The increased usage of credit cards has led to the upsurge in the processing of the number of e-payments. It is undeniable that credit cards have made it simple for customers to make purchases both in-person and online while providing worthwhile rewards and perks in return.
However the rise has also led to some challenges and risks for businesses and customers too. Even the software as a subscription (SaaS) business has not been untouched from its effects. Some of the words subscription businesses dread the most are "declined," "insufficient money," and "invalid card number." And one of the major issues of all is declined credit cards. As per the recent survey, the major contribution in the churn rate of any B2B subscription business is the credit card decline.
Well, before getting to know the ways to respond to the problem while recovering lost revenues, let us first understand what a declined credit card means.
Credit Card Decline: What does it mean?
One of the most upsetting situations for both cardholders and merchants is when a credit card gets declined. A credit card decline means different to both the parties concerned and can be due to multiple reasons.
When a payment does not get processed or the payment processor—such as a bank or credit card company—does not approve the proposed transaction due to whatsoever reasons, a credit card is denied. Numerous factors, such as a shortage of funds, inaccurate information, or a lack of authorization from the cardholder, might cause this.
Credit card declines can have a serious negative impact on businesses, both large and small. This is a major and common issue for the businesses processing recurring payments. It means a missed sale, or lose out on revenue, while to a greater extent this can cause businesses to lose out on potential customers, as customers may not be willing to use cash or other payment methods.
Businesses may also suffer from increased levels of customer dissatisfaction when credit cards are declined. This not only results in a decline in sales but also a negative customer experience and reputational damage for the business, both of which may result in more clientele loss and financial loss.
Effect Of Declined Credit Cards on Subscription Businesses
Despite the popularity of Subscription businesses to secure recurring revenue, when a customer's credit card is declined, the impact on their subscription business is significant.
A customer's membership is instantly canceled when their credit card is denied, which reduces the business's revenue because the customer is no longer making payments for the subscription. Additionally, this may even increase the chances of customers being less-likely to re-subscribe in the future because of lessen trust in business with their payment information. They may even feel dissatisfied and disappointed since they will no longer be able to get the items and services they had hoped to obtain.
This condition fosters the condition for the businesses needing to spend more time and resources in re-engaging with the customers and attempting to resolve the issue. The work can be time-consuming and expensive because the company must speak with the consumer directly, look into the issue, and possibly provide additional rewards or discounts to entice the customer to renew their subscription.
As such, businesses on their behalf should take the necessary steps to prevent credit card declines and ensure that customers are able to successfully pay for their subscription.
Why Declined Credit Cards?
There are two common reasons for Credit Card Declines -
Soft Declines - There is one thing to keep in mind that for a single transaction to take place, multiple parties are involved. Soft decline of credit cards is a type of declined transaction that is approved by the bank, but either one of the involved parties at the time of transaction is down, unavailable, or interrupted.
As in this type of transaction is approved by the card issuer. It can also be addressed as a temporary decline of transaction, as with a retry attempt, it may lead to successful purchase.
These declines occur when the card issuer does not approve the transaction for a variety of reasons, such as card being on temporary hold, restricted card, due to insufficient funds or an invalid card number. Soft declines are generally considered less serious than hard declines, as they do not indicate a problem with the cardholder’s identity or account.
Hard Declines - A hard decline of a credit card is when a customer’s credit card is declined by the issuing bank due to invalid transaction, incorrect account information, card not activated, or the card being blocked or expired. This type of decline is also known as a negative response.
Hard declines occur when the customer’s credit card issuer is unable to authorize the transaction due to incorrect or insufficient information. This can happen when the customer enters their card information incorrectly, or if the customer’s card has been blocked or expired. In some cases, the customer’s card issuer may also decline the transaction if there is suspicious activity associated with the card or if the customer has exceeded their credit limit.
During a hard declined credit card, the issuing bank will send a decline message to the merchant. This message will usually provide the reason for the decline. If inaccurate information was the cause of the decline, the customer should be prompted to enter their card information again. The customer should speak with their card issuer to address the problem if the decline was brought on by inadequate funds or a lapsed card.
**Declined Credit Card Codes And Error Messages - **
After the payment failure, regardless of the reason caused, two different informations are shared by your processor - Error Code and Error Message.
Let us get a brief overview of both.
Error Code - Error codes for declined credit cards, a series of numbers and/or letters representing the type of error occurred indicate the reason for the rejection. Each card issuer has a different code range and meaning for the codes, but most are similar.
Error messages - Error messages of declined credit cards are notifications sent to the cardholder and/or merchant when a credit card transaction is declined. These messages typically occur when the cardholder’s credit card issuer or the merchant’s credit card processor has declined to authorize the transaction.
Error messages give the cardholder the opportunity to provide updated information or correct any errors before the transaction is resubmitted. For the purpose of figuring out what to do next to finish the transaction, it is crucial for cardholders to always read and comprehend the error notice.
Both error code and error messages are generated by the processor and sent to the customer for evaluation.
How To Reduce Credit Card Declines?
It is crucial for businesses to be aware of the tactics to reduce declined credit cards, as it could be detrimental to the business’s reputation. Customers sometimes do not even bother to know the reason behind the decline and blame the merchant, which brings nothing but the dissatisfaction of them. So reducing credit card declines or preventing it can be a tricky process, but it is possible.
Preventing Soft Credit Card Declines
Soft credit card declines can be a nuisance for customers and merchants alike. Thankfully, there are various measures that retailers can do to aid in their prevention.
Merchants can check that their payment gateway is current with the most recent security protocols on their end. To make sure they're employing the safest techniques, a routine assessment of their payment processing procedures have to be done.
A careful review or double checking of the information provided by customers - names, addresses, and other information when processing credit card payments to ensure accuracy goes a long way.
Finally, merchants should communicate with customers to ensure they understand the cause of the decline and take necessary steps to resolve it in the case of credit card decline. Implementing fraud filters help protect against fraud and other security risks, which can lead to soft credit card declines.
By taking these steps, merchants can help reduce the risk of soft credit card declines and provide a better experience for their customers.
Preventing Hard Credit Card Declines
Ensuring that all account information is up to date is the crucial step in the direction of recovering credit card decline. Making certain that all billing data, including address, name, and expiration date, is accurate is necessary. It's crucial to confirm that the credit card's limit has not been reached.
Maintaining low credit card balances and timely payment of bills is the major consideration to make to avoid hard credit card declines. As hard declines are caused by late payments and large balances, being aware of the terms and conditions of the card and adhering to them when using the card are crucial.
Lastly, the dunning campaign is another significant approach that can have an impactful approach to bring back the customers lost to credit card decline to your door again. This way you can encourage your customers to go through the transaction.
Final Words
Understanding the repercussions of declined credit cards is significant as it lowers the chances of losing customers if not completely vanish. Declined credit cards can have serious repercussions if not dealt properly.
However, the encounter of the issue not only can be embarrassing and create a negative customer experience, but is also capable of damaging a company's reputation resulting in a decrease in revenue. Companies, being on the safer side, should seek to create an efficient and secure payment process to ensure customer satisfaction and to protect their reputation.