A declined transaction is a frustrating headache for e-merchants. Not only do they lose the profits that could have been earned from the transaction, but they could potentially lose all future profits earned from the customer, and he/she is likely to go to a competitor.
Anywhere from 5 to 18 percent of credit card transactions are declined, depending on the reason and location of the credit card holder. With nearly half of customers completing online purchases with a credit card, it’s inevitable that an e-merchant will experience an issue with a declined transaction at some point.
Oftentimes, “fraud” is the first thought that goes through the e-merchant’s mind when a transaction is declined. However, more often than not, transactions do not go through due to “soft declines,” and they may be successful after a second or third attempt to complete the charge.
What sort of transactions get soft declined, and how can an e-merchant recuperate lost profits?
What types of charges get soft declined, and why?
An e-merchant may be able to tell why a customer’s card was declined by the response code, but only the bank can give a specific reason. There are a few major reasons why an issuing bank may decline a charge to a credit card, which will help determine an e-merchant’s next steps to recoup the sale:
1. The card is maxed out.
Not having enough available credit on a particular credit line is a simple math issue: the customer tried to charge more to his or her credit card than was possible. The customer can’t spend what isn’t there, so the transaction is declined, but it may go through on a second or third attempt after the credit card bill is paid or with a different card.
2. The card is expired.
There’s a small window of time between when the customer is sent a new credit card and when the card in their wallet expires. It’s possible that the customer didn’t realize their card expired or hasn’t made the switch to the newly-issued card yet.
3. The customer exceeded the set transaction limits.
Many credit cards come with a daily or monthly spending limit — either by dollar amount or the number of times the card was swiped. A customer could have erroneously tried to pay for an e-merchant’s goods or services with an over-limit card. This count is likely to reset in time for a second or third attempt to charge the card.
4. The purchase is unusual.
A charge that well exceeds normal use — either in dollar amount or purchase type — could lead to a soft decline. While typically regarded as an indicator for fraud, it is also entirely possible that the cardholder decided to use their card for this purchase.
5. The card is being used abroad.
Nearly one out of five foreign transactions are declined because the acquiring bank and the issued credit card do not originate from the same country. E-commerce certainly makes these types of transactions more common, but they are still occasionally blocked out of an abundance of caution.
6. The billing address and IP address do not match.
An online payment solutions provider has an efficient risk management team that will check the IP address of the computer from which the purchase was made against the billing address associated with the card. If they don’t match, the system may reject the credit card payment. (This software may also block a credit card being used abroad.)
While all these reasons are reasonably easy problems to solve, it doesn’t make it any less frustrating. What can an e-merchant do to recover the lost revenue?
How to handle declined transactions
Many of the soft declines detailed above are due to customer error or unawareness. They aren’t malicious or fraudulent in the slightest. E-merchants may be relieved to learn that a lot of these issues can be corrected just by contacting the customer.
Some of the ways to minimize the impact of declined transactions and get this lost revenue back are:
- Request another form of payment from the customer. In cases where there are insufficient funds or the transaction limit has been exceeded, an e-merchant can get in touch with the customer directly and have a quick and polite conversation to request another form of payment.
- Ask the customer to verify the card’s expiry date. In cases of an expired card, these transactions are often approved after the customer verifies their new card’s expiration date with the issuing bank. The customer can also ask the bank to approve a transaction made on an expired or expiring card and switch to the newly-issued card when it arrives.
- Confirm the client’s location over the phone. A hyper-vigilant risk management team is good for protecting a business from fraudulent transactions, but legitimate transactions may get caught up in the mix. By confirming a customer’s travel history or transaction history over the phone, an e-merchant should be able to easily clear up any problems.
- Double-check large or unusual purchases with the customer. If a purchase is declined due to its unusual size or nature, the e-merchant can save a lot of time and headache by calling the customer directly to ask for verification.
In order to confirm these transactions, data needs to be captured before the credit card is processed. If an e-merchant is not doing so, that could be solved with a quick change to how information is collected at checkout. A phone number and email address collected and saved before processing credit card information can prevent a headache down the line.
Declining soft transactions is a common but necessary step in protecting an e-merchant’s revenue against credit card fraud. While the resulting work to confirm these transactions may require some effort, it’s well worth it if it preserves the revenue generated from those transactions.
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