Payment Declines: The $600 Billion Problem You Aren’t Aware Of
eCommerce businesses spend most of their budget on customer acquisition, focusing on getting consumers to hit the “buy” button. While failing to reach the proper target audiences in the appropriate channel tends to be one of the biggest factors contributing to acquisition leakage, another looming threat, the problem of payment declines, is often overlooked. According to the Economist, about 1 in every 7 eCommerce dollars are declined during payment authorization. Applying that to 2020 global eCommerce revenue, we estimate that roughly $600 billion were lost to payment declines in 2020.
Why is this such a big deal?
Aside from massive losses in potential revenue, payment declines create massive friction between merchants and their customers. When a consumer gets declined, the majority will blame the merchant, not the issuer, which is usually the one enforcing the decline. Recent Riskified studies show that 28% of customers will completely abandon a purchase after experiencing a payment decline and another 14% will shop with a competitor instead. This creates negative word of mouth and endangers the merchant’s opportunity to create a loyal connection with the declined customer.
What causes a payment decline to occur?
All eCommerce purchases must be authorized by several financial institutions before a customer can complete a transaction, including the payment gateway, the payment processor or acquirer, and the card issuer. The unwieldy nature of the payment authorization process makes it difficult to identify exactly which of these institutions are responsible for the payment declines, and why they decided to decline. Customers may get declined if the card has surpassed its credit limit, if there is a technical issue with the card, or if the transaction is suspected of fraud. While these are legitimate concerns, if customers are wrongfully mistaken for these concerns, that can be extremely costly to merchants who have no control over the outcome of these decisions. Riskified’s research shows that 72% of declined orders are placed by legitimate customers who can afford to make the purchase.
What can merchants do?
Merchants have many options when it comes to pre-empting declines from occurring earlier in the shopping experience, but there is little that can be done to capture lost revenue and combat payment inefficiencies once the issuer or gateway has declined a transaction. There is no such thing as 100% authorization success; declines are bound to happen. That’s why it is essential for merchants to have a real-time solution that enables declined customers to complete their online purchases. Riskified’s Deco is the only proactive recovery solution at the point of payment decline. Get in touch with our team to immediately convert 10-20% of failed payments into revenue generating approvals.