How to improve your MIT payment performance

If your business relies on recurring billing – be it for memberships, subscriptions, or BNPL (Buy Now, PayLater) installments – you’re already accepting merchant-initiated transactions (MITs).

You get a predictable, consistent flow of income. Your customer doesn’t have to remember to make the payment manually every month (or even think about it at all). And, when flagged correctly, MITs are deemed as out of scope of the SCA requirements under revised PSD2 in Europe and the UK – allowing you to process them without any further authentication from the cardholder.

The question, then, isn’t whether MITs are integral for your subscription-based business – because they are. Instead, the question is – could they be better?

After all, customers don’t expect MITs to take place in anything close to real time. (Unlike with a customer-initiated transaction, or CIT, which you’ll need to process immediately or risk cart abandonment.) This means that MITs represent a valuable performance opportunity: a sandbox to play in, and an exciting new terrain to chart and explore.

But how? Below, we’ll look at what MITs are, and how to measure MIT performance at each of the three core stages of the conversion funnel. Then, we’ll look at why MITs fail – and what you can do to avoid this – and how a good payment service provider (PSP) can be your best ally.

What is a merchant-initiated transaction (MIT)?

A merchant-initiated transaction (MIT) is, as the name suggests, a payment initiated by the merchant. In an MIT – which must be agreed upon with the customer in advance – a seller can ‘pull’ a payment from the cardholder’s account, without the need for any further authentication.

In this way, an MIT is the opposite of a cardholder-initiated transaction (CIT). A CIT is the typical way in which we think of ecommerce transactions – where a customer submits their payment card information to a seller’s website to ‘push’ a payment across.

The key difference with an MIT, however, is that it avoids the need to clear each payment with the customer. After the first CIT, in which the customer authorizes the payment through Strong Customer Authentication (SCA), the merchant can bill them at pre-agreed intervals. This makes MITs an excellent option for sellers that rely on recurring billing – such as subscription businesses – or those that process payments in installments.

How to measure subscription funnels & the role of MITs

When it comes to measuring how well your MITs perform, the answer always comes down to one word – conversions.

Essentially, a conversion is when a person your business is interacting with – perhaps a first-time visitor to your brand’s website, or a loyal customer – takes an action you want them to take. That could be clicking on an ad, signing up for a free trial, or buying from your store.

The conversion process can be visualized as a funnel, with your customer moving from an awareness of your product to an interest in it, before making the decision to buy it.

It involves informing prospective customers that you exist, then inducting those “suspects'' into your brand’s ecosystem by getting them to interact with your product. Following that, it’s about moving customers gently from desire to action: encouraging them first to add your product to their cart, then complete the purchase of a subscription to your business’s offering.

But the conversion funnel doesn’t stop there – it keeps going. On and on. Because after a cardholder subscribes, it’s then about holding onto their custom: and ensuring that, through a seamless payment and customer experience, they never want to cancel.

Let’s take a closer look at how to track MIT performance by splitting the funnel into the three conversion stages outlined in the funnel diagram above: marketing, product, and payment.

Marketing conversion

Marketing conversion’s main goal is to bring visitors to your product. It’s about raising awareness, drumming up interest, and – ultimately – bringing relevant prospects into meaningful contact with your business’s key offerings.

In a MIT context, marketing conversion has two main functions.

The first is what we’ve just mentioned: that is, identifying and engaging potential customers and bringing them into your brand’s fold. For this, you can measure performance through metrics such as impressions, click-through rate (CTR), lead conversion rate, cost per lead (CPL), and customer acquisition cost.

The second function of marketing as relevant to MITs, however – and this is absolutely vital for subscription-based businesses – is keeping existing customers engaged. After they’ve signed up. To do this, you’ll need to optimize your payments conversion. (We’ll discuss that soon.)

Product conversion

Product conversion relates closely to the performance of your product. If what you’re offering is good, you’ll convert visitors into customers. If it’s not, well…you’ll struggle to turn prospects into people who are willing to pay for the products or services you’re selling.

To measure MITs at the product conversion part of the funnel, look at metrics such as:

• Trial-to-paid conversion rate: The percentage of users who retain their subscription at the end of their free trial, and become regular customers.
• User engagement: This involves scrutinizing measures such as session duration, page views per session, and feature usage to assess how engaged users are with your tools.
• Churn rate: The percentage of customers who cancel their paid subscription – or quit using your product or service entirely – in a given period.
• Net Promoter Score (NPS): Measures how likely customers are to recommend your business’s offering to others.

Payment conversion

Payment conversion refers to the performance of your payment flow.

It’s the ‘Action’ phase; the final part of the classic AIDA marketing funnel. The part when prospects become paying customers; when suspects become subscribers. And, of course, when subscribers stay that way – every week, every month, or every quarter you bill them.

To measure MITs at this stage, then, look at metrics such as payment success rate (the percentage of payments that succeed first time), and retry success rate (the payments that go through on subsequent efforts). Similarly, looking closer at your payment decline rate (the amount of payment attempts declined by the bank or payment processor) can tell you a lot about why your MITs might be failing – and help you do something about it.

Why is payment conversion particularly important? Because, for subscription-based businesses, how you accept and analyze payments has a direct correlation to how effective you are at converting and retaining customers. If your payment conversion isn't optimized, all the resources spent on marketing and product conversion go to waste if the payment doesn't go through. This is why partnering with a reliable payment service provider (PSP) can make such a big difference.

Why is payment conversion particularly important? Because, for subscription-based businesses, how you accept and analyze the payments you accept has a direct correlation to how effective you are at converting and retaining customers. It’s at this stage, too, that working with a reliable payment service provider (PSP) can make such a big difference.

Here’s why.

How a good PSP can make a difference

When it comes to converting your customers through good marketing – then retaining them through smooth, seamless MITs – one factor can make all the difference to your business:

The quality of the payment service provider (PSP) accepting payments on your behalf.

Below, we’ll take a look at the top ways in which a good PSP, like Checkout.com, can aid your efforts to convert customers – and use MITs to keep them in your subscription business’s sales and marketing ecosystem.

Seamless integration with your checkout via a payment API

When it comes to increasing the efficiency and performance of your MITs, the right PSP doesn’t just bring fresh features or reliable functionality to the table. It brings convenience.

To that end, you’ll need a PSP that makes it simple to integrate into your business’s existing software and systems. Typically, the best way to achieve this – to equip your business with the ability to accept MITs from your customers – is with a comprehensive set of payment APIs.

A payment API (Application Programming Interface) is a piece of website code that connects the secure payment network to your app or website. By linking your checkout page to a payment processing service (like the one we offer here at Checkout.com), you’re able to accept payments in a smooth, seamless way that minimizes friction for your online customers.

The only catch? That not all payment APIs – and not all PSPs – make this process equally easy.

A good PSP will offer not only a payment API, but several other key features too, such as:

• Providing detailed, step-by-step implementation guides and sample code snippets.
• Offering Software Development Kits (SDKs), plus libraries for various programming languages and platforms (such as Java, Ruby, Python, and PHP).
• Making it easy to connect to popular ecommerce platforms (such as WooCommerce and Shopify) with pre-built modules or plugins, enabling you to deploy the payment API quickly and without extensive custom coding.

What’s more, just as not all PSPs are equal, payment APIs differ greatly in what they’re able to achieve. The right payment API enables you to perform a plethora of payment-related tasks: from collecting payment details and sending payment requests to issuing payouts, processing voids and refunds, or handling repeat billing. (Something you’ll need for successful MITs.)

PSP features to detect fraudulent actions

Using checks offered by the schemes

On top of the more advanced fraud prevention and detection setups of your PSP, you can also take advantage of the fraud checks the card schemes (such as Visa, Mastercard, American Express, and Discover) offer as standard.

These include:

• AVS (Address Verification Service): this compares the billing address the cardholder has provided with the one the issuing bank has on file. After cross-referencing the address’s numeric values – for example street number, ZIP code, or P.O. box number – the scheme provides a response code, indicating either a match (full or partial) or not.
• ANI (Account Name Inquiry) checks let you cross-reference the name the cardholder provides with the one held by their issuing bank. Crucially, you can perform ANI checks not only during your customer’s first (customer-initiated) transaction with your business, but in subsequent merchant-initiated payments too, such as AFTs (Account Funding Transactions) and OCTs (Original Credit Transactions).

For more, read up on what an AVS check is , all about the ANI check– or drill down into Checkout.com’s Address Verification Service solution for merchants of all sizes and sales volumes.

Using the PSP’s built-in fraud detection tool

With so many types of payment fraud threatening your business, it’s vital that your PSP has the toolkit to help prevent, detect, and drive down illicit activity. And, for most subscription businesses, fraud won’t come at the stage of recurring MITs – but rather at the first CIT.

Remember, all customers entering into a MIT agreement with your business must first authenticate their payment information in a CIT – and it’s here that fraudsters will strike.

This is where you need a PSP with an extensive anti-fraud arsenal. Checkout.com’s Fraud Detection solution, for example, harnesses machine learning-powered algorithms to monitor your transactions for red flags, while analyzing payment data – from across the entire Checkout.com network – to detect emerging fraud trends.

By stopping fraudsters from using a legitimate cardholder’s details to buy from your business, you also prevent chargebacks – and all the ruinous financial and reputational consequences they can have for your brand. Protecting not only the real customer: but your bottom line, too.

PSP features that help increase MIT payment conversion

Increasing the performance of your MITs isn’t something you can, or should, do alone. And, fortunately, it’s not something you have to do alone, either.

That’s because, by partnering with the right PSP – such as Checkout.com – you can benefit from a wealth of features designed to help you boost your MIT conversion rates, and keep your regular subscribers coming back for more each month.

What features are we talking about? Well, there’s robust payment API integration – which we’ve already discussed – and fraud detection, which we’ll cover soon. But others include:

• Automated recurring billing: Ideal for subscription-based businesses, automated billing ensures your payments are processed on time - and without requiring any manual effort or intervention from you or your customer.
• Intelligent payment routing, in which a PSP chooses the best payment processor – based on factors such as success rates, speed, and fees – to optimize MIT success.
• Flexible payment options: Offering customers MITs as one of many different payment methods – including ACH (Automated Clearing House) and digital wallets – allows them to pay in the way they feel most comfortable with, which boots conversions.
• Detailed analytics and reporting: Your PSP should provide comprehensive access to data about your MITs, including authorization and acceptance rates, and do so through an online dashboard that’s easy to use and share. This will help you monitor what’s working, rectify what’s not, and tweak your payment and MIT strategy accordingly.
• Mobile and cross-platform optimization: Your PSP’s MIT features should work effortlessly across different devices and platforms – mobile, in particular – to ensure a smooth experience for your users, and maximize the success rate of your MITs.

There are also several more strategies that help you optimize the success of your MITs – including network tokenization, scheduled retries, and partial authorization – which we’ll discuss shortly. First, though, let’s take a look at some of the most common reasons MITs fail in the first place – and what your business can do to stay a step ahead.

Main reasons for declined MITs and solutions

So, why does an MIT get declined – and what can your business do to mitigate the impact of failed MITs on your sales, revenue, and customer base?

Let’s take a look.

Lack of funds

The main reason for MIT payment failure is, quite simply, that the customer lacks sufficient funds in their account. (Incidentally, this is also the main decline reason for any type of credit or debit card transaction, including CITs – not just MITs.)

When the time to collect your customer’s pre-agreed installment or subscription payment rolls around, the transaction bounces. What can you do about it? Some solutions include:

• Scheduled retries: These ensure your PSP will automatically re-attempt to take the payment at pre-set, exponentially increasing intervals. This gives the customer time to top up their account before you try again, and removes any manual effort.
• Partial authorizations, in which you authorize the payment for however much the customer has in their account, then enable them to pay the balance through a different payment method. This avoids you having to decline the sale out of hand – missing out on important revenue in the process – and represents a better customer experience.
• Customer notifications, whereby you let your customer know – ideally, as quickly as possible – when a payment fails. This enables them to add funds to their account, or work out another way to complete the transaction. As part of the notification process, you can also encourage your customers to update their payment method with one that has funds, to ensure their subscription remains active and uninterrupted.

Want to know more? Explore how to configure scheduled retries with Checkout.com, dive deeper into our complete guide to how partial authorizations work, or learn how to partially authorize a payment with Checkout.com.

Cancelled or expired cards

Another reason so many MITs fail? Because a customer has canceled the card they originally signed up with, or that card has expired. Like lack of funds, this reason for MIT payment decline is usually accidental – the customer has simply forgotten to update their card details with your business – but it can still result in lost revenue and, sometimes, customer churn.

Fortunately, there are a couple of key strategies you can use to avoid this. These include:

• Network tokenization. By replacing the primary account number (PAN) of the customer’s credit or debit card with unique digital identifiers (called ‘network tokens’), this process makes MITs more secure and convenient. What’s more, tokens – unlike cards – have no expiry date, helping you sidestep the risk of involuntary churn.
• Using a real-time account updater. Also known as a credit card account updater, this service automatically updates your customers’ saved debit and credit card information. Even if their cards are canceled or expire, you – and your revenue – can rest safe in the knowledge that your MITs will still arrive on time and intact.

Find out more about using network tokenization with Checkout.com, or get to grips with how our own real-time account updater can give your bottom line a lift.

Optimize your MITs with Checkout.com

Subscribers are the lifeblood of your business.

But if you plan not only on converting them – but on keeping them around for the entirety of their lifetime value – you’ll need to harness the power of the MIT. And, as we’ve seen, simply accepting MITs isn’t enough. You need to be analyzing them, optimizing them, and constantly evolving your payments and MIT strategy to adapt to the needs of your subscribers.

And with this, Checkout.com can help.

We don’t simply offer you one or two tactics or techniques to optimize your MITs. We offer you a full toolkit; a complete arsenal of software and strategies to overhaul your MIT game.

Through our real-time account updater and network tokens, you’ll never lose out on a payment you’re owed due to a replaced or expired card. By setting up scheduled retries, you can easily recoup missed payments. And, by adding partial authorization to your payments toolbox, you can offer your subscribers more flexible, forgiving ways to transact.

And that’s just the beginning. For the full story, get in touch with the team of payment experts here at Checkout.com for a friendly, no-obligation conversation about what we can do for you.

More successful, effective MITs are just a phone call away.