How Transaction Risk Analysis (TRA) reduces cart abandonment rate

Published: 19 July 2022 • Reading time: 5 minutes

Shopping cart abandonment in the UK and worldwide

Shopping cart abandonment and fraud rates are without a doubt a few of the major pain points of many industries globally. In the first quarter of 2022 the average shopping cart abandonment rate across all devices in the UK was at 77% (mobile devices being the highest – 82%)¹. We explored in this insight the data from the previous years, as well as cart recovery solutions, but today we want to look at how the authentication and abandonment rates are connected with the security concerns.

Over 30% of UK shoppers abandon their carts to come back to them at a later date, over 25% purchase from a different merchant. These actions often have to do with shopping experience, delivery conditions and the effort it takes to purchase the item/service, security concerns and difficulty with payment approval. The last two reasons account for 11% of abandoned carts², and these have the potential to be eliminated almost completely with the right fraud strategies in place, as well as an effective transaction risk analysis that is done in real-time, and doesn’t impact negatively on customers’ purchasing experience.

What is Transaction Risk Analysis (TRA)?

Simply put, ecommerce transaction risk analysis is a tool that makes authentication exemptions possible. The real-time risk analysis serves to remove friction without sacrificing security, and effective TRA solutions are AI driven and require machine learning algorithms. TRA allows for strong protection of the customer and merchant alike, providing high level of security.

So how does it work? TRA solutions usually work by analysing issuer’s and merchant’s risk scores and other risk factors to confirm that spending, place, time and other behavioural patterns are within the norm, if not, the risk alert is triggered and authentication is required, since the exemption test fails. The need for transaction risk analysis was always relevant in the Ecommerce world, but with PSD2 regulations and a relatively new possibility of exemptions, TRA became indispensable.

Today transactions up to €500 (the sum depends on acquirer’s fraud rates, the cap can also be €100 or €250) individually can go into a secure exemption flow from SCA (strong customer authentication), thanks to the real-time TRA. Those transactions that are deemed of low risk of fraud, can be processed without authentication. The request for exemption PSD2 is up to the merchant’s approval. Below you can see how Axerve’s TRA PSD2PSD2 compliant solution works.

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Challenges brought on by SCA and PSD2

Transaction Risk Analysis is an essential component of effective payment solutions also because PSD2 brought on many challenges for merchants in order to improve customers’ security, such as:

Added friction (an added step in the payment flow of strong customer authentication). This of course has a negative impact on revenues and conversion, besides customer’s buying experience.
Fraud risk still remaining. 3DS2 protocols implementation is not bulletproof, fraudsters can still use other channel to steal the funds and scam by using anonymous cards or cards issued outside of the EEA, via call centres, or stolen cards and other identity theft types.
Authorization rates by banks will be lower without TRA in place, due to liability shift ensured by PSD2.

SCA is not exactly guaranteeing fraud prevention, so payments and authentication need to be further protected, in order to make it more difficult for fraudsters to figure the potential loopholes out. TRA reduces shopping cart abandonment because besides performing real-time risk assessment, it also takes care of out-of-scope of PSD2 orders and safeguards the ID of the merchant, which improves bank authorization rates. To learn more you can watch Axerve’s dedicated webinar with Riskified and Mastercard, by clicking here or by scrolling down.

According to Mastercard’s analysis, presented in 2021 during the webinar organized by Axerve, 80% of their transactions were sent directly into the authorization flow, taking advantage of PSD2 exemptions, which was done thanks to Transaction Risk Analysis (TRA) for transactions that were deemed of low fraud risk and of low value. The transactions in Europe and the UK with Mastercard grew 49% in the 3DS flow just in 4 months. Thanks to a simplified authorization flow and efficient transaction risk analysis, PSD2 exemptions grow along with the customers’ satisfaction with the user experience, while shopping cart abandonment rate drops, ensuring a frictionless payment.

Moreover, after only 3 months of 3DS flow implementation, the European grand total of authentication rate improved from 61.8% to 74.5%, with the UK being an absolute leader with almost 90% authentication rate in 3DS flow with Mastercard. Frictionless flow (3DS exemption) was the main reason for this high authentication rate. Authenticated frictionless transactions (exempt of SCA) accounted for almost 30% of authenticated transaction (21.4% pre-3DS), the reason was yet again the real-time efficient TRA. The UK was the leader again with 61.4% exempt transactions with Mastercard, along with high exemption rates in Spain, Greece and The Czech Republic.

Axerve, in turn, reported that the authentication conversion rate was 76.22% after 3DS protocols became obligatory. The goal for the PSD2 SCA requirement was to reduce fraud and ensure that issuers and merchants in the EEA were validating all electronic payments. And PSD2 SCA is certainly good for digital commerce because it makes it safer and more secure for consumers to transact in the digital world, but the friction could still become limiting and alienate potential customers, which is when TRA comes into play.

How conversion rate and TRA are connected?

So how does transaction risk analysis improve a shopping cart abandonment rate, ergo a conversion rate? As reported by Mastercard, after exemptions through risk analysis became possible, they observed a correlation between high number of frictionless transactions and higher conversion rates, because one step in the payment process is eliminated, specifically, SCA (strong customer authentication). Optimizing existing challenge flows can boost even more the quality of TRA and improve further the conversion rate, while also reducing chargeback.

Unnecessary authentication for a valid non-fraudulent transaction adds friction to the payment process and risks to encourage the user to abandon their shopping cart. Often the authentication screen is not clear enough, and the card’s data request might alienate the potential customer and force them to leave temporarily or indefinitely. Safe and frictionless payment experience is a solution to this problem, and this is how an effective TRA helps your business convert more, while providing your customers with a smooth payment experience, without sacrificing the security, but to the contrary, making your payments process more reliable. Axerve Advice (Powered by Riskified) is our ecommerce transaction risk analysis solution, complementary to Axerve Guaranteed Payment that allows for effective real-time risk analysis to take advantage of PSD2 exemptions. So, to sum it all up, our TRA win-win formula is simple: improved conversion rate equals lower shopping cart abandonment.