Did you know that over 80% of companies dealing with online sales struggle to figure out the reasons for payment failures? If you don’t know the core issue you can only try to patch the visible outcomes but will always fail to solve the problem. So, why is getting to the bottom of the failed payments rationale so challenging after all?
The total cost of failed payments in 2020 was $41.1 billion in EMEA, $33.7 billion in the Americas and $43.7 billion in Asia-Pacific (APAC). Despite the rapid fintech advancements, failure rates have not drastically declined over the years. How so?
Payment failures occur due to various reasons, from technical glitches to over-zealous fraud prevention tactics. At the same time, the exact rationale behind specific transactions being blocked is often not clear. However, awareness of the reasons for false declines is vital to reduce friction in the payment process, improve transaction success rates and encourage customers to make repeat purchases.
Why Are Failed Payments Cases Important to Study?
Analysts and fraud experts estimate that between 30% and 65% of all rejected online orders are linked to false declines when legitimate transactions are labelled as fraud for some reason. The vast majority (70%) of payment executives are unsatisfied with their payment failure rates, and for a good reason.
According to a study by PYMNTS Intelligence and Nuvei, false declines led to an estimated $81 billion loss in the United States in 2023 – about a half of all costs initially put at risk due to unreasonable decline. Moreover, about 60% of organisations reported losing not only separate deals but customers altogether due to failed payments.
As we can see, failed payments frustrate customers, leading to lost trust and loyalty. Some of the failures may also signal technical issues, fraud or security risks. Discovering the problem helps businesses improve safeguards and solve technical or process imperfections they didn’t even know about.
Addressing the issue of excessive failed payments is crucial for maintaining customer satisfaction and ensuring business profitability. On average, companies start raising the alarm when payment failure rates exceed 5% of transactions. However, they often fail to efficiently address the underlying issue.
What’s even more important is that most of the merchants that face failed payments and linked financial losses have no idea why that happens and how to prevent it.
Obstacles to Discovering Payment Failure Reasons
You might wonder how difficult it can be to find out why a transaction failed. After all, every payment authorisation system has a set of rules to block or allow certain financial settlements. It shouldn’t be too hard to categorise the failures and analyse their legitimacy.
Nevertheless, most firms cannot do that. Here’s why:
- 56% find payment failures expensive to track and resolve;
- 60% report an increased staff workload due to failed payments, which also leads to surge in expenses and employee dissatisfaction;
- 45% of subscription-based businesses spend at least 5 hours per week managing failed payments, which drains resources from businesses’ essential operations;
- over one third of data payment elements are still manually checked by humans, which slows down and complicates the transaction verification process, making it prone to human error on the part of both clients and payment provider employees, yet two thirds of organisations identified reducing manual processes as extremely challenging back in 2021;
- over-zealous fraud detection systems or compliance checks can block legitimate transactions without clear explanations;
- there are dozens of common imperfections in fraud detection systems that cause a surge in false positives, but they are not easy to detect since they work perfectly for most cases but erroneously target a share of specific customer cases;
- making exceptions in fraud detection systems is often not possible since they would then also green-flag sophisticated scams, and 83% of customers won’t return to a retailer that failed to protect them from fraud;
- payment data is often scattered across multiple systems and platforms, making it difficult to get a complete view of the transaction lifecycle;
- with multiple payment methods and channels, processors, gateways, and banks involved, pinpointing where the failure occurred is getting more complicated;
- connectivity problems between banks, gateways, or processors can cause failures that are hard to diagnose;
- while large companies dominated the payment analytics sector with a 61.2% market share in 2022, more than half of SMBs face challenges in leveraging data analytics due to the lack of resources.
How to Better Understand Reasons for Failed Payments
Awareness of the fundamental issues behind payment failures and money loss is the first step towards improved customer experience, enhanced checkout conversion rates and profitability boost.
Since we already know that one of the biggest problems regarding failure analytics is excessive workforce load, reducing manual processes is one of the main components of the solution. Therefore, improved analytics and monitoring tools should employ as much automation as possible.
Payment Orchestration Boosts Transaction Acceptance
Businesses might consider payment orchestration platforms instead of separate tools that provide siloed overviews of different ecosystem components. Typically, orchestration services help to unify and manage the different aspects of transaction processing, including connections to various payment service providers (PSPs), transaction routing, cascading, fraud protection, automated reconciliation and settlements, vaulting, tokenisation, compliance, and comprehensive analytics and reporting.
A vendor-neutral orchestrator boosts acceptance rates by connecting to multiple payment service providers (PSPs) and using smart routing to find the best transaction paths. Such systems leverage cutting-edge data analytics and machine learning for this purpose. Features like automated retries and cascading help reduce transaction failures even further.
At first glance, payment orchestration might seem a costly, complex and work-intensive solution. However, it is true only for DIY in-house platforms. Due to the sensitive nature of payment data, many businesses prefer on-premise payment analytics software which is often limited in its capabilities.
On the other hand, adopting third-party PSP-agnostic payment orchestration tools is much more seamless and cost-effective. As such services manage and optimise different pay methods, providers, and channels, consumers get wider payment options and a smoother checkout experience. Besides, payment orchestration platforms dealing with multiple PSPs regularly review and update payment configurations to adapt to changing protocols, which decreases the likelihood of certain technical issues.
Error Tracking Needs More Attention
Businesses accepting payments can partner with PSPs and banks to gain deeper insights into failure causes. Together with payment processors, they can work out user-friendly tools which provide detailed transaction logs with clear error codes and explanations for payment failures. Sometimes, the error codes available differ for various providers or payment modes, so you’d better request that error codes are standardised for consistency.
Once you have a clearer understanding of the occurring error types, you can use these insights to pinpoint specific most frequent issues like insufficient funds, expired cards, or fraud filters. Some of them might be easily avoided.
If customer-induced errors prevail, payment and e-commerce players may educate their clients on common issues, like using incorrect card details or outdated payment methods. Better yet, businesses should figure out how to decrease the human error factor at the checkout. You can start with providing user-friendly payment forms with real-time validation which helps catch errors such as card validity and potential mismatches in billing address or CVV before the actual payment attempt. Many platforms today also employ one-click checkouts and other forms of automated fill-in of the customers’ personal, payment and delivery details.
If you see that the errors often occur due to fraud concerns, pay attention to the type of fraud prevention system you use. Review fraud detection rules to ensure they aren’t too strict, causing false declines. You may leverage real-time AI to dynamically generate rules based on evolving patterns such as spikes in fraudulent activities in a certain region, new fraudulent tactics, etc. Use complex and sophisticated machine learning algorithms to account for a number of variables such as possibilities of customers to change location or device, seasonal differences in shopping patterns, technical glitches that trigger repeated payment attempts, etc. Consider AI assistants to perform some of the simpler decision-making processes involved in manual fraud review instead of resorting to additional human employee services.
Besides collaborating with industry experts, businesses should always remain customer-focused. Do not forget to periodically ask customers about their payment experiences to uncover hidden issues, including those with payment acceptance. Take care of the customer experience in case one faces a payment failure. Make sure to provide simple but actionable error messages for every failure scenario, such as “Your card has expired. Please update your payment details or try another card.” Conduct A/B testing to determine which error messages are most effective in helping customers resolve issues.
Summary
Many businesses have trouble figuring out why payments fail, even though it’s very costly, leading to billions of dollars lost globally every year. Payment failures happen for reasons like technical issues, overly strict fraud checks, or faulty data. But knowing the exact reasons why payments fail is key to fixing the problem, keeping customers happy, and boosting profits.
Unfortunately, tracking failures consumes a lot of money and time, with many businesses spending hours weekly on this task. Lots of payment data is checked by hand, leading to even more errors. Besides, payment info is spread across numerous platforms, making analysis challenging. Furthermore, too many players in the financial ecosystem — banks, PSPs, gateways, etc. — make it hard to pinpoint issues or fail to clearly explain the errors.
To avoid payment failures and better understand their core reasons, merchants and payment providers should collaborate on better payments analysis systems and actionable insights. One of the helpful strategies is automation boost. For instance, you can let AI handle fraud checks and make payments smoother with real-time forms or leverage payment orchestration tools which connect to multiple systems, retry failed payments, and smartly route transactions.
Finally, while chasing the technical and other issues that lead to failed payments, do not forget to properly inform and empower your customers in dealing with the failure situation. Show them easy fixes like “Update your card details” and help them avoid common mistakes like using expired cards via real-time validation and general education tools.
