June 4, 2019 | Jim Magats
PayPal’s core focus is to provide the best payments experiences for our customers and partners around the world. To accomplish this, we’ve developed strong relationships with bank partners, networks and issuers over the last 20 years to build an ecosystem that caters to our unique two-sided network of both consumers and businesses. However, it’s also critical that we listen to our customers to alleviate any of their pain points and create world class payment experiences. One common issue we often hear is managing the rate of successful transactions – also known as authorization rates – to ensure a seamless transaction. At Money2020 Europe this year, I spoke on stage with Mastercard and PPro about how great partnerships can help improve this. At PayPal, we are committed to delivering best-in-class authorization rates through a combination of both global and segment-based optimization, as well as our payments expertise, robust tools, and vast international reach. In fact, during the last several quarters, authorization rates for our PayPal wallet have increased by nearly 100 basis points – a gold standard when it comes to digital payments.
The Power of the Wallet
The PayPal wallet is one of, or potentially, the oldest providers of vaulted payments in digital payments. When an online shopper selects to pay with PayPal, they have the choice of selecting their preferred payment method within the PayPal wallet, or they can retry if it fails with a backup card, or alternative method. Therefore, if someone is declined they can easily select an alternative payment method, improving the chances that a business can successfully complete the payment and not miss a sale or avoid losing a consumer. This also gives people more flexibility to pay with a payment instrument that they know can complete the transaction, and no buyer has to abandon their cart due to insufficient funds (also known as NSF) or any other decline scenarios.
This is one value that our two-sided network can offer to our consumers and businesses, but we have also been building direct relationships with issuers globally so people can seamlessly link their favorite funding instruments to PayPal --resulting in a better digital wallet experience. In Europe, for example, PayPal will directly connect with Open Banking and PSD2 platforms to enable account linking, provisioning, and near-real time account balance checks to offer a better transaction experience.
Keeping the Wallet Fresh with Account Updater
Another benefit of our wallet, and our relationships with financial institutions around the world, is that we are able to keep consumers’ card information up to date through Account Updater -- one of the biggest contributors to system wide improvements to our authorization rates. We offer Account Updater in most major markets as well as support for Visa, Mastercard, American Express and Discover (through direct partnership) to offer greater choice and flexibility for our customers. While most providers are using only the traditional off-line batch based Account Updater services, PayPal is enabling real-time Account Updater that checks for an update during the time of the authorization.
Another way we’re innovating to improve transaction rates is by tokenizing cards on file within PayPal. In fact, PayPal has the potential to become one of the world’s largest tokenized vaults. I recently lost a bank debit card that was linked to my PayPal account, and instead of having to update all the sites with the new payment information, my bank and PayPal account were linked so when I went to reload my Starbucks card it was already updated. No need for me to go into my PayPal or Starbucks account, it already appeared when I was issued a new card. Removing friction and concern, and also improving the likelihood that a retailer wouldn’t miss a sale. Therefore, the use of real-time Account Updater and tokenization gets us card update coverage of close to 90% (based on geography and issuer participation) and helps PayPal improve the approval rate for the transactions for buyers and avoid declines from a stale or expired card.
Risk, AI and Data Sciences
We’re not only taking important steps through partnership to remove friction for consumers and businesses when it comes to authorization rates, but we’ve also invested in machine learning models to update some of this information leveraging different attributes of the card including bin, issuing bank, card types, and previous update history. What this means is that if you are a long standing PayPal customer with a good purchasing history, we can simply authorize a payment on your behalf. We can do this by leveraging data science and AI algorithms coupled with a rich set of transaction history information to predict payment trends. In instances where there are multiple funding instruments, we can implement a secondary, back-up funding instrument strategy which has potential to improve our authorization rates.
For high risk transactions, PayPal strategically leverages 3D-Secure, CVV checks and proprietary authentication mechanisms to approve more transactions without increasing loss exposure. Leveraging this risk information for our key issuing partners and using a segment-based strategy for identifying good transactions has helped us approve more transactions for our good users – making us best-in-class in approvals and preventing fraudulent users from exploiting the payments network.
Our strategy and capabilities also extend into other areas of the PayPal network. Braintree’s powerful technology and processing platform is built on long-term relationships with banks and card networks, strong merchant relationships and backend capabilities developed over the years. As such, we’re able to maximize what we do for our PayPal wallet customers through Braintree– including optimized processing, access to the power of our vault, and first-attempt processing methods — to help drive transaction success and improve authorization rates.
PayPal is committed to investing in a world-class optimization strategy as well as offering the necessary tools to deliver best-in-class authorization rate performance so that our customers can continue to have seamless and reliable commerce experiences, around the world.
Jim Magats, VP, Global Core Payments, PayPal