Transaction declines are a revenue killer for businesses, especially for SMEs. Even a small percentage can lead to significant revenue losses. Improper handling of declines, like repeatedly reattempting failed transactions, can lead to non-compliance with card scheme regulations and trigger fraud detection rules. More importantly, it can result in customer dissatisfaction and, ultimately, loss of future sales.
To mitigate these challenges, businesses can adopt cascading payments, a strategy of rerouting failed transactions to alternative processors. This can maximise a transaction's approval rates while minimising revenue loss.
This article can help business owners understand cascading payments, what they entail, and how they can maximise business revenue.
Why do payment declines happen
Over $145 billion in online purchases are declined per year. These payment failures occur due to issues on the customers’ side, errors in merchants’ payment systems, banking policies, and so on. Here are some common reasons for declined payments.
Insufficient funds: For those using debit cards or digital wallets, inadequate funds in the account to cover the transaction would lead to a decline.
Expired card: Debit and credit cards have a certain validity period. If a card expires, payments made with it will be declined.
Wrong PIN/CVV: Users must enter the correct PIN/CVV during a transaction. Failing to do so will result in a payment decline as the transaction seems unauthorised.
Personal information mismatch: Some transactions may require customers to input personal information like address or phone number. If the information doesn't match the ones in the bank's data, the transaction may automatically be declined.
Unusual large transaction: Banks may flag big transactions as suspicious activity and temporarily freeze the account, which results in declined transactions. The limit of what qualifies as large transactions may vary between banks.
Hold on the card: Customers may be asked to place their cards on hold when renting cars or making hotel reservations. If the hold is not lifted, transactions using the same card may not be successful.
Exceeded card limit: Credit card limits vary with each bank's tier. Payment failure can happen if a customer has already exceeded the limit.
Overseas use: Some cards do not allow transactions outside the issuer's country, so it’s important to check the card’s T&C.
Understanding cascading payments
Cascading payments offer opportunities for merchants to avoid losses caused by failed payments. This involves multiple payment gateways or channels linked to a smart routing system. A transaction is immediately rerouted to another channel if declined the first time, increasing the likelihood of a successful payment.
The transaction will follow a set of AI-determined rules to reach its endpoint instead of the fixed flow of traditional payment processing. The rules will be active when the transaction has been directed to the Merchant Identification Number (MID) or acquirer, but the payment is unsuccessful. The payment gateway then triggers the cascade process into another payment solution as many as needed until the payment is approved.
Payment gateways like APEXX offer such dynamic routing solutions. Its real-time rerouting technology enables instant rerouting for declined transactions to alternate gateways during downtimes or outages with a primary acquirer.
Customers will see a higher chance of successful payment with a single payment attempt. There’s no need to repeatedly insert payment information when the payment get declined.
Saving money with cascading payments
Routing payments can save your business lots of money.
Failing to complete transactions causes frustration among customers. Around 40% of consumers abandon their purchase when a payment fails, and 33% will not attempt the transaction again. This, unfortunately, affects customers’ relationship with the merchant. They develop distrust for the merchant’s system and may not return in the future.
Losing current and potential customers is not the only risk that merchants face due to payment declines. Each payment decline will incur a fee that merchants must bear, further increasing their financial loss. The fee per decline typically costs between $0.06 and $0.08.
An authorisation fee is also charged every time a customer swipes their card, even if the card is declined. This authorisation is needed to verify information between the acquiring bank (your business account) and the issuing bank.
The hidden cost of labour should also be considered. Payment declines mean that the business staff has to make extra efforts to track and update payment information. It’s not efficient in terms of time and costs.
Fraud prevention services can also be enhanced through dynamic routing, which directs payments through the route with the highest authorisation rates. This means better overall transaction security.
Keeping customers happy and your operations running smoothly are among the key ingredients for business growth. Using cascading payments ensures a steady revenue stream for businesses even in unfavourable circumstances, like outages. It also fosters customer loyalty and encourages repeat purchases.
