Reducing Bank Declines: A Strategic Approach for Merchants

If you are an online merchant, you know how frustrating it can be when the bank declines a customer's payment. Not only do you lose a sale, but you also risk losing a loyal customer who may not return to your site or switch to a competitor.

According to a recent report by Credorax, bank declines account for 5% of all failed transactions in e-commerce, resulting in billions of dollars of lost revenue every year. Moreover, bank declines can damage your reputation and trustworthiness, as customers may perceive them as a sign of poor service or security.

Bank declines differ from card declines, which occur when the card network or the issuer rejects a transaction due to fraud, insufficient funds, expired cards, or other reasons. Bank declines happen when the bank that processes the payment on behalf of the merchant refuses to accept it, usually because of technical issues, network failures, or compatibility problems.

Unlike card declines, bank declines are often unpredictable and unavoidable, as they depend on factors beyond the merchant's control. However, this does not mean that merchants are helpless in the face of bank declines. Some strategies can help reduce their impact and frequency, as well as improve the customer experience.

So, what are some ways merchants can combat bank declines and stop losing sales?

Leverage Decline Code Analytics

In 2024, access to raw decline codes from issuing banks is imperative. Analyzing these codes can unveil patterns and common reasons for declines, enabling targeted solutions. Sort the data and look out for the following:

Insufficient Funds – Rather than show a generic “payment failed” screen to the customer, there is the option to request a different payment method in session without forcing the customer to start again. Another option is to use the Partial Approval Service, whereby the issuer returns the available balance in the auth response, allowing you to split the payment or reduce the order size in session so that the sale can still go through. This requires an additional indicator in the authorization request, which your acquirer can help with.

Too many merchants show a generic decline response or re-enter all of their details, which causes a lot of customers to abandon the sale completely.

(Note: Kipp is also doing some interesting things in this space whereby merchants can stake a % of the sale price to encourage the issuer to accept transactions it would otherwise decline. Their issuer base is growing but still low last time I checked.)

Invalid Merchant or Invalid Transaction – Can be the result of a policy on the card or issuer but it can also be a generic decline response. If it happens too often with certain issuers, ask your acquirer to investigate, as there’s no one-size-fits-all solution.

Lost/Stolen – It is likely a fraudster is attempting to use the card, so think about whether other buyer characteristics should be flagged appropriately and used in your fraud screening going forward. If this transaction comes from a registered user, think about whether this could be a case of account takeover and ask the genuine user to re-verify.

Invalid Card Number or Expired Card or Invalid CVV2 – The first two can be minimized with sanity checks on the checkout form. Otherwise, rather than generate a generic decline response, keep the cardholder in-session and tell them something didn’t look quite right. Ask them to check and re-enter card details.

Authentication Required – The transaction requires authentication, or the issuer has requested authentication, such as 3D-Secure. This is much more prevalent in the UK and EU, where SCA is in place and is usually a soft decline, allowing you to perform a 3DS challenge in real-time without losing the sale. Top-performing merchants don’t attempt 3DS for all transactions but use exemptions in the UK/EU and often use very little 3DS in other mature markets such as North America.

Suspected Fraud – The issuer suspects the transaction may be fraudulent. These declines may provide useful information for your own fraud prevention. Manually review a sample of these transactions and tweak your own rules. If you believe they are mostly genuine and coming from specific issuing banks, you or your acquirer can engage with that bank to hopefully give them assurance that you have robust fraud screening in place, and they need not be so sensitive. The bank may be more likely to return this code if they have received a lot of chargebacks or fraud from your Merchant ID, so it’s important to send clean traffic to the banks to ensure the highest acceptance rate.

Once you know your most common reason codes, look for patterns in particular geographies or specific issuers. We saw an issue recently whereby one large UK bank hard declined all transactions for which the merchant was seeking an SCA exemption. This was due to the technical messaging rather than policy and was fixed quickly once identified.

Often, you rely on your acquirer or PSP to help investigate these issues or facilitate discussions with banks. If your acquirer won’t help or can’t provide the data and declines are becoming an issue for you, maybe it’s time you thought about switching acquirers.

Have Robust Fraud Prevention in Place

You want to send the cleanest traffic possible to the issuers to give them confidence in your transactions. This means identifying and removing fraudulent transactions before sending the authorization request. Easier said than done, of course, but of paramount importance if you want to reduce bank declines.

Adopt Technical Agility

Turning the decline data into actionable insights that lead to adjustments to your checkout flow is important. Whether it’s bespoke customer messaging depending on the reason code, handling split tender payments, or 3DS challenge flows, if you can’t adjust the UX to maximize your chance of recovering the sale, then it’s not going to be very useful. A/B testing can be particularly useful here to see how customers respond to different prompts following a decline.

Use Network Tokens

Network tokens are generated by the card schemes (e.g., Visa/Mastercard) and use multiple authentication factors and device intelligence to link the payment credential (token) to both the customer and their trusted devices. This not only increases authorization rates by enhancing issuer confidence but also minimizes fraud, including account takeover.

According to the latest figures from Visa, using network tokens leads to a 2-7% auth rate uplift depending on the geography and a 28% reduction in fraud overall. Not bad at all.

Even with all these benefits, some global acquirers only turned on network tokens as late as Q4 2023, meaning their merchants have been losing out for a few years now.

Update payment Credentials Automatically

If you are in the subscription space, process recurring payments, or use stored credentials, these are a must. You’ll no longer lose sales due to expired or lost/stolen cards (on average, one-third of cards are re-issued each year). Account Updater is a service you enroll with via your acquirer, which allows you to update stored credentials as they happen without any interaction with the cardholder, thus increasing auth rates and reducing the opportunity for service cancellation.

This service is mandated in some markets, but not all issuers enroll in this service globally, so its value will depend on where you’re selling.

Diversify Payment Options

Google Pay and Apple Pay both have built-in biometric authentication, which the banks like, so their acceptance rates are much higher even though they carry the same cost as card payments. PayPal can be more expensive (but not always) and has much higher acceptance rates than cards.

If selling in multiple markets, you should also consider local methods such as iDEAL in the Netherlands or SEPA direct debit in Germany. These often have lower costs and are nearly fraud-free because the customer approves the payment in their bank app.

Other methods such as BNPL will also generally lead to conversion improvements but at a much higher cost vs. cards so it’s key to ensure the business case stacks up and this will be merchant specific.

Conclusion

Bank declines are one of biggest headaches merchants face, particularly those selling internationally. However, there are several ways to reduce the burden and potentially make significant improvements with some merchants benefiting to the tune of 10-20% uplifts.

If you have the right acquirer, life can be much easier, but, in our experience, the top-performing merchants don’t just rely on their acquirer. They take matters into their own hands by leveraging analytics to measure important metrics, identify trends, and make regular optimization over time.

Things change, and the banks also each tweak their “black box” over time, which means you have to be ready to respond quickly to avoid more spikes in decline rates.