The cost of failed payments is high: lost revenue, friction along the customer journey and resources spent on recovery can cut into your bottom line. Understanding the cause and automating the right measures can help save money, patience and improve customer satisfaction.
The cost of failed payments #
- According to a global survey by Lexis Nexis, failed payments can result in up to 5% customer churn
- 70% of surveyed companies are currently not satisfied with their payment failure rate
- Every 2nd company has lost more than 2% of their customers due to failed or late payments
The difference between failed and late payments #
A failed payment is an actual technical issue that prevents the transaction to be processed. Causes can be wrong payment information, downtime, not enough funds, a payment is being declined by the customer’s bank, etc.
A late payment is simply a payment that has not been made yet or has not yet been processed before a set payment date. This can be intentional but also accidental:
- a customer simply forgets to pay
- a payment failed
- a company has internal payment intervals (all invoices are being paid every 28th of the month) that don’t match the payment deadline
A payment has been declined #
If a payment has been declined, that usually means that the customer’s bank or card issuer has rejected/declined the payment due to insufficient funds, outdated card information or due to suspected fraudulent behavior. We differentiate between soft and hard declines, which require different measures to recover revenue.
Dealing with soft declines
A soft decline is often just a temporary issue due to network timeouts, insufficient funds or because the request is under review (meaning it is suspected to be fraudulent but needs to be properly checked).
In cases of recurring payments that end up in a soft decline, it can save resources and maintain cashflow to trigger payment retries instead of immediately cancelling the transaction or contacting the customer to take next steps.
The Frisbii payment gateway automatically retries soft declines within 24 hours or at the next possible time before the billing period ends. This is especially helpful in cases of recurring payments for subscriptions to ensure that a soft decline does not accidentally end up in involuntary churn (e.g. when a subscription is cancelled due to a failed payment).
Different payment/card issuers have different limits regarding payment retries. For example, Visa allows 20 attempts per card and per month, whereas Mastercard allows up to 32.
According to SolidGate, around 70-90% of all failed payments are due to soft declines, meaning that payment retries will save a substantial amount of revenue without disrupting the customer experience.
Dealing with hard declines
A hard decline is a definite rejection because of a frozen account, an expired card or proven fraudulent activity (e.g. the card has been reported as stolen or lost).
In this case, payment retries will not achieve anything and should not be triggered. However, you can inform the customer that the card information belongs to an expired or otherwise rejected card, so they can either update their payment method (e.g. pick another option) or contact their bank to update their card or request a new one.
According to our own Knowledge Base, the best practices for hard declines are:
- Don’t retry automatically
- Notify the customer of the issue and possible next steps, so they can update their payment info, switch payment options or check in with their bank to solve any potential issues
- Monitor hard decline patterns to detect fraud risks and payment methods that cause more hard declines than others (in these cases, it’s worth to consider removing that payment option from your checkout)
- Set up your dunning plans to differentiate between soft and hard declines and focus your recovery efforts on issues that can be resolved
A payment process error occured
Sometimes, a payment process fails due to technical issues along the payment network which can’t be counted as a soft or hard decline.
- Network timeout
- A customer is required to update/verify their authentication
- The bank temporarily blocks the settlement (e.g. due to daily spending limits)
Dealing with process errors
These are all cases where payment retries can bridge the time until the initial problem has been solved (e.g., the customer has verified their card again, the bank has unblocked the settlement, internet connections work again).
Since most of these process errors tend to solve themselves after a few hours or days, it is best not to activate any communication that might confuse or distress the customer but instead trigger automatic payment retries.
What can you do to reduce failed payments? #
Remind registered customers of payment / card updates
In case you know when a card needs to be updated (because that information is stored in your payment gateway), you can add an automated reminder email to your customer communication, reminding them of the upcoming expiration date. That way, they can act before any payment failure occurs.
Enable credit card tokens
Credit card tokens are basically placeholders that store an encrypted token instead of the actual card data. The advantages are mainly increased security and fraud protection, however, credit card tokens also get updated automatically when the customer’s card bank/issuer has replaced or renewed a card, which can reduce payment failures due to expired cards by a high margin.
Talk to our experts about using tokens for your card payments.
Provide more payment options
Payment alternatives can make sure that customers can easily switch in case one recurring payment doesn’t work or updating their card data requires more time (e.g. because they lost their credit card or it got stolen).
Offer a customer portal to manage payments
A customer portal that allows your customers to manage their payments without having to contact your support enables them to act quickly, make changes, switch payment options and/or update their payment information right away.
Track payment failures to identify patterns
If you notice an uptick in payment failures or you want to reduce the numbers generally, it can help to track payment failures based on the payment methods, the location and even the campaigns. If you are able to understand if some payment failures are clustered around certain events or payment options, you can decide whether to add security steps or remove the option completely from your checkout.
Create risk filters to reduce fraud attempts
Risk filters can be added to your checkout to filter out customer profiles that are very similar to fraudulent actors, to avoid failed payments, chargebacks or even security issues. You can then decide which transaction patterns should be automatically flagged, blocked or challenged with extra authentication requests.
You can read more about Frisbii’s risk filter options in our knowledge base.
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Frisbii’s recurring billing, subscription management and payments platform is designed to reduce failed and late payments. Our team will help you with an optimal setup and can consult you on measures to implement risk filters, activate card tokens and set up the perfect payment mix.
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