As the new year sets in and proactive merchants continue to think of ways to boost revenue in the face of a likely recession across many parts of the world, paying attention to hard declines might not be the first area of the payments journey that gets attention. Why is this? It’s because hard declines seem to end the customer’s journey.
Most people think recovering declines refers to soft declines. A soft decline is when a card issuer gives a temporary authorisation failure. This kind of decline allows the transaction to be recovered by sending it to 3DS.
Hard declines happen when card transactions get declined by the issuing bank. The usual reasons include: the card has insufficient funds, been reported lost or stolen, expired, or reached its limit. When faced with a hard decline, a merchant has no option but to have their customer try the transaction again. This obstacle can be off-putting for customers and lead them to abandon their purchase.
If there is no other option than to retry the transaction, why suggest that hard declines are recoverable?
Recovering declines is all about fixing problems that arise during the payments process. Even when one process has failed, there is still a problem to be fixed for the next time the customer attempts a transaction.
How can a merchant fix the process?
Famously, doing the same thing repeatedly and expecting different results has been considered a form of insanity. However, this is essentially how rules-based systems work. If a transaction offends a rule in any way, there is little room for nuance, and the transaction will be declined every time it is tried. So if a customer repeats a previously hard declined transaction, how confident can we be that the next attempt will be successful? Not very, especially if that merchant attempts to exempt every transaction.
For merchants who want to recover hard declines, the number one thing they need to know is who their customers are. When merchants know their customer and whether their last transaction was successful, they can dynamically choose the approach that most likely leads to a successful transaction.
Fixing the buying process needs authorisation decisions to be properly flagged by issuers. Forter estimates that as much as 50% of issuer declines aren’t correctly flagged. If these aren’t correctly flagged, the PSP mechanism will not send them to 3DS, resulting in lost transactions.
Our identity-based data demonstrates that previously declined customers who, despite receiving hard declines such as insufficient funds, return to the merchant – indicating they know a different version of truth than their issuing bank! – and successfully complete their transactions when they are sent directly to 3DS.
What is a merchant losing by not recovering hard declines?
So now we know the areas that need fixing to recover hard declines, let’s ask the question: how big is the problem? How much revenue are merchants losing? Is recovering the lost traffic worth the effort?
It’s important to realise that an analysis of 100 transactions and the people behind them will reveal that they are not all different people and that some of these transactions are the same people retrying a declined transaction, even multiple times. Rescuing genuine customers from this groundhog day of declined transactions is important. Forter data indicates that a third of your customers who aren’t successful on their first attempt won’t try the transaction again.
Knowing who your customer is allows you to recognise a retry attempt on a purchase and route the transaction differently (e.g., exemption failed will route to 3DS). Forter data suggests the success rate of retries for merchants using an ID-based system is 60-85%. Put another way, if you are a retailer with £100 million per year in online transactions, you may miss out on £3.3 million in recoverable hard declines.
The long and short of why PSPs don’t mention recovering hard declines is simply down to capability: they can’t do it.
By fixing broken parts of the payments process and using ID based decisioning, retailers can recover online traffic that would otherwise be lost. The forecasted slowdown in the world economy in 2023 might be a good reason for merchants to stop ignoring this lost revenue. Still, the best reason by far is that this revenue is just sitting there ready to be recovered while improving the shopping experience of genuine and loyal customers.