Reducing Bank Declines: a Strategic Approach for Merchants
In my previous blog I discussed the difficulties merchants have with spurious bank declines – where the transaction looks good to the merchant but the cardholder’s bank declines it for something other than, say, “insufficient funds”.
Some industry insiders suggest there’s not much you can do to combat these, that they are caused by gremlins in the system somewhere – in other words a product of the legacy patchwork of systems used by acquirers, card networks and issuers to share transaction data.
So what are some of the ways merchants can combat bank declines and stop losing sales?
Leverage Decline Code Analytics
In 2024, access to raw decline codes from issuing banks is imperative. Analysing these codes can unveil patterns and common reasons for declines, enabling targeted solutions. Sort the data and look out for the following:
Insufficient Funds – Rather than show a generic “payment failed” screen to the customer, there is the option to request a different payment method in-session without forcing the customer to start again. Another option is to use the Partial Approval Service whereby the issuer returns the available balance in the auth response, allowing you to split the payment or reduce the order size in-session so that the sale can still go through. This requires an additional indicator in the auth request which your acquirer can help with.
Too many merchants show a generic decline response or re-enter all of their details which causes a lot of customers to abandon the sale completely.
(Note: Kipp is also doing some interesting things in this space whereby merchants can stake a % of the sale price to encourage the issuer to accept transactions it would otherwise decline. Their issuer base is growing but still low last time I checked.)
Invalid Merchant or Invalid Transaction – Can be the result of a policy on the card or issuer but it can also be a generic decline response. If it happens too often with certain issuers, ask your acquirer to investigate as there’s no one-size-fits-all solution.
Lost/Stolen – It is likely a fraudster is attempting to use the card, so think about whether other buyer characteristics should be flagged appropriately and used in your fraud screening going forward. If this transaction comes from a registered user, think about whether this could be a case of account takeover and ask the genuine user to re-verify.
Invalid Card Number or Expired Card or Invalid CVV2 – The first two can be minimised with sanity checks on the checkout form. Otherwise, rather than generate a generic decline response, keep the cardholder in-session and tell them something didn’t look quite right. Ask them to check and re-enter card details.
Authentication Required – Transaction required authentication or the issuer has requested authentication, such as 3D-Secure. This is much more prevalent in UK and EU where SCA is in place and is usually a soft decline, allowing you to perform a 3DS-challenge in real-time without losing the sale. Top-performing merchants don’t attempt 3DS for all transactions, but use exemptions in UK/EU, and often use very little 3DS in other mature markets such as North America.
Suspected Fraud – The issuer suspects the transaction may be fraudulent. These declines may provide useful information for your own fraud prevention. Manually review a sample of these transactions and tweak your own rules. If you believe they are mostly genuine and coming from specific issuing banks, you or your acquirer can engage with that bank to hopefully give them assurance you have robust fraud screening in place and they need not be so sensitive. The bank may be more likely to return this code if they have received a lot of chargebacks or fraud from your Merchant ID so it’s important to send clean traffic to the banks to ensure the highest acceptance rate.
Once you know your most common reason codes, look for patterns in particular geographies or specific issuers. We saw an issue recently whereby one large UK bank was hard declining all transactions for which the merchant was seeking an SCA exemption. This was due to the technical messaging, rather than policy and was fixed quickly once identified.
Often you’re reliant on your acquirer or PSP to help investigate these issues, or facilitate discussions with banks. If you’re acquirer won’t help, or can’t provide the data, and declines are becoming an issue for you, maybe it’s time you thought about switching acquirer.
Have Robust Fraud Prevention in Place
You want to send the cleanest traffic possible to the issuers to give them confidence in your transactions. This means identifying and removing fraudulent transactions before sending the authorisation request. Easier said than done, of course, but of paramount importance if you want to reduce bank declines.
Adopt Technical Agility
It’s important to turn the decline data into actionable insights which lead to adjustments to your checkout flow. Whether it’s bespoke customer messaging depending on the reason code, handling split tender payments or 3DS challenge flows, if you can’t adjust the UX to maximise your chance of recovering the sale, then it’s not going to be very useful. A/B testing can be particularly useful here to see how customers respond to different prompts following a decline.
Use Network Tokens
Network tokens are generate by the card schemes (e.g. Visa/Mastercard) and use multiple authentication factors and device intelligence to link the payment credential (token) to both the customer and their trusted devices. This not only increases authorisation rates by enhancing issuer confidence but also minimises fraud, including account takeover.
According to the latest figures from Visa, using network tokens leads to a 2-7% auth rate uplift depending on the geography and a 28% reduction in fraud overall. Not bad at all.
Even with all these benefits, some global acquirers only turned on network tokens as late as Q4 2023, meaning their merchants have been losing out for a few years now..
Update payment Credentials Automatically
If you are in the subscription space, process recurring payments, or use stored credentials these are a must as you’ll no longer lose sales due to expired or lost/stolen cards (on average, one-third of cards are re-issued each year). Account Updater is a service you enrol with via your acquirer which allows you to update stored credentials as they happen without any interaction with the cardholder thus increasing auth rates and reducing the opportunity for service cancellation.
This service is mandated in some markets but not all issuers enrol in this service globally so its value will depend on where you’re selling.
Diversify Payment Options
Google Pay and Apple Pay both have built-in biometric authentication, which the banks like, so their acceptance rates are much higher even though they carry the same cost as card payments. Paypal can be more expensive (but not always) and also has much higher acceptance rates than cards.
If you are selling in multiple markets, you should also consider local methods such as iDEAL in Netherlands or SEPA direct debit in Germany. These often have lower costs and are near fraud-free because the customer approves the payment in their bank app.
Other methods such as BNPL will also generally lead to conversion improvements but at a much higher cost vs. cards so it’s key to ensure the business case stacks up and this will be merchant specific.
Bank declines are one of biggest headaches merchants face, particularly those selling internationally. However, there are several ways to reduce the burden and potentially make significant improvements with some merchants benefiting to the tune of 10-20% uplifts.
If you have the right acquirer this can make life much easier but, in our experience, the top-performing merchants don’t just rely on their acquirer. They take matters into their own hands by leveraging analytics to measure the important metrics, identify trends and make regular optimisations over time.
Things change and the banks also each tweak their “black-box” over time, which means you have to be ready to respond quickly to avoid more spikes in decline rates.
Bankhawk helps enterprise merchants achieve more from payments. If you want to learn or have any questions, please send me a message.