ecommerce payment processing: how to increase approval rates


July 2, 2024

Declined payments can ruin your customer experience and merchant ID health. Learn how to increase your payment approval rates and stay in good standing with payment providers.

Women seeing a payment decline while online shopping.

It’s a tale all too common: You’re browsing online for a new pair of shoes. You find the perfect pair, add them to your cart and enter your payment details. You press “buy” only to see a popup that reads “payment failed.” You double-check your credit card details to find you entered the correct information. Well, it must be an error on the merchant’s end. Inconvenienced and confused, you move onto a new website that will accept your payment.

The payment approval rate, or authorization rate, is the percentage of a merchant’s payments that successfully transact. While all ecommerce businesses face payment declines, some industries have higher averages than others. Those who experience higher payment decline rates may include subscription and high-risk merchants.

Payment declines cause losses of potential revenue and also create friction in the customer experience. Many consumers blame the merchant without realizing the other factors contributing to it, ruining the merchant’s future chances of receiving that consumer’s business. In fact, 25% of consumers say they wouldn’t return to an online store if their initial payment was declined.

This blog will give you the rundown on payment processing failures, including the types of declines, common scenarios where they happen and what you can do to increase approval rates.

25% of consumers say they wouldn't return to an online store if their initial payment was declined.

why ecommerce payments decline and how to fix it

To prevent payment declines, you need to understand why they happen and where they are most common.

problem #1: incorrect fraud triggers

We know what you’re thinking: fraud protection is supposed to help you, not hurt you. Unfortunately, if an order meets any of your anti-fraud solution’s criteria, the third-party vendor will flag it and prevent authorization. False declines can happen for hundreds of reasons, including:

  • The customer is shopping from a new IP address
  • Inconsistent order data (e.g., mismatched zip code and city)
  • The shopper enters a new delivery or billing address
  • An unusually large order is placed

While these measures are put in place to keep your business safe, they can cost you huge losses if unregulated.

solution: AI-driven fraud prevention

Many anti-fraud tools use simple criteria to decide whether purchases are safe or unsafe, but it’s not so black and white. The most effective fraud solutions use machine learning to analyze each business’s consumer behavior. These solutions become more accurate as they gather unique data on your industry and specific business patterns over time.

problem #2: canceled or expired card for rebilling

Declines often happen because the shopper’s card expired. Whether it’s the wrong CVV or expiration date, this will cause a decline and potentially label the transaction as attempted fraud.

solution: automate the card updating process

Technology keeps getting smarter, and now you no longer need the customer’s help for much of the card updating process. Solutions like our Account Updater automatically update outdated customer credit card information, so you can avoid payment declines and bothering your subscribers.

failed ecommerce payment notification on phone screen.

problem #3: “do not honor” decline from issuing bank

Just like your ecommerce business has fraud prevention measures, so do credit card companies when authorizing orders. This means unwarranted declines can also happen even further down the payment pipeline, and banks typically have a standard “do not honor” code that groups many reasons into one bucket. This makes it difficult for merchants to decipher why this happened.

solutions: build trust with your issuer

Avoid a high number of these declines by working to mitigate customer complaints and chargebacks. Since banks simply decline the payment, they won’t do anything to help you explain the reasoning to the confused customer. Merchants who work to resolve declines tend to be seen as more trustworthy than those who let the decline slide. Bonus points if you have fewer chargebacks because banks are more likely to trust merchants with a clean history.

One way to reduce chargebacks is to add an extra verification step in the payment process. Not only does this ensure the payment succeeds without fraud triggers, but it shifts chargeback liability from your business onto the issuer. Our 3D Verify service requests more information to verify the customer and the transaction, making the payment less likely to be declined for non-legitimate reasons.

intelligent payment routing

Intelligent payment routing is the process of routing transactions through multiple payment gateways to increase approval chances. This is especially helpful for merchants who process international orders and varying payment types. The automated routing technology starts working after the customer enters their payment information, searching for the gateway with the most likely approval depending on factors such as region, business type and currency.

problem #4: lack of funds

Unfortunately, payment declines due to insufficient funds are all too common when it comes to recurring orders and high-ticket purchases.

solution: pre-payment notifications and decline messages

Proactive subscription merchants who want to prevent this before it happens should send an automated email to subscribers before the recurring payment is taken out of their account.

However, if this isn’t possible, you should provide an automated email or notification with an explanation as to why the payment failed. If the shopper just sees “declined please retry,” they will continue to try again and again — racking up more declines. Better yet, offer a service option to help them complete their purchase.

payment retries for all problems

If you are still experiencing payment friction despite your best efforts, consider optimizing your payment retry process with Smart Dunning. This machine learning technology analyzes rebill success rates from more than 500 individual predictors, including the day of the week and the time of day when rebills are most accepted, along with hundreds of other factors.

Smart Dunning not only recoups 25 to 50% of declined transactions, but also protects your profits from costly rebill attempts and involuntary subscription churn. It removes uncertainty from the rebill process, providing invaluable peace of mind.

Smart Dunning recovers 20% more revenue compared to traditional methods.

take the pain out of payment processing

For many high-risk merchants, payment declines can become a vicious cycle. Issuing banks decline transactions, consumers file complaints about failed payments and now your business is in even worse standing with the bank than it was before — and you did nothing wrong!

Fortunately, these tools and tactics are in place to help merchants like you increase your approval rates to ultimately get into good standing with issuers. By implementing the right technology and building trust with payment processors, you can drive profits without unnecessary hurdles.

recover up to 70% of failed payments when you switch to Smart Dunning. click here to compare your traditional dunning solution to Smart Dunning.

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