CardNotPresent.com reported that retailers lose $40 billion per year to unnecessary credit card declines. So not only do transactional declines hurt a merchant’s approval rate, but they seriously impact the overall health of a business. Acceptable approval rates vary by merchant and industry, but for good standing in a Card Not Present space you should aim for over 85%. The risk of declines is heightened for subscription-based services, like Netflix, or those that offer recurring payments, like cable, internet and phone companies. With the cost of acquisition for good customers continuing to rise, it’s important to manage declines effectively to increase subscriber lifetime value.
There are two types of declines to get familiar with.
Hard declines typically happen when a cardholder’s card has been stolen and they’ve reported it to their issuer (think Bank of America or Citibank), when the card is invalid, or when the cardholder’s account has been closed. Hard declines call for action from the cardholder or the issuer.
Soft declines happen when there are insufficient funds in the cardholder’s account, the processor declined the transaction due to a format issue, or further authorization is required from the cardholder. Basically, with a soft decline, the card is valid, but something else is awry. Soft declines can be resubmitted; typically a set amount of times within a specific period from the original transaction request.
Below are popular scenarios which cause customer card declines along with several things you can do to avoid declines and lock in a consistently good approval rate.
Problem: The customer has reached their credit limit with a credit card, or they don’t have enough money in their bank account with a debit card.
Decline type: Soft
Solution: Communication is key with insufficient funds declines. If you use a recurring payment model, you can get ahead of potential declines by allowing the customer to pick their own payment cycle. Suggest that the customer pick a recurring date around when their paycheck is deposited as funds will likely be consistent at that time.
Recurring payment services aren’t the only ones at risk for insufficient funds declines. Many merchants set up an internal system and schedule for dealing with these soft declines.
As an example, a merchant may decide that after the first decline, they will resubmit the transaction 24 hours later. If that fails, they may reach out to the customer and inform them that the transaction was declined and let the customer know that the merchant will retry in a given period of time and offer the customer the opportunity to change his or her card details. If the third attempt fails, the merchant will typically mark the transaction as failed and let the customer know about the decline and ask for a different card.
Be sure to check processor regulations as some, like Visa, cap retries at 4 and they must be completed within 16 calendar days of the original request. Having your own set system in place automates the retry process and makes the customer aware of any changes to what they’re expecting to receive.
Problem: Domestic regulations and national payments infrastructure can restrict authorizations.
Decline type: Soft or hard
Solution: For global merchants, decline rates tend to be higher on cards that are issued in other regions thanks to domestic regulations like currency rules, not using relevant local payment types, and the fact that international purchases have a higher risk of being marked as fraudulent. So, if the merchant is located in the United States, the merchant may want to utilize a local acquirer transaction for customers located in, say, Brazil.
Taking on a new acquirer can be a financial burden itself and create internal complexities, so the return on investment has to be analyzed. If a substantial amount of your business is conducted in a foreign country or region, it’s worth it to explore options.
Problem: Cards get suspended for a variety of reasons, including reduced credit lines, outstanding bills, late payments and inactivity.
Decline type: Hard
Solution: Oftentimes, cardholders aren’t aware of this until an actual decline happens, so there’s little to do to get ahead of it. Because suspensions come in as hard declines, action is required from the cardholder.
Set up an automated communication pipeline for when card suspension declines come in. We suggest reaching out to the customer, explaining the situation and outlining next steps for them to take. For instance, ask them to put another card on file or ask them to reach out to their issuing bank so they can resubmit their order.
Problem: If a customer’s card appears to have been stolen or illegally used, the transaction will be marked as fraudulent and won’t go through.
Decline type: Hard
Solution: One-time transactions are ones most frequently linked to fraud, but fraud declines aren’t always a bad thing. If a card is declined on the grounds of fraud, it could prevent the actual cardholder from issuing a chargeback later on. Fraud suspicion is something that has to be dealt with between cardholder and card issuer.
There are a few measures merchants can take to prevent fraud charges from even attempting to go through. Requiring additional and harder to get information, like a card security code, or CSC (also called CVV), and address can prove the legitimacy of the card as hackers and fraudsters rarely have that information.
Problem: Accounts are usually closed when there’s fraudulent activity or the account holder actively shuts off their account for whatever reason.
Decline type: Hard
Solution: Many providers allow you to securely store card information to help with the overall customer experience and make for a quicker pay process. Because of this, it’s important to stay on top of customer account changes to help reduce declines.
Many processors have a Card Account Updater service with card issuers to stay on top of any changes to accounts. Some card issuers don’t automate that process, so routine check-ins, especially with customers that have recurring payments, is crucial.
Communications can be set up that notify the customer a few days before the transaction is set to take place that includes the name of the service and the card on file that’s set to be charged. If the customer receives a notification and knows their account has been closed, they have plenty of time to modify their payment option.
Information doesn’t match records
Problem: For example, if the customer has an address change or the expiration date doesn’t match what’s on the card, the transaction can be declined.
Decline type: Hard
Solution: Similar to account closed declines, information not matching records requires you to stay on top of customer information. Regular check-ins for recurring payments are essential and any automated processes providers offer, like Card Account Updater, should be taken advantage of.
Sometimes these declines occur because customers accidentally enter invalid information. To prevent this, you could implement a next step checkout that requires the customer to verify their information before processing the transaction. If the customer attempts and gets declined, clear communication outlining the potential issues should be sent along to the customer so he or she can attempt their purchase again.
At the end of the day, the customer experience should be as frictionless as possible. To avoid problems, make it easy for customers to update account information via mobile or web and make reaching support specialists straightforward. You can lower declines by letting customers pick their billing date on recurring purchases and by making canceling recurring services and payments clear.
Ease the lift needed from your team by using automated options, like Card Account Updater if you have card on file services or recurring payments. Pay attention to decline reason codes to determine if there are any trends you should act on and have a process in place to handle soft declines and resubmit, or recycle, transactions. If you take the necessary precautions and set up solid processes, you can avoid a big chunk of declines and set your company up for a higher approval rate and less money lost.
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