Declined transactions come with hidden costs

When a transaction is declined, you might think the only thing lost is a single sale. The true cost is much greater. What initially seems like a drop in an ocean of transactions could be an early warning of a tsunami of unsuccessful sales.  

There are many reasons a transaction might be declined, and only one of them is a customer having insufficient funds. Declines could lead to customer frustration, increased operational costs and even reputational damage. Not recognizing and understanding these risks – and potential ways to address them – can at minimum stymie a business’s growth, create hidden costs or damage relationships with both customers and financial institutions. Consider these twin statistics:  

• Online authorization sees payments declined at a rate nearly four times higher – 15% versus 4% – compared to when a card is physically present.  
• More than half of would-be customers will abandon a purchase that requires multiple attempts to complete, according to recent Worldpay report. 

Many failed authorizations are due to problems beyond technology – transactions timing out or system errors – and could be avoided with the right measures in place. Those could include process-related problems such as overly strict fraud-prevention rules or out-of-date card credentials. It’s easy to see, then, that the risk posed by declined transactions is real. Worse, many businesses underestimate the ripple effect they may have. 

Of course there’s immediate lost revenue. That may be a negligible amount, but what if a bad experience leads would-be customers to take their business to a competitor? Or then post about what to them were bad experiences on social platforms? Those single transactions then can manifest themselves in much wider spread lost future business. 

Even customers that decide to pursue tricky transactions can lead to higher costs. Merchants may be required to provide more support interactions or even offer rewards to compensate shoppers for their inconvenience.  

Problems along the way 

It’s true that some transactions are declined for reasons tied to customers. Most common are having insufficient funds available or supplying expired or incorrect card details. Merchants can work proactively to pre-empt card-related hitches by incorporating technology that automatically updates card information, as well as offering more flexible ways to pay, like Buy now, pay later.  

Nearly three-quarters of customers and a full three-quarters of subscription users say it’s important for card details to be updated automatically where they pay online. 

Merchants, too, share some of the burden. A higher rate of declined sales may reflect “false positives” – legitimate transactions improperly flagged as fraudulent and rejected – and could be a sign of too stringent, sensitive or nonadaptive fraud parameters. System flaws, like outdated technology or inefficient routing, can also lead to unnecessary failures. 

Authorization failures may be caused by problems between merchant and purchaser. Those can include basic network errors, unspecified “do not honor” blocks from card issuers, and the fraud and risk management tools used by a card network, an issuer or processor. 

Solutions to help optimization 

However, there are ways to negate some of these problems. 

Payment optimization solutions can harness advanced technologies, like artificial intelligence, to analyze transaction patterns, identify and mitigate suspicious activity in real-time and deploy intelligent routing strategies that could help maximize approval rates. For example, implementing a solution that can automatically check and update customer credentials can minimize customer-related declines. 

Worldpay’s suite of optimization solutions use AI to boost approval rates and optimize costs, ultimately supporting business growth. Through dynamic routing, merchants can choose the most efficient way to ensure payment success. Our fraud model leverages access to global data – more than 52 billion transactions last year alone – to detect and prevent fraudulent activity. Because it continually learns and adapts, it also enables faster approvals for legitimate customers, reducing false positives. 

Optimizing authorization rates may look different for every business. It can vary by size, industry, ideal customer demographics and risk profile. Whatever that balance is, Worldpay’s expertise can help you find it. 

• Learn more about how Worldpay can help you optimize your payments.