Lowering Subscription Decline Rates

Table of Contents

1. Why Are Recurring Transactions Declined?
2. Optimize Your Merchant Descriptor
3. Narrow Your MCC
4. Use an Account Update Service
5. Use Intelligent Routing
6. Analyze Your Declines
7. What Is a Recurring Billing Indicator?

Running a subscription-based eCommerce business comes with its fair share of challenges, but you would think that at the very least, software-as-a-service (SaaS) merchants would be able breathe easy once a customer has signed up for a long-term or indefinite recurring subscription. As long as you’re continuing to provide the same high quality product and customer service they signed up for, the reasoning goes, the recurring renewal charges should feed into a reliable revenue stream.

In reality, as much as 12% of that revenue stream is drying up on you—and it’s not because the customer has decided to cancel their subscription. This churn is caused by the renewal transactions being declined.

Why Are Recurring Transactions Declined?

Unfortunately, an inadvertent or accidental declined transaction often results in the real and permanent loss of the cardholder as a customer. Sometimes they take the decline personally and blame the merchant, at other times they may take the decline as a sign from the universe that it’s time to let the subscription lapse. Often, they don’t even notice emails or other alerts informing them that the renewal has been declined.

Churn is an inescapable aspect of SaaS, but the last thing you want to do is lose a customer who would have been happy to stay with you for months or even years longer if their transaction had simply been approved. To prevent avoidable declines from costing you customers, here are five tips you can follow to ensure a higher rate of approvals.

Optimize Your Merchant Descriptor

Ambiguous merchant descriptors are a frequent cause of declined transactions, disputes, and chargebacks. This is the text that attaches to transactions on a cardholder’s bank statement, providing the merchant’s name and contact information.

The billing descriptor that gets set up for you when you first open your merchant account may not accurately reflect the name of your store or brand once you finally get your eCommerce site up and running.

While most re-billing attempts won’t be derailed by a misleading billing descriptor, chargebacks resulting from customer confusion can be an even bigger problem. Once fees and other costs are accounted for, chargebacks often end up costing merchants twice as much as the original transaction. Check with your payment processor to make sure that your billing descriptors (there may be different ones for pending and finalized transactions, or for special circumstances) convey a recognizable merchant name and a valid, up-to-date customer service contact number.

Narrow Your MCC

Your Merchant Category Code (MCC) communicates to banks and card networks what type of business you’re in, which can carry implications for transaction approvals and disputes. Certain businesses are subject to (or exempt from) certain rules, so it’s very important to make sure that your MCC is accurate. You want to narrow it down as much as possible to ensure that your transactions won’t get declined because of rules that don’t actually apply to you.

These codes were actually created by the Internal Revenue Service to facilitate income tax reporting. The payment card industry uses them to determine risk, the applicability of certain fees, which types of cards the merchant can accept, and what evidence might be required in chargeback cases.

Your acquiring bank is responsible for assigning you an MCC. Communicate with your acquirer to make sure they’ve assigned you the most accurate and specific MCC available, otherwise you might find your transactions are being declined for completely inappropriate reasons.

Use an Account Update Service

One of the most common reasons a recurring transaction gets declined is that the cardholder’s account information is out of date. The card may have a new expiration date (or an entirely new number), or the billing address may have charged. Whatever the scenario is, responsible merchants and payment processors won’t accept a transaction where key validating information doesn’t match.

This is a good practice, as it helps to prevent fraud, but when customers “set and forget” stored payment credentials for recurring billing, it’s often just a matter of time before something changes and the transactions can no longer be processed.

Services like Visa Account Updater serve as a middleman between participating issuers and acquirers, automatically updating cardholder information to ensure seamless transaction processing with correct, updated data. That way you don't have to rely on customers remembering to update you whenever their information changes. You can contact your acquiring bank to find out if they can enroll you in programs like Visa Account Updater.

Use Intelligent Routing

Some third-party services go even further, using machine learning processes to determine how and when to run transactions for the best chance of approval. These services can flag transactions that are likely to be declined so that you can investigate them further and make any manual adjustments necessary to ensure they get approved.

These services may cost you, but if you deal in a high volume of recurring transactions and are struggling with a high decline rate they can be well worth the money. Machine learning has been a massive boon to fraud detection, making it easier than ever for merchants to screen out fraudulent transaction. It follows that many merchants are looking to expand the role of artificial intelligence to other parts of their business. Especially for merchants with a high transaction volume, an algorithm's ability to detect potential problems before they occur can be a huge boon.

Analyze Your Declines

Ultimately, no matter how much generalized advice you take, there may be specific issues within your industry or business that lead to declined transactions. The only way to identify these issues and come up with effective plans to mitigate their impact on your revenue is to carefully analyze your declined transactions.

Sometimes, you’ll get a response code that explains why a transaction was declined, but if that doesn’t provide a satisfactory explanation, you may have to contact the issuing bank directly. You may find that your automatic retry rules are kicking in when they shouldn’t, that you’re triggering the bank’s fraud detection system for some reason, or that there are problems with the authorization information you’re sending along.

Whatever it may be, the only way to deal with these persistent declines is to get down and study them in granular detail to find out what’s going wrong.

All the best marketing, sales, and retention practices in the world won’t help you keep your churn rate down and hold on to your customers if troubles with the transaction approval process are causing unnecessary declines. While it’s normal to see a certain percentage of these transactions declined—there’s nothing you can do about a customer’s maxed-out credit card, after all—many of them will, in fact, be attributable to fixable issues.

With banks and payment processors rolling out new methods of fighting fraud every year, it's entirely possible that a sudden spike in your decline rate is attributable to some new fraud-detection measure that's falsely flagging your transactions. Fortunately, banks and processors are also motivated to reduce the rate of false positives, so most of the time these issues can be solved by reaching out to them directly and working with them to discover the source of the problem, whether that be on your end or theirs.

At the end of the day, following the first four tips will help, but to really get your decline rate as low as it can go, the fifth tip—careful analysis—is the most important. Every merchant is unique in some way, and sometimes a deep data dive is the only thing that can help isolate and correct the issues that lead to these problems.

Of course, many merchants won't have anyone on staff with the training and experience necessary to handle these issues. Declines, like any problem with payments, can often best be handles by outsourcing the job to professionals. Companies who've spend years handling payment issues for numerous merchants are likely to have seen any problems you're having before, allowing them to immediately recognize the issue and provide solutions.

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