How to Prevent Recurring Payment DeclinesSabine Konhaeuser
How to Prevent Recurring Payment Declines
Offering subscription services is an incredibly effective way for merchants to grow their revenue. In fact, between 2012 and 2020, subscription businesses experienced revenue growth at a rate nearly six times faster than that of S&P 500 companies!
With their ability to vastly improve the bill pay experience and boost client loyalty and retention, it’s no wonder that subscription-based service providers — particularly software-as-a-service (SaaS) companies — are experiencing such incredible growth. Yet while recurring plans can be very profitable, businesses must be mindful of a common money leak: declined transactions. According to Visa and Mastercard, an astounding 15% of recurring transactions are declined. Each of these missed payments represents not only a lost sale but also an increased risk of losing the customer altogether. According to ProfitWell, declined transactions are the most common reason why B2B subscription businesses lose paying customers (known as customer churn).
Fortunately, there are things that merchants can do to reduce declined transactions and keep their recurring revenue strong. In this blog post, we’ll explore what causes card declines and how the right payment technology can prevent declines from occurring. Let’s get started.
What Are Card Declines?
- Insufficient funds
- Incorrect card details
- Inactive or expired cards
- Unusual purchasing activity
- Fraud or risk concerns as flagged by the bank
Since there are so many causes for card declines, it’s important that merchants take a multi-layered approach to preventing their occurrence. Effective prevention includes fraud mitigation tools, automated card updater tools, and customer outreach (among other methods). Before we dive into these proactive measures, let’s take a look at why card declines pose such a significant threat.
The Costs of Card Declines
Card declines are more than just a minor nuisance for business owners — they can cut into your bottom line and shrink your customer base. A report from 2016 found that $145 billion dollars are lost every year globally due to card declines. Additionally, ProfitWell reports that declined transactions are responsible for 20-40% of subscriber churn. As your churn rate creeps higher, your overhead costs earmarked toward customer acquisition go up as well.
Another cost of declined transactions you’ll need to consider is authorization fees. Every card transaction incurs an authorization fee, even if the transaction is ultimately declined.
How to Reduce Card Declines
Subscription businesses that keep card information on file are, unfortunately, bound to run into speed bumps with their recurring billing. Even your most trusted customers won’t always contact you when their card has expired or their billing address changed.
That’s where payment technology comes in. When seeking a recurring billing solution, such as a payment gateway integration, be sure to pick one that has robust recurring billing tools designed to help you keep your decline rate as low as possible. Here are some features to be on the lookout for:
- Support for a Wide Range of Payment Methods
Giving customers more ways to pay is a basic yet essential way to reduce declines. As debit cards have the highest decline rate among transaction types, you’ll benefit from adding support for payment methods that are less likely to be declined. Specifically, ACH payments boast the lowest decline rate, followed by credit cards.
- Use Account Updater Tools
If your customer’s card on file expires or becomes inactive, you shouldn’t have to chase them down for new payment information. That’s why the card-issuing brands developed account updater solutions that automatically obtain updated card information in the event that the customer’s stored payment method is no longer active. Cardknox’s Account Updater feature detects inactive cards on file, contacts the card brand to gather new card details, and updates the merchant’s records. Considering that 30% of credit cards are reissued every year, this feature is a must for your online payment processing system.
- Implement Automated Customer Outreach
You may, at times, need to reach out to the cardholder manually to obtain proper card information. For example, if the cardholder closed their account and switched to a different bank, then account updater solutions won’t help — you’ll need to ask the customer for an entirely new payment method. Reaching out to customers manually is tedious and frustrating, but fortunately, there are automated outreach tools that will save you much time and hassle. Cardknox’s UpdateYourCard solution will automatically email the customer in the event that their card was declined to request new payment information.
In addition to reaching out to customers after a transaction is declined, consider implementing proactive, automated email reminders that notify the customer when they have an upcoming payment. This will give the customer the chance to reach out should they expect any issues.
- Set Up Transaction Retries
There are many instances in which simply retrying the same payment method at a later date is all that’s needed to get a transaction approved — for example, if the account temporarily had insufficient funds or reached its credit limit. Fortunately, many recurring payment processing solutions, like Cardknox’s, allow you to set up automated retries so you don’t have to keep processing the transaction manually.
Some automated retry tools can even be used in tandem with Account Updater! This dual function enables your recurring billing system to automatically reattempt transactions with updated card information!
- Use Fraud Prevention and Identity Verification Tools
Fraud and risk concerns are another common cause for declines. And surprisingly, declines due to incorrect risk assessments (known as “false declines”) are more common than legitimate fraud declines. Research shows that merchants lose up to 75 times more revenue due to false declines than they do to legitimate fraud!
To prevent both legitimate and illegitimate fraud-based card declines, it’s necessary to implement accurate fraud and identity monitoring tools. One such solution is gateway filters, which is a feature offered by payment gateway providers that allows you to set parameters to block suspicious transactions. Some common gateway filters include transaction velocity limits and IP address blocks.
Another helpful solution is 3-D Secure. 3-D Secure is an identity verification tool that was developed by card brands to authenticate cardholder identities in real time during the checkout process. When using a payment processing solution that supports 3-D Secure, your transactions will only be approved once they pass verification.
Boost Your Recurring Revenue With Payment Technology
With the help of a robust payment gateway integration or standalone recurring billing tool, you can ensure that your recurring billing system is set up to keep card declines at bay. Cardknox’s robust gateway API and Merchant Portal (an online virtual terminal) make it a breeze for businesses to set up recurring payments, reduce card declines, and curb fraud.
To learn more, contact us today!