Understanding Issuer Declines
Nobody likes it when a customer tries to pay for a purchase with their credit card and the issuer declines to authorize the transaction. It’s disappointing for both the customer who can’t make their purchase and the merchant who loses out on the sale, and it can be tempting to look for ways to make the transaction happen anyway.
This is dangerous, because issuers usually have good reasons for declining authorization, and unauthorized transactions have a very high risk of becoming chargebacks. Why do issuers decline payment card transactions, and what can merchants do when a sale is jeopardized by a declined card?
One of the most important steps in the credit card transaction process is authorization. The authorization step is where merchants check in with the issuing bank before the transaction is processed, to verify that the card is valid and in good standing, that there are sufficient funds to cover the transaction, and that the payment credentials have been entered correctly. Without the authorization process, it would be effortless for fraudsters to use other people’s credit card numbers without their permission.
At the same time, the authorization process can be subject to error, and sometimes a legitimate customer with a perfectly valid card will have their purchase attempt declined. Knowing when to retry and when to ask for a different payment method is important for merchants, who need to balance their interest in saving the sale with their need to protect themselves from costly chargebacks. When a customer (or the bank itself) disputes a transaction that never received authorization approval, it’s usually an automatic loss for the merchant.
Why Do Issuers Decline Card Transactions?
The process of requesting and obtaining authorization approval for a payment card transaction is usually automatic, swift, and unremarkable. When a transaction cannot be authorized, the issuer will send back a decline response that includes a two-digit code that specifies the reason for the decline.
The authorization process provides the best possible guarantee that once a transaction is received by the issuing bank, it can be cleared and settled without any problems. It screens out erroneous credentials, expired and invalid account numbers, unavailable funds, low-effort fraud, and other transaction issues that would take otherwise considerable time and resources to resolve.
Some declines, known as soft declines, refer to issues that the cardholder may be able to resolve, such as data entry errors or insufficient funds.
If the cardholder addresses these issues, they may be able to reattempt the transaction and get a different authorization response. Hard declines, which are given in response to issues like card numbers that have been reported as stolen, are effectively permanent and should not be reattempted.
What Are the Main Reasons for Issuer Declines?
Merchants should always analyze their transaction data and look for unusual spikes or trends with respect to the decline reason codes they receive. Some declines can occur due to merchant error, so it’s important to investigate your own frequently-encountered decline codes to see if there’s anything you can do to fix those issues on your end. In terms of declines that are beyond the merchant’s control, there are some you can expect to see again and again:
- The customer’s account has insufficient funds to cover the transaction.
- The customer has exceeded their withdrawal limit for this time period.
- The card is expired.
- The card number is invalid.
- The CVV or billing address is incorrect.
- The card has been reported lost or stolen.
What Should Merchants Do When a Transaction Gets Declined?
In some scenarios, particularly in card-present environments, you can share the decline response with the customer and ask them how they would like to proceed. Some issues, such as withdrawal limits, may be resolvable with a brief phone call to their bank. Other issues, such as data entry errors, may disappear if you simply attempt the transaction again.
Hard declines, such as when a card has been reported stolen, can never be successfully reattempted, and in some cases, the response may instruct the merchant to hold on to the card and contact the issuing bank.
When you get a hard decline response, or when a reattempt on a soft decline is unsuccessful, your only good option is to ask the customer if they would be willing to try an alternate payment method. You should never “force” a declined transaction to go through, as you will have no protection whatsoever from any chargebacks that might be filed later.
The best way to avoid losing sales due to issuer declines is to offer your customers a variety of different payment methods.
When Do Issuer Declines Lead to Chargebacks?
A decline is essentially a warning that if the transaction is forced through, the issuing bank is likely to reverse it. Issuing banks can initiate their own disputes against transactions that contain erroneous or invalid data, and cardholder disputes will always prevail if the merchant cannot show proof that the transaction was properly authorized.
More to the point, issuer declines are often signs that the transaction is fraudulent.
For example, the customer could be a fraudster who is only guessing at the CVV and AVS information belonging to a card number that they stole. They might claim that the information is unreadable, or was changed recently, and ask you to force the transaction through on an emergency basis.
Lost sales can be frustrating, but they don’t cost you fees, overhead, and lost merchandise the way chargebacks do. Forcing an unauthorized transaction to go through is never a good idea.
Issuer declines can throw a wet blanket over what would otherwise be a happy sale, but that doesn’t mean you and the customer can just agree to pretend it didn’t happen. While there’s no harm in retrying an authorization request to rule out the possibility of network hiccups or data entry errors, you should always listen to the issuing bank when they’re warning you that they don’t intend to accept a transaction.
You won’t always be able to recover every declined sale, but if you offer your customers a wide range of payment options, you have a better chance of bringing things around to a satisfactory alternative solution.