What Is Payment Optimization, Why You Need It and How It Works

Unlock ecommerce success with payment optimization. Discover must-have tools to implement into your payments strategy for efficiency and growth with


November 16, 2023

man developing a payment optimization strategy

In ecommerce, a simple click can be the difference between a sale and an abandoned cart — and it’s up to the merchant to uncover why a shopper may have skipped out on a purchase.

Oftentimes, a lost customer has nothing to do with the products themselves and everything to do with a flawed user experience. While about 70% of consumers abandon their carts, a large portion is due to payment friction and checkout challenges. If you believe your payment process may be causing customers to drop off, read on to learn how to create a payment optimization strategy.

What Is Payment Optimization?

In today's fast-paced ecommerce landscape, businesses are constantly seeking ways to enhance efficiency, reduce costs and provide a seamless experience for their customers. One critical area often overlooked is payment optimization — a strategic process that involves streamlining payment tools, reducing transaction fees and ensuring a secure and smooth payment experience.

In this blog, we’ll delve deeper into payment optimization — including what it is, what it is not, must-have tools for success and how to start your optimization strategy. But before we get started, let’s establish the differences between payment optimization and a related term, payment orchestration.

Payment Optimization vs. Payment Orchestration

You may see the term “payment orchestration” when planning your payment optimization strategy, but that’s not what we’re covering today. It is, however, a helpful tool for optimization, as it controls all your payment tools.

Click here to learn more about payment orchestration.

Let’s look at the differences between the two:

Payment Orchestration coordinates multiple payment services and providers into a single integrated solution. Think of it as the conductor of an orchestra — but for payments. It centralizes payment processes, making it easier to manage and switch between different payment providers, methods and services.

Payment Optimization focuses on fine-tuning the payment process for the best performance. If payment orchestration is the conductor, then optimization is the general manager who ensures all players are necessary and working as efficiently as possible. It’s about reducing fees, improving conversion rates and mitigating fraud risks.

Simply stated, orchestration focuses on the architecture and integration of multiple payment tools and systems, while optimization focuses on refining these tools to maximize performance.

Why You Need Payment Optimization

The ecommerce payments process is growing increasingly more complex, and merchants with a robust payment optimization strategy have a leg up over competitors. Read on to discover the must-have benefits of optimizing your payments.

Ease Payment Friction and Maximize Conversions

Who doesn’t want to make more money? An efficient payment optimization strategy involves reducing barriers to completing transactions — ultimately leading to more conversions. Each business is different, but this can be done when merchants:

  • Streamline the checkout experience.
  • Diversify their payment methods.
  • Minimize the number of steps required to complete a transaction.

Mitigate Fraud

It’s often overlooked as a payment optimization tool, but fraud prevention is an important element of your payments strategy. It often involves:

  • Leveraging machine learning to identify fraud without denying legitimate transactions.
  • Adopting chargeback alerts to mitigate friendly fraud.
  • Using multi-factor authentication, encryption technology and secure payment gateways to collectively prevent fraudsters.
  • Continuously refining payment systems and staying ahead of evolving fraud tactics.

Reduce Transaction Costs

Lower transaction costs happen when businesses streamline processes, improve efficiency and minimize errors. Brands that want to achieve this can:

  • Use AI to reduce the time and resources required for manual tasks such as payment retries.
  • Choose the most cost-effective payment methods and payment service providers (PSPs).
  • Adopt chargeback prevention tools to improve trust with PSPs.
  • Route payments through the most efficient gateways.

Facilitate Brand Loyalty

You could have the best product and brand in the world, but you won’t acquire any lifelong customers with an inefficient payment system. Payment optimization helps foster brand loyalty by:

  • Creating a seamless and convenient shopping experience for customers.
  • Reducing frustration and enhancing customer satisfaction, making them more likely to return for future purchases and recommend the brand.
25% of consumers say they wouldnt return to an online store if their initial payment was declined.

Must-Have Payment Optimization Tools

Now that you know the numerous benefits of payment optimization, here are the must-have tools to ensure your payments process is built for success.

Pre-Authorization Tools

Intelligent Payment Routing

Payment routing is a common practice of directing transactions through specific gateways to process payments more efficiently. Intelligent payment routing, however, takes this process a step further by using machine learning to route each payment to the processor most likely to approve the transaction, save the merchant the most money, offer the best security and more. Its decision is based not only on the transaction data but also on past outcomes of similar payments and other variables.

3D Verify

If your business suffers from false declines and high chargebacks, 3D Verify is your solution. This tool adds an additional layer of security by asking the cardholder to provide proof of identity with a unique password, SMS code or temporary PIN. This exchange shifts liability onto the card issuer and ensures the rightful card owner is making the purchase — saving you money on potential fraud or chargebacks.

Account Updater

Recurring transactions are often subject to high decline rates due to expired credit cards, but Account Updater solves this problem by automatically updating customer payment details as they change. This process helps merchants capture lost revenue, convert hard declines into approvals and maximize customer lifetime value.

account updater successfuly recovers the correct biling information for 71% of all expired cards.

PINless Debit Processing

Although it costs consumers nothing to pay with debit rather than credit, it does put a dent in the merchant’s profits. 50% of orders are placed using a debit card, and these types of payments can rack up high processing fees and low transaction approval rates. But with the help of a PINless debit gateway, merchants can optimize debit card payments by running them as credit without a security PIN — resulting in lower processing costs and higher approval rates (over 95%!).

Post-Authorization Tools

Smart Dunning

Ecommerce merchants in the recurring billing space must be extra cautious of involuntary churn, as 25–35% of recurring transactions are declined for various reasons. Fortunately, Smart Dunning can step in to recover these failed payments. The service uses machine learning to predict the optimal date and time for a retry attempt — removing the guesswork from when to rebill a customer and converting denied transactions into approvals.

Payment Cascading

While intelligent payment routing uses machine learning to send payments to the most efficient processor, payment cascading is the technology that takes over if a payment is declined by the processor. Once the transaction is denied through one gateway, cascading technology moves it onto the next gateway that’s most likely to succeed. This gives each transaction multiple opportunities to process successfully and takes a large part of the decline management process off your plate.

Get a POP To Optimize Your Payments

After reviewing these tools, you may be wondering where to start with adopting the right technology and partnering with providers. Fortunately, a payment orchestration platform can help you streamline the tools in your payment optimization strategy.

A payment optimization platform, or POP, has the primary job of managing all your payment optimization tools in one place. Instead of dealing with several providers to create your tech stack, you can consult a POP to streamline your payment operations and do the dirty work for you.

The payment orchestration platform you choose can make or break your success as a business. Discover how can revolutionize your payment optimization strategy.