Part I: Why declines happen and how to minimize them on the card issuer side

By David Goodale, Merchant Accounts.ca

There is an old sales adage that refers to the ABC's of sales as "always be closing." Whether this is good advice or not when it comes to today's saturated consumer marketplace is debatable. 

However, when it comes to an e-commerce transaction where you have a potential customer's attention, interest and desire, it's time to close that sale. In the e-commerce world this is accomplished with a speedy and efficient checkout process. The last thing that you want to happen after the hard won battle to acquire the customer is to lose the sale simply because of a declined payment. In fact, a report printed recently uncovered revenue lost by retailers because of unnecessary declines blocked sales totaling $40 billion each year

 In this article we will explore the various reasons why a credit card transaction can be declined, and things that you can do as a merchant to minimize the impact of declines on your bottom line. Declines are NOT always a bad thing.

Before we start painting every decline as a bad thing we should first consider that not all declined payments are a bad thing. Declined payments are important to protect merchants from fraudulent activity. They also occur to protect a cardholder's best interest on the card issuing side. For example, if a fraudster is attempting to use a stolen credit card to purchase something online, both the merchant and cardholder would want that transaction to be blocked. However, many declines are preventable. And as the Payment Gateway Index (from Spreedly and Shopify) shows, decline rates vary significantly by gateway. 

So let's dig deeper into declined transactions. Wait a second -- why did this transaction get declined? A decline can happen for any number of reasons, however, there are usually only two points of failure that could cause the decline to occur: (i) The payment gateway (ii) The card issuer When a decline happens on the payment gateway side, it is usually occurring to protect the merchant's best interests. When a decline happens on the card issuing side, it is to protect the cardholder's best interests. 

What can I do to prevent and minimize card issuer side declines? As a merchant, there is relatively little you can do when it comes to controlling card issuer declines, because the card issuing bank ultimately holds the decision making power in terms of whether a transaction will be approved or declined. One of the few things that a merchant does have control over is to ensure that full and valid information reaches the card issuer for each and every transaction. When processing a credit card transaction almost all payment gateways support AVS (address verification) and CVV (the three-digit security code on the back of the card). However, these fields are not strictly enforced or required. 

In other words, you can easily submit and receive approval without including a cardholder billing address or CVV information. Most merchants think of AVS and CVV as anti-fraud tools. In fact, that is exactly what they are! However, if we put ourselves in the shoes of the card issuer and look at the situation from the other side of the coin, we can realize that valid address and CVV is a strong indicator of a legitimate transaction. That is not to imply that a card issuer will listen, or react any differently for a given transaction just because a CVV was included or AVS matched. What we have to keep in mind is that we are at a disadvantage at that point in the transaction flow because the card issuer holds the reins. For that reason, if you want to do everything possible to minimize the opportunity for a card issuer side decline to occur, we should make every attempt to submit the best possible information in relation to each order. 

Admittedly, requiring this information could cause a slower checkout process for your customers. In other cases, it would be impossible to provide. For example, a recurring billing transaction can never include a CVV code because storing a CVV code is in breach of PCI DSS (the payment card industry data security standard). In this situation you can offset this fact by flagging a transaction as recurring (depending on your payment gateway). This way, when the transaction is processed, the issuer understands that it is a subsequent transaction on a previously processed card, and can even qualify under a preferential interchange rate. In summary, if you are not requiring your users to type in a billing address or CVV information on your order form you might want to consider requiring this information before allowing a transaction to be posted to the payment gateway. 

In the next post, we'll address declines on the gateway side and what to do about them.