What is a credit card decline?
If for a particular reason a credit card payment cannot be processed, the transaction is declined by the payment gateway, the processor, or the bank issuing the money. This is commonly called a credit card decline.
For a better purview of how credit card payments are processed online, check out this piece on payment gateways — the credit card machines of the web.
Why it’s worth caring about credit card declines
- First, they might sour the relationships you’re trying to build with your customers
Of the consumers who’ve had their credit cards declined, almost a third blame the merchant they’re buying from.
- Second, they will definitely have an impact on your bottom line
Of the consumers who’ve faced a credit card decline:
- Half get in touch with their banks
- A third try a different card
- 14% don’t follow through with their purchase and
- 10% select a different online merchant
- Third, they’re more prolific than you think, especially if you’re selling online
Decline rates for physical goods merchants are often between 3 and 4%. Digital goods merchants, on average, experience decline rates of 15% or above.
- Most importantly, because false card declines can be prevented with a little bit of planning and an understanding of what might be going wrong
One out of three credit card declines can be avoided. And those that turn into failed payments can be recovered.
This post will explain what’s going wrong when a credit card decline occurs, how to decipher the error messages that accompany a decline, and how to deal with declines (between preventing false declines and recovering the revenue lost from declines out of your control).
Breaking a credit card decline down
Credit card declines fall roughly into two categories
- Soft declines occur when the bank issuing the funds has approved the payment, but the transaction fails somewhere else.
As David Goodale writes, “If you think of the payment process as a chain of events, there are several “handshakes” that must occur in order for a transaction to complete. If one of these parties in the chain is down, interrupted or unavailable during the transaction resolution, a problem will occur.”
- Hard declines, by contrast, occur when the issuing bank does not approve a payment for processing.
In either case, some action is required to make sure the payment isn’t lost. In the case of hard declines, particularly, you’ll need your customer to step in and fix something.
Irrespective of what’s causing the payment to fail, every time a card is declined, your gateway (or processor) issues two accompanying (but different, as you’ll see in a second) pieces of information:
- An error code: Typically a number, this is a code that identifies the error to the system.
- An error message: Typically in words, this is a message that identifies the problem to you and your customer.
Both codes and messages are recorded for you. Your gateway puts them down so you can take a look at the failed payment later.
‘Invalid credit card number’: Understanding error codes and messages
Say your customer is in the process of checking out and has just clicked the ‘pay’ button after putting her information in. If her card is declined, she will see an error code and an error message. Something along the lines of:
Unfortunately, there are no standardized error codes that might help her make sense of what went wrong. Error codes differ from gateway to gateway. Authorize.Net, for example, throws up error codes like you see in the screenshot above: E00005 and E00027. Braintree, contrariwise, throws up error codes like 2046 and 2048.
All your customer has, to go on after a decline, is the error message.
Here’s the thing though. Error messages are intentionally vague.
Vague messages that do not direct or reassure a customer who’s just had a payment fail are probably the reason behind scary statistics like those.
Why are they vague?
Ethoca contacted several card issuers and asked. Here’s what they discovered:
“First, card issuers are protecting their cardholders’ privacy. They are reluctant to share with merchants that the cardholder is behind on paying their bill, maxed out on their credit card or have lost their card.
The second reason is that if the purchases were made by fraudsters, providing this level of decline information could potentially allow fraudsters to reverse engineer the fraud system and learn how to bypass the fraud checks.”
That being said, here are a few common error messages you might come across.
|Error message||Why this error occurs|
|Invalid credit card number||The card number entered is invalid|
|Invalid address||The billing address does not match the card network records|
|Do not honor||The issuing bank’s fraud filter has been triggered|
|Processor declined||Payment authorization has been declined at the issuing bank|
|Payment collection failed||The gateway’s fraud filter has been triggered|
|Expired card||The credit card being used has expired|
|Transaction not allowed||Payment authorization has been declined at the issuing bank|
|Card reported lost/stolen||The issuing bank has marked this card lost or stolen|
|Payment instrument not supported||The gateway doesn’t support the payment method being used|
|Insufficient funds||There aren’t enough funds in the associated bank account to complete this payment|
Decoding error messages
Some of these error messages are clear enough to step around.
‘Insufficient funds’, for example, by far the most commonly received error message, leaves no doubt that the onus is on your customers to fix the decline.
Other messages that fall into this category are ‘invalid credit card number’, ‘invalid address’, ‘payment instrument not supported’, ‘card lost’, and ‘expired card’. These card declines cannot be fixed without customer intervention.
A little more difficult to decipher and explain to your customers are messages like ‘processor declined’, ‘do not honor’, and ‘payment collection failed’. These are the declines you have a little more control over, though (ironically).
How to deal with credit card declines
It’s true that declines can occur for any number of reasons. Causes are diverse and difficult to pin down without contacting the issuing bank.
Typical causes can include a high level of recent activity on the card, an incorrect card number or expiration date entered on the checkout page, insufficient funds (the issuing bank might be intentionally vague about this, as we’ve discovered), the card being over its limit, or a rejection based on fraud filters at the bank or the gateway.
This section will explore how to prevent the declines that you can, and plan for the ones that you can’t.
Prevent false blocks/declines
Here’s the scary part: The varied reasons notwithstanding, 52% of the orders merchants thought were fraud turned out to be good orders that were caught in the fraud nets.
These declines were accompanied by messages like ‘do not honor’ and ‘processor declined’.
They were good orders that could have been fulfilled.
In essence: Part of battling card declines is fine-tuning the fraud filters in your control so they don’t (for the most part) get in the way of good orders.
Here’s how you do it:
- Try and prevent false blocks
The first fraud net to consider is your gateway’s. This fraud net is entirely in your control; most gateways allow merchants to customize the rules they have in place to catch a suspicious transaction.
Your gateway allows you to either ignore, block, or flag payments that fail
- AVS (address verification) and CVC (the three-digit code printed on the back of a credit card) checks,
- Transactions initiated from a suspicious location checks,
- Transactions over a specified limit checks, and so on.
Rather than blacklist and block transactions like these (that your gateway perceives are fraudulent), it might make sense to allow the transactions and flag it for a review later (whitelisting transactions can be just as bad).
- Try and prevent false declines
The second fraud net is less in your control — the payment processor’s. Transactions that have passed through your gateway (without being blocked) might still be declined if it fails one of the processor’s fraud checks.
- One of the reasons processors decline transactions is the risk they perceive on behalf of the merchant. The best way to mitigate this perceived risk is to pass as much information as you can onto your payment processor. Customer information can inform your processor that the transactions associated with the card are legitimate.
- You can also reach out to processors themselves (via your gateway) or use third-party software to make sure the two fraud nets don’t overlap.
The unintended consequence of two sets of fraud filters (one from your gateway and one from your payment processor) working together (and independently of each other) is that sometimes they can cast a net that’s too wide.
Riskified holds that preventing false declines and false blocks can have a significant impact on your bottom line. They write: “In our experience, removing filters and reducing false positive declines leads to a sales revenue increase of anywhere from 3% to 30%…taking the time to calculate the impact of declines on your business and working to reduce false positives is well worth the effort.”
Take a proactive approach to failed payments
With your fraud filters tuned to better sort legitimate payments from fraudulent ones, your credit card decline rates will fall.
The harsh truth is that you will not be able to fully eliminate credit card declines, though.
The question, at this point, becomes what you can do to recover any revenue that might be lost?
The answer lies within the umbrella term ‘revenue recovery’.
Revenue recovery tactics shorten the gap between money that is owed and money you are getting.
Take that expired card, for example. There are two kinds of revenue recovery tactics you could have implemented for it:
- A tactic that could have prevented the payment from failing (a preventive tactic — like an email reminding the customer to update payment information) or
- A tactic that could have recovered the payment after it failed (a more active tactic — like an automatic retry three days later).
Hope those card decline messages worry you a little less now!
Sources of the data in this post:
- The Effect of CNP Declines in the US — TrustInsight Survey
- Solving the CNP False Decline Puzzle — Ethoca Research Report