The impact of rejected transactions on businesses

Denied transactions cost a lot of money to businesses. According to several studies, in most cases when a card was denied, only 25% of consumers returned to try the purchase with another method of payment, while 39% directly abandoned it.

However, the high cost is not the only negative consequence that the declines have on the stores; Having a high refusal ratio can lead to penalties imposed by acquiring banks in response to the request of issuers.

This ratio depends on many factors, such as the composition of the user base of the business, the business model and the industry in which it operates.

In addition to the fines applied for a denied transaction, payment processors may impose additional penalties if the trade is still in default with the standard ratios for several months. The business will be in default phase until it has accumulated at least 3 consecutive months of compliance.

The 7 most common reasons that cause a decline

There are several reasons why a transaction can be denied by the issuer. Some of the most common include:

• Reason 1: Not enough funds

According to a study, more than 44% of rejected transactions happen because the payment method selected by the consumer did not have enough funds (in the case of debit cards). If the user tried to pay with a credit card, this simply means that he has reached his maximum limit, so the issuing bank will not allow additional transactions until the credit or a part of it has been returned.

As a trade, there is little you can do if the consumer does not have sufficient funds in their bank account. To reduce this type of denials, it is important to offer several alternative payment methods, and make sure they are easily accessible by the user in a checkout process.

• Reason 2: Error

The second most common reason why a transaction can be denied (20.6%) is relatively simple: the consumer made one or several errors when entering his card details in the payment form.

As a trade, you can reduce the number of declines by user error by tokenizing the card details of the consumers who have previously purchased with you. By implementing a Payment Gateway that complies with the PCI-DSS standard, you can store and retrieve card data securely, facilitating future payments for users.

• Reason 3: Lost or stolen card

According to an investigation by Ethoca, around 10% of rejected transactions happen because the cardholder reported it as lost or stolen, so each transaction initiated with this card will be denied by the issuing bank. In this case, it is recommended not to retry the transaction or provide the services that the user is trying to buy. In the case of a stolen card, be sure to report the attempt to the corresponding issuing bank.

For scheduled transactions, it is possible that the card was lost before processing the transaction. In this case, contact the cardholder and request another method of payment.

• Reason 4: Unusual activity

Another very common reason that causes rejected transactions is the unusual activity record with the payment card.

Some unusual activities include buying in locations and neighborhoods that are famous for their fraudulent practices, the sudden change in the user’s buying habits, and even in some cases small purchases. In most cases, before the scammer starts spending money with the stolen card, he will try to test it by making a very small purchase, or by simply filling the tank of his vehicle with gasoline. Sometimes, the simple act of buying gasoline in an area different from the user’s normal location may cause suspicion due to fraudulent activity.

• Reason 5: Unusual location

As with unusual activity, making a purchase from a different location may be suspect for the issuing banks. In general terms, the issuer knows the geographical boundaries of your usual transactions, and sometimes, purchases from other countries (even if they are not fraudulent) can raise the fraud alert.

In other cases, if the issuer registers several purchases with the same card from different countries at a long distance in a very short period of time, it is possible that the issuer denies the card for fraudulent activity.

• Reason 6: Change in billing address

Another very common reason that card denial can cause can be as simple as changing the billing address of the consumer. If the issuer does not recognize the new address or it does not match the shipping address, the transaction may be denied.

• Reason 7: Temporary retention

Sometimes, the transaction can be denied because the consumer has reached an “invisible” limit on their payment card. This happens when companies make a pre-authorization of payment on the purchase, withholding an amount of money to ensure that the transaction is not fraudulent or that the consumer has sufficient funds to pay.

If the consumer uses a payment card to rent a car and then the same to check-in at the hotel, the sum of the two deductions can reach the limit of the card (although after the money retained is released), the second transaction It can be denied.

Conclusions

There are several reasons why a transaction can be rejected by card issuers. In the case of fraudulent activity, it is best not to encourage re-entry even if this results in loss of possible income for the trade. In other cases, the problem can be solved by requesting another method of payment from the consumer, or by tokenizing your card details through a payment gateway that complies with the PCI-DSS standard for the transmission and secure storage of cards.