The Merchant’s Guide to Payment Decline Decisions
Payment authorization failures give merchants such a headache, costing them loyal customers and $600 billion in revenue. It’s not a problem easily solved, because merchants have only limited control over authorization decisions. The vast majority of declines are made by card issuers and payment gateways. Merchants have a difficult time understanding the root of the problem because payment decline codes are too vague to be of any value. In this piece, we’ll address what payment decline codes mean, why payments get declined, and what merchants can do about it.
Deciphering Payment Decline Codes
When a shopper pays with a credit card online, there is a lot happening in the background within milliseconds to authenticate and authorize the transaction. The issuing bank will review the card’s validity and ensure the cardholder has enough funds to make the payment. After the transaction has gone through the entire authorization process, merchants receive a standardized response through the gateway alerting them that the decision was either “authorized/approved’ or “blocked/declined.” This happens before merchants even get a chance to review it for fraud. Many eCommerce orders that fraud teams would have reviewed and approved post-authorization get declined during this process.
Besides an authorization decision, merchants will usually receive a decline code. However, Riskified found that about 70% of the time, the decline code provided by the declining entity is generic and provides no reason for the decision to not authorize payment. Issuing banks might be purposely vague about a decision to protect cardholder privacy or ensure their authorization algorithms remain secret. To prevent fraudsters from learning how to ‘game the system’, suspected fraud declines might come with a generic message such as “transaction not allowed”.
Why Payments Get Declined
There are multiple reasons why a card has failed authorization, but merchants will not always get clear or accurate information from the codes. A ProfitWell study from 2019 found that roughly 25% of decline codes are incorrect or misidentify the primary reason for the decline decision. Here are the main reason that payments get declined by issuers and gateways:
Insufficient funds: This is one of the most obvious causes for decline, and may be the result of a cardholder spending more than they realized.
Incorrect card details: Customers that use an expired card, or misenter their CVV2 code or credit card number will typically get declined.
New geographical location: Banks assume that purchases made outside of the cardholder’s usual geographic region are fraudulent if the customer doesn’t alert the bank before traveling. While this is an outdated practice, it can still occur.
Suspected fraud attempt: Gateways and banks will decline if the purchase seems out of character for the card in question, whether it be a first time online purchase (which was common in 2020 due to the pandemic) or an unusually big ticketed item. The gateway will also decline the card if the issuing bank placed the card on hold due to suspicious activity; a reason the merchant and the cardholder may not understand until much later on.
As stated earlier, most of these reasons could have been approved by a fraud review team but they never get the chance to. When the payment fails, the consumer is unable to obtain their product, and so the merchant loses both the sale and the customer’s loyalty even though it was beyond their control. Unfortunately, when a customer gets declined, the majority will blame the merchant, not the issuer who is enforcing the decline decision.
What Merchants Can Do
Merchants are usually at the mercy of payment gateways and issuing banks when it comes to payment declines. One option available to merchants is to disable gateway-level filters, and opt to conduct fraud review internally or with a third party fraud solution. However, most declines come from issuing banks, and within that black box of a process, there is little that merchants have been able to do to overcome these decline hurdles.
Enter Deco, a real-time recovery tool for revenue lost to payment authorization failures. Deco is a solution offered to eligible shoppers immediately following an authorization failure, as a way to complete their purchase. Good customers are offered the choice to address the decline, take action, and complete the transaction, all with minimal friction. Deco is the only recourse that merchants have to overturn bank or gateway decline decisions. Get in touch with our team to immediately convert 10-20% of failed payments into revenue generating approvals.