Insider Tips to Maximizing Approval Rates
Last Updated on April 15, 2021 by Michael
Credit card declines can be rather costly to merchants that accept card not present (CNP) transactions, such as ecommerce, online dating, adult content, subscription services, or other kinds of online purchases. These approval rates have a direct bearing on a merchant’s bottom line in both their revenue and customer satisfaction. (Mastercard estimates that 25 – 30 percent of all subscription payments are declined.)
Many of these declines may be related to fraud, but false declines may be as much as 30 percent of all declines. (Which means the remaining amount are fraudulent transactions, but we’ll talk about that elsewhere on this blog.)
While merchants, payment processors, issuing banks, and credit card networks are doing everything they can to prevent fraud, what can be done about those remaining credit card declines?
These approval rates — also called authorization rates or auth rates — are based on the number of declines and approvals of the total number of transactions you make. If you have 100 transactions in one day and 13 are declined, you have an 87 percent approval rate. (Divide the number of successful transactions by the number of attempts to determine your approval rates. This also includes second and third attempts.)
Of course, if you accept a lot of CNP transactions, an 85 percent rate is actually a pretty good approval rate. In fact, LexisNexis found that false decline rates can be anywhere from 18 – 28 percent. And the Baynard Institute says credit card declines are responsible for 2 – 5 percent of all potential sales.
That can cause a lot of pain. Not only are you losing that possible percentage of revenue (or more — those could have been high dollar sales), but those customers may view that as a negative experience with your store and not something that’s their own fault. (More on that in a minute.) Not only will those customers refuse to come back, but if you get too many false declines, your store may get a reputation for having problems with their payment processing system.
It seems a bit irrational since most credit card declines result from the customer’s actions or inactions (I told you, more on that in a minute!), but that doesn’t mean they’ll accept that responsibility. Humans are odd, unpredictable, and emotional creatures, and we tend to blame others for our problems.
A credit card is usually declined for one of two reasons, hard declines and soft declines.
Hard declines happen when a customer’s card has been reported stolen or there is suspicion of fraud, when the card is invalid, when the cardholder account has been suspended or closed, or when the information on record is different from the info submitted during the order. For example, the address or the CVV code don’t match.
Soft declines usually happen when a cardholder has insufficient funds in their account, they’ve reached their credit limit, further authorization is needed, or there is a format issue on the merchant’s end. Sometimes, cross-border transactions (i.e., from one country to another) may be flagged as a hard or soft decline.
Most of these are customer issues — they didn’t update their expiration date, they moved and didn’t change their address, or when they reached their credit limit and didn’t pay it back down — but some of them can be solved by you, the merchant.
How Can Merchants Maximize Their Approval Rates?
There are a few things that merchants can do to improve their approval rates and at least reduce the number of false declines of their credit cards. (You’ll still have to focus on fraud prevention, but that will be an ongoing and ever-growing effort. Plus we cover that in other articles.)
Some of these steps are especially important if you keep credit cards on file or have recurring purchases like subscription services.
First, update your customer accounts regularly to replace or remove expired credit cards on file. Send out regular reminders to your subscribers and cards-on-file customers, asking them to keep their information up to date.
Second, many credit card declines result from an initial decline being tried three or four times after the first one. Set a retry strategy that reduces the number of retries but also alerts customers immediately after the first or second declined attempt. Generally, if the third attempt fails, the merchant will declare the whole transaction as failed.
It’s also a good idea to accept alternative payment options on your website. This will keep the sale, help keep the customer on your site, and from going to your competition. Most of all, it will keep them happy so they’ll come back again later.
If you sell subscription services, let your subscribers pick their billing date. Why is it that landlords and high-dollar merchants seem to make their billing date four days before payday? For a lot of customers, you’re going to get several insufficient-funds soft declines if your billing date is a few days before the end of the month. But you could prevent a lot of those if you would just let your customers pick their billing dates to fit their financial cycles.
Use Visa Account Updater and Mastercard Automatic Billing Updater. If your payment processor and the issuing bank are enrolled in this feature, customers on a subscription who update their card on file will automatically have this information shared with your payment gateway. Therefore, upon the rebill, you will not experience an automatic decline, and no further action is necessary from you or the customer.
Bill customers on local merchant accounts. If possible, your customers should always be billed domestically. Of course, this comes with an additional layer of compliance, but for truly multinational corporations, it’s a must. Logically, when a customer is billed by a local bank, chances are drastically higher of a successful transaction simply because both ends of the transaction recognize each other far more easily. In fact, for e-commerce merchants, this can result in as much as a 20% improvement in approval rates versus billing customers on foreign merchant accounts.
Finally, automate your credit card screening process. This is especially useful for subscription services and recurring billing, although it’s useful for merchants who have regular shoppers who keep their card numbers on file. By running monthly updates, both for card accuracy and utilizing BIN checkers that frequently screen for fraudulent credit cards, you can reduce those hard declines that come from the information transmitted and the official information not being current. You can use Visa and Mastercard’s account updaters for more information on this.
Photo credit: PotoMIX-Company (Pixabay, Creative Commons 0)
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