Successful digital transactions are an essential part of business. However, that doesn’t mean that all digital payment solutions used to ensure those transactions go through are created equal.
“All payment networks sit on a ton of payments data,” Tine Fincioen, executive vice president for digital transformation at Mastercard, told PYMNTS, “but where we differentiate is how we use our data analytics to identify optimization opportunities.”
As digital commerce expands, unlocking the benefits of that data to increase approval rates is crucial.
The challenge strikes merchants, issuers and consumers alike. While physical point-of-sale transactions often enjoy higher approval rates, digital transactions are lagging, with implications for all stakeholders.
Fincioen explained that addressing these issues requires a data-driven approach, leveraging technology and collaboration across the payments ecosystem.
“There are only two types of declines that are valid: true fraud attacks — not the fear of fraud — and when a consumer lacks funds or has reached their credit limit,” she said.
As for all the declines hovering in the middle? That’s where all the white space opportunity for better, more streamlined digital commerce sits.
The growth in digital commerce has naturally led to a surge in fraudulent activities, presenting a persistent challenge for issuers and merchants, particularly as advances like artificial intelligence (AI) help to democratize illicit activities.
“AI is a very powerful tool,” Fincioen said, adding that it can be used for good, too, and noting how Mastercard has integrated AI into its security solutions for over a decade. “It can proactively identify and neutralize fraud attacks in real time.”
By leveraging generative AI to scan a trillion data points, AI tools like Mastercard’s Decision Intelligence Pro can predict the likelihood of transactions being legitimate. Fincioen said this approach has the potential to boost fraud detection rates by up to 20%, demonstrating how AI’s real-time capabilities are indispensable for maintaining transaction security.
Still, even with AI hard at work in the background, many legitimate transactions still face rejection due to data errors.
Fincioen said the system’s communication chain, particularly between issuers and merchants, plays a vital role. When issuers fail to provide precise reasons for declines, merchants may repeatedly resubmit transactions without new information, creating a cycle of declines.
“Merchants must complete authorization requests with as much data and information as possible and follow best practices, like marking recurring payments or indicating when a transaction is stored on file,” she said.
Mastercard’s own efforts evolve as it integrates lessons from transaction data. By promoting services such as tokenization, authentication and account lifecycle management, Fincioen said Mastercard improves approval rates and delivers a seamless payment experience for both consumers and merchants.
“We provide intelligence directly into the authorization response message, helping merchants understand if, how and when they should retry a transaction,” she said.
This intelligence-driven approach minimizes unnecessary retries, reducing costs for merchants and enhancing the consumer experience. Fincioen said this solution is applied to about 17 billion transactions.
Outdated credentials are a common problem that leads to declines. According to Fincioen, tokenization — replacing account numbers with secure, device-specific tokens — is a solution that ensures payment continuity even when underlying credentials change.
“Tokens are automatically kept up to date, so consumers don’t have to manually update their credentials,” she said. This practice enhances security and improves approval rates by 3-6% compared to non-tokenized transactions.
The responsibility, however, does not rest solely on merchants. Issuing banks must collaborate with networks like Mastercard by providing updated credential information in real time. Fincioen said such partnerships are crucial for normalizing tokenized transactions, enhancing security and approval rates alike.
Merchants and issuers must also adapt to evolving policies and collaborate to achieve higher approval rates. To address this, Mastercard is developing a Payment Optimization Platform.
The platform, enriched with AI and transaction data, is designed as an “on behalf service” that generates the most optimal authorization messages with the highest approval probability. By evaluating over a trillion data elements, it provides merchants with a strategy for approvals. “It’ll solidify the top-of-wallet position for issuers, as cardholders will appreciate the improved experience,” Fincioen said.
As digital transactions continue to grow, the need for a proactive, data-driven approach to transaction optimization is critical. Fincioen said Mastercard’s strategy is built on years of insights, aiming to provide a seamless and secure experience for all stakeholders. “We offer this as an on-behalf service, translating our learnings into productized advice and intelligence.”
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