternative payment methods such as BNPL, mobile wallet solutions, and Neobanks. These payment methods can come with costly interchange rates and introduce additional complexity for Transaction Success. In order to accurately measure and remedy this indirect traffic, merchants need to be aware of where this spending is within their estate.

Simpson’s Paradox

One could argue that what is more difficult to navigate than a lack of information is asymmetric information. In other words, ambiguity in data often leads merchants to not see the full story and therefore make strategic decisions based on information in which they are not fully confident. To apply economic theory to this common issue, let’s review Simpson’s Paradox. Simpson’s Paradox occurs when a trend that is evident when data is analyzed in groups is reversed or disappears when the data is aggregated. This phenomenon has been seen when analyzing PINless approval rates for certain BINs. Take the following Approval Rate Comparison as an example.

When reviewing how a certain BIN is affecting the approval rates when routed to the domestic network, it would appear the domestic network has a lower approval rate. If only this level of insight was available, the decision to route that particular BIN to the global network would be logical. However, when this change is made, the global network’s approval rate decreases and the domestic network approval rate increases, confirming the effect the BIN, not necessarily the network, has on the approval rate.

If a particular domestic network happens to be co-badged on a very large Alternative Payment Method product, then reviewing aggregated performance could result in the perception that this network performs more poorly than a global counterpart given some APMs tendency toward lower approval rates. We observe that controlling for these outliers often results in performance parity and opens the opportunity for merchants to address inefficiencies more directly by understanding the context surrounding underperformance at the BIN level, not just the aggregate.

Conclusion

Navigating approvals can be challenging and the growing complexity of emerging payment methods and asymmetric information only multiply the need for strategy and optimization. CMSPI helps clients understand the various interpretations behind approval rates by measuring performance gaps for multi-acquiring merchants, optimizing retry strategies for subscriptions, estimating the opportunity and impact of value-add solutions and running approval analysis in parallel with PINless debit implementation to ensure a successful rollout. Approvals can be complex but navigating them doesn’t have to be.