Worldwide, nearly 2 billion people made purchases online in 2018.
As more people look to the internet to make their shopping efficient and easy, that figure is expected to grow at a rapid rate. This means your online sales stand to benefit – but not if you’re dealing with a large number of credit cards declined.
Credit card declines are not only frustrating for your potential customers, but they’re also affecting your future sales. To ensure that you’re not financially affected more than you should be, you should understand credit card decline codes and how to reduce them.
Keep reading for all of that and more.
What Are Declined Transactions?
A declined transaction happens when a user attempts to make a transaction with a credit card and that transaction can not be processed, for any number of reasons. When this happens, a credit card decline message appears and explains the reason why this occurred. The merchant also receives a reason for the declination, but these credit card decline codes and messages are vague.
There are a number of reasons why declined transactions occur. This may signal a problem with the payment gateway, the bank issuing the money, or the processor.
Why Are Credit Cards Declined?
There are two general categories for understanding why credit cards are declined: soft decline and hard declines.
A soft decline means that the bank issuing the money has approved the transaction but something else has failed in the transaction process. These types of declines are usually temporary. They’re often caused by things such as network connectivity and can be corrected by restarting the transaction.
Hard declines, on the other hand, are often the result of a security issue. These types of decline mean that the card issuer or bank hasn’t authorized the transaction. The reason for this can be anything from fraud to incorrect account information.
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Top 5 Credit Cards Declined Codes
Whenever a credit card declines, the transaction processor sends two pieces of information.
The first is an error code. The code is usually numerical.
The second is an error message. These are vague words that explain what is causing the error.
Below we’ve listed the top 5 credit card decline codes and messages.
A transaction error occurs when the user enters the wrong data in the payment details. This sometimes happens when a customer misses a digit or enters the wrong digit in the credit card number, expiration date, or security code.
But this may also occur if the billing address is outdated or doesn’t match the registered information of the credit card. This can happen when there are spelling mistakes in the registration or payment details. This can also occur when customers misuse address items such as “1st Avenue” versus “First Avenue”.
Issuing Bank Decline/Unusual Activity
This response explains that the bank will not release the credit card funds needed to complete the transaction. There are a couple of reasons why this might happen.
In some cases, the bank has blocked transactions from your merchant category code. They do this when there’s a lot of fraud that occurs from other merchants in your category.
More likely, though, the credit card holder has gone on a spending spree or is trying to make a bigger purchase than they usually make. Banks monitor the spending habits of their users and if they recognize something that seems outside of their ordinary spending habits, they’ll flag it. This is a form of fraud protection and it triggers a freeze on the credit card account that can only be undone by the client calling their bank.
If you have a high-risk merchant category code, you may see these types of declines more often. Some banks are strict about releasing funds to high-risk codes such as subscription/continuity. This is especially true if the transaction is more than $100.
This category is relatively self-explanatory. Credit cards have credit limits. This is the amount of credit that a bank or card issuer has extended to the customer. When they exceed that limit, their purchases are declined.
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Transaction Not Permitted
This credit card decline code appears when a bank blocks the transaction because they don’t permit purchases from the type of product or service you sell. This might also be the result of your merchant code copy being banned from the bank that your customer uses. Either way, the customer will require special permission to make the purchase.
Pick Up Card/Stolen
Another self-explanatory code, this means that the card being used to make the purchase has been reported lost or stolen by the rightful owner. Banks will not allow transactions on these cards to go through – and neither should the merchant. These are often fraudulent purchases.
What Happens If You Get Too Many Declined Transactions?
There are standard rations for declines to approved purchases. If you have too many declined transactions, this high denial ration can lead to penalties. Penalties are applied per denied transaction.
If you don’t fix the high denial ratio, even bigger fines apply. After three consecutive months of falling outside the standard ratio, payment processors will apply heavy fines that affect your bottom line. These fines won’t be lifted until you’ve had three months of standard rations.
Declined Transactions and Sales
Beyond fines and penalties, declined credit card transactions affect your sales. Consider the fact that over $1.9 billion credit card purchases are denied every year. That’s a lot of potential sales lost to denied credit cards.
While some customers might try to fix the problem if they really want to make the purchase, chances are they won’t. It’s been observed that only half of customers will talk to their banks to try and fix the issue and one-third try to use another card. But 14% don’t follow through with the purchase at all and another 10% go directly to another merchant for their needs.
In addition to the monetary value of denied credit card transactions, you might also be affecting the relationship that customers have with your brand. When a customer’s credit card is declined, their first response is to blame you. They might not come back to make that purchase or any other purchase ever again.
So, while the decline sometimes requires action on the part of the customer (i.e insufficient funds or wrong address), there are some declines that are in your control. You should work to minimize these credit card declines to protect your sales.
How to Minimize Declined Transactions
With a bit of proactivity, you can minimize declined transactions so that you maintain your relationship with your customers and protect your bottom line. The first step in this battle is to figure out where most of your credit card declines are coming from.
Are they a result of customer-related issues like insufficient funds? Or are they occurring as part of fraud detection? Create a spreadsheet that looks through at least 30 to 90 days’ worth of transactions and then tackle them with the below tips.
Changing Your Fraud Filters
Fraud filters are in the control of the merchant. You can tweak these so that they don’t stop potentially good orders from going through.
Start by reviewing your payment processor’s fraud checks. These are automatically set to catch a very wide range of potential issues. You should be able to customize the rules for fraudulent transactions, according to what’s causing most of your fraud declinations.
Transaction errors that occur as a result of misplaced digits or invalid addresses are easily overcome. All you have to do is tokenize the credit cards of people who have made purchases with you before. This way, returning customers don’t have to re-enter their details every time they wish to make a transaction, reducing the chances that they make an error during that transaction.
There isn’t much a merchant can do when a credit card is declined due to a lack of funds. However, you can offer additional ways to pay and make these easily accessible when a transaction is declined.
Stolen or Fraudulent Cards
People who have tried to use stolen or fraudulent cards on your system should never be allowed back into your system again. Blacklist these card numbers as well as the customer information associated with them.
Remind Your Clients to Update
When a credit card that’s on file expires, it will deny the next time a customer tries to make a purchase. To limit these types of credit cards declinations, simply send reminder emails to your customers. This is a gentle nudge that reminds them to update their payment info with you.
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More Ways to Minimize Credit Cards Declined
Credit cards declined while making a transaction with your online store affect your bottom line. They affect the relationship you have with your clients and the chances that they complete a transaction for your product or service. But they can lead to penalties imposed by banks and payment processors.
There are ways to prevent a high ratio of credit card declines. Partner with us and find out how we help you protect your bottom line.
Related: Inquires Explained: Hard vs Soft