Understanding declines and failed payments

As of August 2022, there were over 13 million credit cards in circulation throughout Australia, with an accumulative debt of over $17 billion. With such an increased spend on card payments being processed every day, there were always going to be problems, and one of the most pressing problems for businesses, particularly those operating on a recurring payment or subscription model, is card declines and failed payments.

Why do payments fail?

Card payments fail when a payment can’t be processed or is declined by the payment gateway or the bank itself. Visa and Mastercard estimate that on average, as many as 15% of recurring payments are declined, and this can be quite problematic for businesses, especially smaller businesses with growth plans.

Of course, payments can fail for many reasons, sometimes for the best reason (to minimise the potential for fraud) and sometimes simply because the customer doesn’t have enough funds or credit in their account.

The most common causes of failed or declined payment are as follows: 

Insufficient funds

More often than not, payments fail because the customer either has exceeded their credit limit or doesn’t have enough funds in their account to cover the purchase. When this happens, the bank refuses the payment.

Expired cards

Probably the most common reason for declined payments behind insufficient funds is customers using expired cards.

Bad information

If the customer has input their card details wrong, misspelled their name (it happens more often than you’d think) or given the wrong address, then the bank can flag it as potential fraud and refuse to process it.

Gateway error

Payment gateways are the systems that process your payment, encrypting data and ensuring that both parties are satisfied. If the gateway has been installed improperly or with the wrong settings, errors can occur and payments can be declined.

Fraud

Payment is also declined if the customer or merchant’s bank suspects there has been foul play. This could be because of suspicious activity on the account or because the bank has been alerted of a theft or stolen card.

Preventing failure

There are several tactics you can employ to cut declines and failed payments to a minimum.

Send payment-due notifications

Particularly given the current economic state of affairs, customers sometimes forget to pay their dues if they have not set up automatic recurring payments. To combat this, consider sending out payment-due notifications via email or social media a few days before the next upcoming due date. Always include a clear call-to-action in this message and be clear on what steps they can take.

Make card updates simple

As we’ve already discussed, expired cards are a common cause of declined payments. You can mitigate this by making it as easy as possible to add or change payment information. Also, if a customer’s card is approaching its expiration date, send a notification to let them know, as they might be unaware.

Prevent false card blocks

While fraud does happen, many payments are declined because they are wrongly believed to be fraudulent when they are in fact legitimate. The best way to stop this from happening is to present as much customer information as possible to your payment processor, so they have more data to work with when assessing whether a payment is fraudulent or genuine.

Dealing with failure

While preventative measures can always be taken to ensure declines and failed payments are kept to a minimum, they do, unfortunately, happen eventually. That’s why you must have the right processes in place to prepare for and deal with card failures and the inevitable customer churn thereafter.

Communicate

Make a customer immediately aware that their payment has failed. Sometimes their bank might inform them automatically but this isn’t always the case, so you should always send them a notification after their first rejected payment and direct them to a page where they can help resolve the problem.

Retry

Sometimes, the customer might have been made aware of the problem and has fixed it, but is waiting for you to make the next move. Implement an automated schedule of payment retries to make it as easy for them as possible, but be open about how often and when you’ll retry. Also, be smart with your retries. If the card on file has expired, for example, there’s no point in retrying it.

Investigate

If you suspect fraud, then it’s up to the bank to commit to a full investigation. But you can help by supplying all the relevant information. The more help they get, the faster they can get to the bottom of it.

We can help

On average, 10–15% of all card payments fail, and all failed payments need to be retried and rectified, adding substantially to your admin burden.

GoCardless is the global leader in bank payments, uniting bank debit, open banking and intelligent payments. We make it easy to collect one-off and recurring payments directly and automatically from your customer's bank accounts, cutting down dramatically on the number of failed payments and the amount of financial admin for your team.