Nothing can bring an online business to a screeching halt like a payment failure. In addition to customer irritation created from disrupted transactions, business owners risk losing customers for good. Research shows that:
- Online merchants lose over 60% of customers who experience a failed transaction.
- Subscription businesses lose about 9% of revenue to failed payments.
For most businesses, checkout conversions—and the customer shopping experience—is the top priority. Yes, customer experience is critically important, but attentiveness to the entire online transaction, including what happens during—and after—each step in the process, is equally vital to running a successful online business.
Failed payments fall into two broad categories:
- Checkout errors. These errors prevent the online transaction from being completed (i.e., the actual checkout doesn’t happen). Later, we’ll refer to this as the front-end consumer experience.
- Processing errors. These errors occur after a consumer seemingly completes an online purchase but something along the way prevents the transaction from being fully processed. We’ll call this back-end payment processing.
Why pay attention to payment failures?
The shortest answer to this question is quite simple: paying attention to failed payments and their underlying causes helps prevent failed payments. According to one study, just 17% of businesses track their failed payments. But those that do lose nearly 40% less revenue to payment failure. These businesses are able to turn attention into preventative action—and help stem some of damage caused by payment failures.
The potential damage is multi-layered. An obvious downfall is the loss of incremental—and cumulative— sales. In turn, payment failures can negatively impact the long-term reputation of your brand. And, it can be an incredibly expensive and arduous process to rebuild and recover.
Bottom line: Online stores that are able to prevent as many failed payments as possible will ultimately increase sales as well as customer satisfaction.
There are so many details and variables among customers and payments processing that it’s unlikely your business can achieve 100% success. However, there is much you can learn about payment failures in broad terms as well as about the specific ways payments fail within your business.
Why do payments fail?
The popularity of ecommerce and the ease with which most transactions occur these days suggests that online payments are driven by a simple process.
On the contrary, completing online payments requires a complex process involving a series of orchestrated steps among the cardholder, merchant, acquirer, and issuing bank. One glitch in the payment system can cause a cascade of errors that eventually hamper the complete transfer or exchange of money between the parties involved. Each time a failed transaction occurs, the security and privacy of online shoppers are compromised, and the customer’s valuable time is wasted.
When examining payment failures, we can begin to see that challenges generally fall into one or more of the following areas:
- Inaccurate data
- Payment orchestration failures
- Errors related to consumer details
Let’s take a closer look at some of the risks within each area.
How Inaccurate Data Fuels Failed Payments
Online payments have a strict and sensitive authenticating system. Because money and personal data is involved, checkout processes are stringent when it comes to false, inaccurate, or missing data.
Inaccurate data can cause issues at many stages of the transaction process, and it can be propagated by many stakeholders in the chain of the transaction. Any transaction with mismatched credentials or incomplete information is likely to backfire.
Your payment provider should be able to navigate the specifications and formatting rules of each card brand it supports, as well as know each issuing bank’s process and how the data needs to be configured in order to support it. In broad terms, payments providers can manage the complexities to collect the right information on each type of transaction, in every part of the world.
Payment Orchestration Failures
Payment orchestration is the handling of everything required for a payment throughout its lifecycle with all of the steps and providers involved.
Payment orchestration involves many details that vary by region, bank, processor, types of transactions (ex: one-time purchases and recurring purchases require different information and processing) and so on. All these moving parts and pieces, along with advancing technology and ecommerce trends, come with possible risks that can threaten successful payment processing.
It’s crucial for online business owners to be aware of the common reasons payments fail within the payment orchestration process, so they can better understand what needs to be improved:
- Payment gateway is misconfigured: A payment gateway is a merchant service that processes credit card payments for ecommerce sites and traditional brick and mortar stores. The payment gateway may be working correctly, but there’s an error with the configuration, such as an incorrect username or password.
- Payment instrument not supported or blocked by payment gateway: The payment gateway doesn’t support the method of payment.
- Transaction not allowed or blocked: The customer’s issuing bank has declined to authorize a payment for some reason. A blocked transaction is general code for card declines, so it’s difficult to know exactly what the problem is.
- Blocked by merchant account: This isn’t common but, in some cases, your merchant account may not be set up to accept the transaction.
- Do not honor: The issuing bank has issued a fraud alert for the card.
- Card has been canceled: The customer’s card has been canceled by the issuing bank.
- Account flagged for fraud: A purchase that doesn’t match a customer’s usual spending habits can be flagged as fraudulent, which causes the card to be declined.
- Credit card type isn’t accepted: There are some credit card networks that are better known and accepted more than others. MasterCard and Visa are the most common. However, lesser-known card networks could be rejected by your payment gateway.
- Account has been closed: A credit card account can be closed by the issuer without notice for several reasons or a customer may not have yet received notification that their account has been closed.
The Consumer’s Role in Failed Payments
When it comes to payment failures, consumers and businesses often assume that the payment gateway is at fault. However, transactions can be declined for a number of reasons that involve the consumer. Some of the most common reasons include:
- Incorrectly entered information: A card number, expiration date, address or security code incorrectly entered will cause a payment attempt to fail.
- Expired card: The customer’s credit card has expired.
- Card reported lost/stolen: The issuing bank has marked this card lost or stolen.
- Purchase made while traveling: Customers’ cards may be flagged when they make a purchase in a different country.
- Primary cardholder deactivated an additional user: If your customer is an authorized user on someone else’s credit card account, the primary cardholder may have deactivated the secondary user’s card.
- Not enough available credit: A customer’s card can be declined when they’re at their credit limit, whether they’ve used all their credit or had the limit reduced unexpectedly.
- Payment is past due or account suspended: Credit card issuers may suspend new purchases if the customer’s credit card account is past due. A suspended account is an indication that the customer hasn’t been making their minimum payments, causing the account to be suspended until the account is made current.
- Insufficient funds: The associated bank account does not contain enough funds to complete the payment.
- Payment collection failed: This generally means that the fraud filter in the payment gateway was triggered.
- Card terms have changed: This could be as a result of your customer failing to keep up with monthly repayments or they have made some other card violation.
- Credit limit has been maxed out: The customer has reached their maximum credit limit and can’t make any more purchases.
- Entering the wrong one-time password (OTP) or password: Can lead to an error message saying that a transaction could not be authorized. This is often followed by the option to “resend OTP” and try again.
Prevent Failed Payments from Front to Back
Now that you know some of the common reasons payments fail, you can take steps to prevent failed payments from occurring.
Below, we offer an approach to reducing failed payments by assessing challenges and implementing solutions within two major categories: front-end consumer experience and back-end payment processing.
Front-end consumer experience
A better front-end consumer experience on your website can greatly reduce payment failures and the risks associated with them. Important elements of a positive front-end experience include:
- An easily navigable website
- Customer service options on the website (such as live chat or chatbots)
- Intuitive checkout process
- Clearly stated requirements for entering personal, payment and shipping information
- Online purchase fields, and instructions, are optimized and localized
While it may sound simple, you can never over-communicate the steps you need customers to take to reduce cart abandonment and ensure a successful transaction. An effective, proactive dunning management strategy can include steps like automatic email notifications in the event of a failed transaction, as well as ahead of a card’s expiration date. This customer-centric approach, paired with thorough back-end payment processing systems, can reduce failed payments.
Back-end payment processing
The right payments partner can navigate the challenges that come with payment processing on behalf of growing online brands. They keep up with technology changes, compliance changes, industry regulations, localization nuances and more so that you can focus on other priorities in your business.
It’s important to find a partner with proven payment orchestration expertise and the ability to route payments through an extensive network of processors, know when to pass the right data back and forth, and utilize new technologies and integrations to reduce payment failures for your business.
Increasingly, artificial intelligence (AI) and machine learning are being utilized to analyze large sets of data from online transactions around the world efficiently and intelligently to identify patterns, which can then be used to improve decision-making.
Machine learning and intelligent transaction routing can increase the likelihood of payments being accepted and minimize false declines of legitimate transactions. AI allows merchants to catch errors faster, flag issues, and quickly move to solutions such as automatic retries. This can result in higher customer satisfaction and increased revenue for your brand.
The Bottom Line
Many business owners view payment failures as a natural part of doing business. While this may apply to a small percentage of your transactions, take a close look—gather and study the data about when declines are happening and why. What patterns do you see? Building time and processes into your business to review payment failure details will help you understand the impact on your business. It’s important to consider how many sales you are willing to give away due to payment failures.
Do you have the right people and partnerships in place to help you analyze payments data, optimize payment orchestration and determine the right solutions and technologies?
One of the most effective and efficient ways to reduce payment failures is to leave the back-office payments complexities to a partner like Digital River. New data related to marketing, payments, and customer lifecycle events is generated regularly, at each new billing cycle. Applying the learnings from data collected, as well as navigating the ins and outs of the ever-changing global payment processing landscape, can be achieved by a partner with dedicated resources and established expertise in these areas.
Motivated to reduce payment failures in your business? Connect with us to learn more about how we can help you accept online payments with ease and increase your revenue as a result.