How to boost payments performance

Payments can fail for multiple reasons. The challenge merchants face is understanding why. The best way to gain that understanding is to have access to the response codes generated by issuing banks every time a transaction is approved or rejected.

Response codes are extremely powerful data points. They tell merchants with precise detail exactly why a payment has failed.

With this information, merchants can take appropriate action immediately to ensure the payment is successfully authorised. And they can use the data to spot trends and develop proactive strategies that stop the payments from failing in the first place.

Yet, unfortunately, many businesses are working in the dark. Research shows 65{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} of merchants don’t receive detailed raw response codes on failed payments.

This ranges from them receiving no response codes at all to grouped response codes that only provide a generic overview of why payments have failed. Either way, these are not enough for businesses to proactively take action to improve their authorisation rate.

65{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} of merchants don’t receive detailed response codes on failed payments

Checkout.com, a leading cloud-based payment solutions provider, offers over 150 different response codes, giving businesses full visibility into why payments are failing. Their expert teams also work with every business to develop strategies to improve their overall payments performance.

Here are some examples of response codes businesses may see and how they can take action.

Reason for decline:

Lack of funds

Potential solution(s):

Businesses that see this response code should prompt their customers to retry using an alternative card or payment method while they’re still in session. Another solution, especially when seeing a large number of payments fail due to a lack of funds, is to offer a buy now, pay later (BNPL) option, like Klarna.

Subscription businesses seeing payments fail due to lack of funds can spot trends in the data to learn the optimum time to schedule the payment. There’s a need to go granular here as trends will differ by market and demographic. The same data can also be used to build out an optimized dunning process.

Reason for decline:

Expired card

Potential solution(s):

Payments failing due to customers using expired or cancelled cards is commonplace. One solution is to leverage the card scheme’s automatic account updaters, such as Visa Account Updater and MasterCard Automatic Billing Updater.

However, not all payments providers offer this service. Businesses can also use tokenization. Tokenization sees a customer’s card replaced with a series of randomly generated numbers — the ‘token’. Unlike cards, tokens have no expiry date and therefore eradicate the risk of involuntary churn. The higher security level with tokens also combats fraud and improves payment success rate.

Reason for decline:

Authentication required

Potential solution(s):

The arrival of Strong Customer Authentication (SCA) in the UK and European Economic Area

(EEA) is leading to more stringent checks on a payer’s identity. And as a result, many more transactions are being soft declined.

To reduce the number of soft declined payments, businesses should adopt 3DS2 protocols and adapt their processes for SCA as soon as possible. 3DS2 enables SCA compliance by leveraging over 100 data points between the business and the payer’s card issuer. This ‘risk-based authentication’ allows the card issuer to authenticate the payer without the need for additional information.

Businesses can also provide customers with the option to use digital wallets, such as Google Pay and Apple Pay, at the checkout. Not only are these increasingly popular ways to pay, but they also tend to lead to higher acceptance rates — sometimes by as much as 10{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} versus standard card transactions — and also meet SCA requirements due to the native use of two-factor authentication.

Reason for decline:

Blocked for fraud

Potential solution(s):

Issuers rightly block some transactions on account of fraud. Every issuer has its own unique fraud detection systems and logic that track consumer behavior and multiple other data points to prevent them from accepting fraudulent transactions.

These systems are not infallible and they occasionally incorrectly authorize fraudulent transactions and reject legitimate transactions. If the latter is suspected, it may be the merchant category code (MCC) used isn’t optional or is being flagged by the issuer.

To resolve this, businesses should speak with that issuer, either directly or through their payments service provider. At Checkout.com, our issuer outreach solution automates this process for businesses to eliminate this issue as soon it’s identified.

Reason for decline:

Account restricted

Potential solution(s):

This response code may mean several things. For instance, it may mean the transaction was blocked due to suspected fraud. If that’s incorrect, then businesses should reach out to that issuer and resolve the issue.

But this response code may also indicate that the card doesn’t accept the currency or can’t be used for cross-border transactions. In this case, businesses and their payments provider can use the data to uncover where this is happening and why.

Depending on the reasons, possible solutions may be to accept payment in local currency, leverage popular alternative payment methods, or take advantage of domestic acquiring to ensure more payments are successfully authorized.