As a merchant, credit card declines can quickly get out of control and become a serious problem for your business. According to Visa and Mastercard, an average of 15% of recurring credit card transactions are declined. However, in some industries, decline rates can reach above 30%. That’s a lot of lost sales!
Declines not only cause your business massive revenue losses from customers abandoning their purchases, but they also create enormous friction between you and your customers, which can have a long-term impact on your reputation. When a decline occurs, most customers will blame you, the merchant, not the issuer, who usually enforces the decline. As a result, customers are likely to forget about your business and run to competitors. All your hard work to compete and attract them have gone to waste!
This post will cover the fundamentals of credit card declines, including:
- What is a credit card decline?
- 10 common causes of credit card declines
- Key ways to reduce decline rates
What is a credit card decline?
A decline happens when a credit card payment can’t be processed. It's a common problem for e-commerce merchants and can happen for various reasons, which are discussed below. When a decline occurs, you’ll receive the following information to help you understand why a payment failed.
- Error/decline code: A number-based code that identifies the error.
- Error message: A message explaining the problem.
10 common causes of credit card declines
There are a wealth of reasons why a card can be declined, and some of them are beyond your control. However, there are some causes that are more common than others. Here are ten of the most common that you’ll likely see on a regular basis.
A customer reached their credit limit
If one of your customers pays via credit card, but the purchase exceeds their credit limit, the payment will not be processed. To reduce the chances of a customer discarding their purchase, it’s a good idea to offer other payment methods that are fast and convenient. These include e-checks and digital wallets.
Lost or stolen card
If a purchase occurs after it is reported lost or stolen, the transaction will get declined. Suppose you receive a card-reported stolen/lost error message. In that case, you should report the attempted payment to the corresponding bank.
A transaction error occurred
When making a purchase online, it’s common for people to enter a wrong credit card digit, expiration date or code. Using a PCI-compliant payment gateway, which complies with security standards set out by the payment card industry, will help reduce declines by allowing you to securely store card data and recover data without needing customers to input their information manually. As an important note, the Payment Card Industry Data Security Standard (PCI DSS) is a set of security standards that merchants need to meet in order to protect their customers’ credit card information. If your business accepts credit cards, you must comply with PCI Security Council standards.
Abnormal activity detected
Banks and card networks are on high alert as fraud continues to rise at an unprecedented pace. As a result, it’s common for credit card companies to decline a payment due to unusual purchasing behaviour. This could be from a significant change in purchasing habits, suspiciously timed transactions, or purchases made from a unique location such as across state borders or overseas.
Expired card or change in address
A transaction will almost certainly be declined when an expired card is used. Similarly, if an address is changed and doesn’t match the registered billing address, a decline will likely occur. There are two strategies you can use to reduce decline rates somewhat and recover revenues in these cases. You can send an email to customers to remind them to update their payment information. You can also set up an automatic retry in the next 2 or 3 days to recover the payment. Staying proactive is always the best option as it can prevent these types of declines from happening in the first place.
When a large purchase gets made, especially if it’s out of the norm for a cardholder, issuers may flag an account on suspicions of fraud. This results in the customer’s account getting frozen and a transaction being declined. Unfortunately, merchants selling expensive products or services are particularly exposed to this card decline scenario as issuers are worried about losing large sums of money.
Temporary authorisations holds
Sometimes when a large purchase gets made, a temporary hold of a few days is placed on the available credit in a cardholder’s account. The purpose of this hold is to ensure there is enough available credit when the final charges are determined. For example, suppose one of your customers uses the same credit card to make a purchase from your business with one or several temporary holds in place. In that case, they may be considered over their credit limit, resulting in the transaction getting declined.
Many credit card declines have nothing to do with the customer. Sometimes an acquirer or the processing service might experience a disruption or some other technical issue. As a merchant, downtimes can be costly, especially at peak times or sales. To combat this type of decline, work with a gateway that uses a smart routing system. Smart routing systems determine which acquirer is most likely to approve a transaction at the best rate. If one acquirer doesn’t work, the smart router automatically tries another until the transaction is approved.
Credit card companies and banks are battling a rising tide of fraud as more payments move online. According to a Nilson Report, worldwide card fraud losses reached $28.65 billion worldwide in 2019. With the cost of fraud skyrocketing, card issuers are on high alert and that’s bad news for merchants. Despite providers becoming more sophisticated and accurate in detecting fraud, any possibility a customer’s card information was leaked or exposed, used on a site that wasn’t secure or used abnormally, will likely lead to a decline.
Key ways to reduce decline rates
Credit card declines are an unfortunate part of doing business for every merchant. Ensuring your decline rates are within a normal level for the industry you operate is essential. To do this, you’ll need to implement strategies to help reduce declines and recover potentially lost revenue.
Expand your payment options
One way to save a sale if a credit card purchase is declined is to provide alternative payment options. The more payment methods you offer, the more likely a transaction will be completed. Your business will recover thousands in lost revenues by enabling your customers to pay using e-checks, digital wallets, and any popular local payment methods.
Account update programs
Visa and Mastercard enable merchants to join programs to obtain updated card information from issuing banks. These programs automatically update payment gateways with new card expiration dates, billing addresses, and other essential credentials. This will allow automatic payments to continue without interruption. The gateway you use should enable you to fetch updated information from Visa or Mastercard if an expired card is entered.
Utilise a smart routing system
A smart routing system automatically retries alternative acquirers until a transaction is approved. If the first acquirer returns a decline, the system sends the payment to the second. If the second declines, the system sends the payment to the third and so on. The system continues to retry until a transaction is approved or the customer cancels the sale. To benefit from such capabilities and reduce acquirer or processing service disruptions that lead to declines, work with a gateway that utilises a smart routing system.
Reach out to customers
Communicating with customers is critical to reducing your decline rates. If a card is declined, reach out and make it quick and simple to update their credentials and provide incentives to increase the chances of your customers updating their information. An even better option is to be proactive in your communications. Identify credit card expiration dates approaching and reach out to customers to update their details before a decline occurs. Make sure to inform them that their next payment will lapse if no action is taken.
Set a recurring billing indicator
Recurring credit card payments are a great way to ensure you have a steady stream of income coming into your business. However, with 15% of recurring card payments getting declined, there is an acute need for your business to ensure recurring payments are processed smoothly. If you process recurring payments, check with your gateway provider to see if they offer an indicator feature that identifies recurring payments. This feature can help stop false declines and speed up any resolution with processors and issuing banks.
Resubmitting a card payment is a simple but often overlooked course of action that can help save a sale. Many soft declines, which make up most declines, can be quickly fixed with a resubmit. This is possible because soft declines are temporary, which means you can successfully process the transaction again by addressing the errors that led to the initial decline. However, it’s essential to take care when resubmitting a payment. Card networks may restrict the frequency of retries and your gateway may set off a fraud warning if too many failed transactions are attempted.