Our world might be getting smaller, but SaaS companies can now expand across borders even faster. And it’s all thanks to the impressive technological advancements we’re witnessing in this day and age.
Selling internationally is now a logical step in any company’s expansion plan, including those selling SaaS and software, as numbers indicate (the SaaS industry has been valued at $273.55 billion in 2023).
However, successfully navigating global expansion is not as easy as it sounds and requires a strategic partnership with an expert payment solution and the careful use of local processing tools.
Without taking real steps to develop a growth plan that aligns your payment options to local customers preferences, including the most desirable payment methods and currencies, while also avoiding the pitfalls of global compliance, you might discover that your cross-border payments are getting declined.
Local acquiring is the most straightforward solution for improving international authorization rates, but unfortunately, without a trustworthy partner like the Merchant of Record, effectively processing payments locally in key markets is a highly complicated process.
In this article, we’ll be discussing:
Global Vs. Domestic Authorization Rates
Is The Merchant of Record A Solution?
What Are Authorization Rates?
Also known as approval rates, authorization rates measure the number of credit card payments that were successfully processed. In other words, the sale went through.
When your authorization rates are high, it means that your shoppers are experiencing a positive purchasing experience and you are enjoying increased revenue. On the other hand, if your approval ratio is low, your SaaS business is losing revenue as a result of failed transactions. And customers are not receiving the product they are trying to purchase and are left feeling frustrated.
How To Calculate Authorization Rates?
To determine your authorization rates, you need to divide the count of completed transactions by the total number of payments or attempts.
Why Do Authorization Rates Matter?
What is the ultimate goal for all businesses, SaaS or any other model?
To make a profit, of course.
But in a world marked by low authorization rates, this goal becomes less and less feasible.
Instead of making money, you are losing it. Plain and simple.
And let’s not forget that you spend money and effort on marketing to get the customer to buy, and he is blocked at the end of the funnel.
There are ways you can improve your payment process, and it is highly recommended that you do so. However, the painful truth is that some falsely declined shoppers will choose to drop your services after a single faulty experience. Yes, according to a recent study, 33% of US shoppers say they would switch products in the event of a payment decline.
So, really, you need to go beyond fixing issues and also focus on preventing them. And the only way you can do that is by keeping a close eye on your authorization rates.
Plus, it’s not just about losing revenue.
Say your SaaS business is currently making $10 million in annual revenue. Imagine having a 5% authorization rate improvement. This would translate into half a million dollars in additional revenue gained.
Higher authorization rates matter because they directly impact business profitability and customer satisfaction.
Global Vs. Domestic Authorization Rates
It's important to consider where you are selling, domestically or internationally, because the complexity of the process depends on it.
It’s important to realize that processing a local card issued by a bank with the same location as the merchant account differs from that of an international card in terms of fees and compliance regulations associated with cross-border payments, as well as other important aspects.
Payment Processing Complexity
Without any need to comply with foreign compliance laws and regulations, eliminating the need for currency conversion and, therefore, lack of additional fees, plus facing reduced scrutiny from financial institutions, processing local credit and debit cards does not involve an increased level of complexity.
On the other hand, processing international transactions requires increased communication with foreign banks, adding a layer of complexity to the already complicated procedure and exposing the SaaS business to a series of additional operations where things can go wrong for the transaction in question.
Currency Conversion
While domestic transactions are not subject to currency conversion because both the SaaS business and cardholder use the same currency, processing international cards is a horse of a different color.
In global transactions, currency conversion is required, which exposes both the merchant and the shopper to costly exchange rate fluctuations.
Regulatory Compliance
Both domestic and global transactions are subject to regulatory compliance. However, in the case of domestic payments, both the SaaS business and the customers follow the same legal frameworks, making the process considerably more streamlined.
International transactions, however, must abide by different foreign regulations specific to the areas in which the online businesses choose to expand. Tax laws, data protection regulations, anti-laundry rules, and so on vary from country to country, making compliance management highly complex.
Fraud Risks
Unlike domestic payments, which are generally perceived as having a lower likelihood of fraudulent transactions, international ones are often seen as having a higher potential for fraudulent activity.
For instance, countries like France or the US are extremely vigilant with cross-border payments for exactly this reason.
As a result, additional security measures are often implemented by both businesses and card issuers, which then affects the payment authorization rate.
Take 3DS, for instance, a solid solution for lowering the fraud rate. However, it can affect your approval rate. So, the key is finding the right balance.
The bottom line is this:
With an estimated $250 trillion gained from all cross-border payments by 2027 (yes, trillion!), it is crucial to grasp the distinctions between processing local and international cards in order to implement the right strategies that would allow your business to expand and thrive in any territory.
How To Boost Authorization Rates
Obtaining higher revenue is a natural consequence of improved approval rates. The more successful transactions you have, the better they are for your SaaS business.
But how can you accomplish this?
You implement a comprehensive strategy that works on multiple levels. Here are some elements worth including in your approach:
Implement Payment Retries
Automatic payment retries can be a powerful tool for boosting your authorization rates, and it is definitely worth implementing. A transaction may be declined due to temporary system glitches such as card network connectivity problems or payment gateway errors.
In these scenarios, performing a payment retry at a later time might solve the issue and help the transaction go through. However, make sure you implement custom rules when configuring the system to avoid dealing with an infinite loop of retries. Plus, you need to keep in mind the card scheme regulations around retries otherwise, you can get fined.
Manage and Reduce False Declines
Keeping authorisation rates high is an important goal, but so is keeping your transactions secure. Utilizing fraud prevention and detection tools is essential in this day and age, but you need to ensure that legitimate transactions are not wrongfully blocked.
So, make sure you:
Personalize fraud rules based on your business requirements and risk levels.
Employ advanced tools that leverage machine learning and AI to perform thorough verifications.
Integrate manual review procedures for improved results in identifying fraudulent behaviors.
Use Smart Routing
By directing transactions to the payment service provider with the highest approval rates, you can reduce declines and automatically gain revenue.
This is an important detail, and it is definitely something you need to look for when considering partnerships with a payment solution.
Utilize Network Tokens
Network tokens are unique, temporary, and secure data elements designed to protect primary account numbers (PANs) during payment processing.
They can increase approval rates, as network tokens decrease declines generated by outdated authorization data and ensure that the latest credentials are used for customer transactions.
Enable Additional Checkout Data
Collecting and submitting as much billing information as possible is always a plus, as it allows banks to conduct thorough verifications of attempted transactions.
However, it's essential to strike a balance when requesting payment information in the checkout form. If customers are asked to fill in an excessive number of fields, there's a risk of cart abandonment.
When discussing effective ways to improve your approval rates, especially international ones, local acquiring must be seriously taken into consideration as it is still a pivotal piece in the mechanics of your worldwide payment strategy.
So, let’s dive in and see what this concept entails.
What is Local Acquiring?
Local acquiring represents the payment processing technique through which the merchant acquirer or the financial institution that is processing payments on your behalf is based in the same territory where the transaction takes place.
In other words, with the help of a local acquirer, you can process payments as if you were in the same country as all of your customers.
As a result of this technique, the complexities of processing cross-border transactions are significantly reduced, your payment authorization rates improve, and greater revenue is unlocked.
Local Acquiring Pros and Cons
The point we are trying to make here is that local acquiring can be a game changer in cross-border payment processing, bringing businesses multiple strategic advantages.
4 Local Acquiring Advantages
Boosted Authorization Rates
Having a better understanding of local markets and consumer payment preferences, including currency and payment methods, local acquirers can keep your approval rates high.
Furthermore, their well-established relationships with local issuers can expedite the payment authorization process, leading to quicker and smoother payment approvals.
Ensure Cost-Efficiency
As we’ve mentioned before, international payments are often subject to increased processing fees, including foreign exchange costs.
By virtually transforming international transactions into domestic ones, you are significantly reducing those operational costs without sacrificing a positive customer experience.
As a bonus, you are still allowing your customers to pay in their preferred currency, which is, of course, a payment best practice.
Unfortunately, your SaaS business is still subject to foreign exchange fluctuations due to locally acquired transactions. After all, the funds you gain will be settled in your shopper’s currencies and not yours. But you get to decide how and when you choose to convert that revenue.
Achieve Positive Customer Experiences
Processing international payments often leads to additional fees for both the SaaS business and its shoppers. So, when partnering with a local acquirer and treating a cross-border card transaction as a domestic one, your shoppers will most likely thank you.
Additionally, trustworthy local acquirers offer merchants a wide portfolio of payment methods, a feature that significantly contributes to offering positive purchasing experiences.
Fast Market Expansion
One of the biggest issues of international payment processing and a real blocker for fast market expansion is ensuring legal compliance in the regions you wish to sell.
Each territory has distinct compliance laws and consumer rights regulations that need to be respected. Not complying with local legal frameworks can lead to significant negative consequences that can have long-term effects on your SaaS business.
In the absence of a trustworthy local acquirer, the responsibility for managing compliance would fall to each individual business, demanding a significant allocation of various resources.
A partnership with a reliable financial institution, on the other hand, would expedite your business’s market expansion while always ensuring full compliance.
4 Local Acquiring Cons
A partnership with a local acquirer might seem like the perfect fix for international payment authorization and revenue growth. But is it really? Well, not exactly.
Difficulty in Handling Multiple Acquirers
Eager to capitalize on the current success of the SaaS industry, you might wish to expand into multiple territories.
This, of course, would require setting up partnerships with local acquirers in every country in which your SaaS company operates.
Plus, it's relevant to mention that not every local acquirer will offer the payment method mix you need, so you might need to use multiple providers in a country or region.
Easier said than done.
Each acquirer might have its own set of requirements, fees, and service-level agreements, and all of these issues are complicated to manage and replicate for each of the countries into which you wish to expand.
Currency Conversion
This is just as big of an issue for the shopper as it is for the SaaS business. Unfortunately, a local acquirer does only half the job, and sadly, it cannot exempt you entirely from currency exchange fees.
If you are a US business selling into the EU, you will receive your funds in euros. Converting your revenue to US dollars will involve costs related to currency exchange fluctuations, which add up to business expenses and can affect your bottom line.
Time-Consuming Setup Processes
Effective local acquiring involves, in many cases, establishing a legal entity in each country you wish to sell.
This is a very long and complex process that requires you to understand and navigate different legal structures, resulting in an increased use of resources that could be better put to use in developing new products or innovating existing ones.
Additionally, it’s not just setting up the local acquiring network that takes effort. Maintenance and constant monitoring are also required to ensure flawless operations.
Now, imagine selling in 60 different countries. The operational workload is simply unimaginable.
Lack of Additional Services
While local acquirers play a central role in optimizing authorization rates, a partnership with these providers would not cover all your bases for achieving successful market growth.
In other words, you might be lacking essential payment tools that could have a strong impact on your business’s revenue.
Fraud prevention and detection tools, reporting and analytics, and a wide range of local payment methods all contribute to the health of your business and are required to ensure a fast market expansion.
Looking at the cons mentioned above, we should address the obvious question:
How can a SaaS company expand into new territories fast?
The answer is with the help of a Merchant of Record.
And here is why.
Is the Merchant of Record a Solution?
Local acquiring has its share of benefits, and, as we mentioned earlier, it remains a key component in an effective payment strategy. But how do you go about the challenges it comes with?
Rather simple, actually. You find someone to do the hard work for you. In the world of SaaS and software payments, that someone is the Merchant of Record.
The MOR acts as a reseller, taking on the responsibility of managing payments and compliance, and navigating the complexities of international online transactions on behalf of the merchant.
Without a strong MOR partnership in place, you are obligated to establish local entities in the countries you wish to sell. While an MOR already has that network in place, as well as established relationships with local acquirers. Operating as a reseller, you would benefit from this infrastructure and easily scale your business worldwide.
Having a deep understanding of local markets, a trustworthy Merchant of Record will provide you with the right blend of preferred payment methods, regulatory requirements, and currencies for each region, which will markedly contribute to an improvement of global authorization rates.
Rather than facing all the hurdles of establishing and overseeing connections with various local acquirers and third-party providers, you have the option to collaborate with a single partner, an experienced Merchant of Record.
Now that we’ve made it clear why a Merchant of Record is the strategic business decision in increasing your cross-border transactions, the question that lingers is which MOR is the right fit for your company.
Luckily, we have an answer for that, too.
The Merchant of Record that helps you grow
PayPro Global takes away the headache of selling your products worldwide. From local payment methods to simplified subscription handling and tax management, we give you the eCommerce tools you need to scale your business smoothly into the global market.
How Can PayPro Global Help?
PayPro Global offers SaaS, software, digital goods, and video game providers a unique Merchant of Record business model that simplifies and fast-tracks global business growth.
With over 15 years of experience in the market, PayPro Global is the ace up your sleeve, elevating your payment operations and allowing you to lead the competition.
As a PCI-DSS Level One Certified Partner, offering a smart mix of local currencies and alternative payment methods, as well as complete management of regulatory compliance and a robust, holistic fraud prevention and detection approach, our MOR takes away all the frustrations of selling internationally and gives you the freedom to focus on perfecting your product.
With an extensive network of partner banks, in addition to leveraging innovative payment technology, including AI and machine learning, we simplify and improve local acquiring in any territory in which you wish to expand.
Find out more about our complete payment solution and how it can strategically scale your business in global markets.
Final Thoughts
Global and domestic authorization rates are key indicators of your business’s health and profitability. So, keeping an eye on them is essential to your SaaS business, no questions asked.
And while they may be equally important, boosting your approval rates requires different approaches.
As we’ve established, local acquiring plays a major role in optimizing international authorization rates and reducing the number of lost sales, but it must always be part of the solution.
In other words, keeping approval rates high requires a comprehensive strategy, including strategic payment retries, network tokens, smart routing, and additional collection of payment data, preferably carried out by an experienced, dedicated partner ready and fully capable of covering all bases.
Frequently Asked Questions
What are Authorization Rates?
Authorization rates indicate the number of successful credit or debit card payments out of all attempted transactions.
How can I calculate Authorization Rates?
To determine your authorization rate, you must divide the number of completed payments by the total count of transaction attempts.
Why do Authorization Rates matter for SaaS businesses?
Also known as approval rates, authorization rates directly impact the profitability of SaaS businesses, as well as customer satisfaction. The higher your rates are, the more revenue you gain and the happier your clients are.
What are the differences between Global and Domestic Authorization Rates?
Unlike domestic ones, international authorization rates are much more complex in terms of payment flow and involve a higher number of fees and costs. Plus, they are subject to compliance and fraud scrutiny.
What is Local Acquiring, and how does it benefit businesses?
When discussing way to boost the authorization rates, local acquiring deserves a special place, being highly effective. Local acquiring is a payment processing technique where the merchant acquirer is based in the same territory as the transaction.
Ioana Grigorescu
Ioana Grigorescu is PayPro Global's Content Manager, focused on creating strategic writing pieces for SaaS, B2B, and technology companies. With a background that combines Languages and Translation Studies with Political Sciences, she's skilled in analyzing, creating, and communicating impactful content. She excels at developing content strategies, producing diverse marketing materials, and ensuring content effectiveness. Beyond her work, she enjoys exploring design with Figma.
