For a business owner, only a few things are as daunting as the prospect of failed payments, as they can have far-reaching consequences for the company's bottom line and overall financial stability.
In this article, we will delve into the various reasons why payments fail, as well as explore the potential impact that such instances can have on your business. Besides, we will also provide you with cutting-edge strategies and tips for effectively managing payment failures on your website - read ahead for all the details!
A failed payment is when a customer's attempt to purchase goods or services is unsuccessful. Such situations can be damaging both to customer trust and business finances, so it’s essential to understand why they can occur and how to resolve them correctly.
The reason for an online payment failure doesn’t always lie within the banks’ scope of operations. Since the payment process incorporates a multitude of various intermediaries, the transaction can get rejected on any level. Some of the most common causes of failed payments are:
1. Insufficient Funds
One of the most common reasons for failed transactions is insufficient funds in the customer's account. If the consumer attempts to make a payment or withdraw money that exceeds their account balance, the transaction will not be approved by the bank.
2. Technical Issues
System failures and software glitches may prevent payments from being completed. What’s more, such issues can affect a large number of consumers and merchants within a relatively short time frame, which makes them especially dangerous.
For example, if a payment processor experiences a system-wide outage, it can result negatively for all transactions that are being attempted until the moment it’s fixed.
3. Invalid Card Information
If a customer enters wrong payment details, such as an incorrect credit card number, expiration date, or CVV code, the transaction is sure to fail. Besides, if a client’s card has expired, the payment will also not be completed.
4. Card Restrictions
In some cases, a customer's card may have certain restrictions in place, such as limits on international transactions or a threshold for daily spending, preventing the funds from being withdrawn to complete the payment.
5. Fraud Prevention Filters
Fraud prevention filters are a vital component of online payments, as they help protect businesses and consumers from fraudulent activities. However, these filters can sometimes be too strict, leading to legitimate transactions being declined.
To minimize the risk of false positives, businesses can work with their payment processors to fine-tune their fraud prevention filters and adjust them as needed
6. Merchant Errors
There are many merchant mistakes that may result in a client’s payment being unsuccessful, such as:
To avoid these issues, businesses must implement best practices for website design and checkout flow. This can include ensuring that essential information is regularly updated, optimizing website performance to prevent technical issues, and providing clear and concise instructions for the checkout process.
As you can see, there are plenty of reasons that can result in a failed payment for your customer. But are these situations influential enough to be addressed or should merchants focus on more important tasks?
Here are some of the key effects to which failed payments can lead a business:
1. Lost Revenue
Failed payments can result in significant revenue losses, as the company does not receive payment for the goods or services provided. This can be especially damaging for small businesses or those with tight profit margins, as even relatively small sums can make a difference for them.
2. Increased Costs
If a customer's payment fails, the business may need to spend time and resources investigating the cause of the issue, communicating with the client, and potentially reprocessing the transaction. This can be a time-consuming and costly process, further eroding the business's profitability.
3. Reputational Damage
Failed transactions can also have a negative impact on customer trust and loyalty, which, in turn, lead to reputational damage for the business.
Here’s how it goes: if a customer has difficulty completing a transaction on your company’s website, they may become frustrated and doubt that you can provide a reliable and secure payment experience. This can result in the consumer leaving negative feedback publicly and potentially influence other clients to turn to your competitors.
4. Compliance Issues
If a business experiences failed payments or other payment-related issues frequently, it may come under scrutiny from regulators and risk penalties or fines, depending on the jurisdiction and industry in which it operates.
5. Operational Disruptions
Most companies rely on timely payment for cash flow management or to fulfill orders. Failed transactions can cause delays and backlogs in operations, potentially leading to dissatisfied customers or missed business opportunities.
Now that you know how failed payments may occur and why it’s important to tackle them, it’s time to discuss how exactly business owners can address such issues.
The first step here is to audit the way you currently handle failed payments. Here is what you can do to assess the current state of affairs:
1. Review Your Payment Processing System
Take a close look at the way you process payments and identify any potential issues that may be causing failures. This can include issues with payment gateway integration, fraud prevention filter settings, or other technical issues.
2. Analyze the Data
Review the data you collected and identify any patterns or trends that may be contributing to failed transactions. For example, are there certain payment types that are more likely to fail? Are there specific times or days of the week when failed payments are more common? Or, perhaps, there are some regions or customer segments that experience a higher rate of declined transactions?
3. Don’t Disregard Consumer Feedback
The reviews left by clients who had negative payment experiences on your website can provide you with valuable insights into which part of the process is faulty.
4. Check In with Your Staff
Ensure that your staff is trained to handle failed payments in a professional and efficient manner by having discussions with them regarding the way they would handle such issues.
If the answers do not meet the standards you wish for your business to have, you can provide your employees with training on topics like payment processing systems operations, customer service skills, and fraud prevention practices.
5. Conduct Competitor Analysis
Do your competitors seem to handle failed payments better than you? Or maybe they have great preventative measures to prevent them from happening? Understanding what other businesses do better than you can help you find the right direction and gain a competitive advantage by making relevant adjustments.
With the critical insights received from doing a comprehensive review of all payment-related processes in your company, you can now take action to improve them. The key here is to create a step-by-step plan and implement it while keeping consumer convenience and data security in mind. Here’s how to do it:
1. Put Preventative Measures in Place
One of the easiest ways to avoid having to deal with failed payments in large quantities is to take preventative measures. Here are some key actions to take:
By putting these preventative measures in place, you can reduce the likelihood of failed transactions and improve the reliability and security of your payment processing systems.
2. Set Up Notifications
Even if you take care of preventative measures, payments may still fail occasionally, so you must be prepared for it. Thus, it’s crucial that both you and the customer are notified in case a transaction gets declined. While it’s a basic functionality typically offered by PSPs, getting the message to the client right can be tricky - check out the tips on how to do it below.
How Do I Tell a Customer About a Failed Payment?
The way you address a failed payment mainly depends on the type of transaction that was intended. If you run a subscription business, the notification may appear as a reminder, similar to “Take action to avoid losing your subscription”.
If it’s a regular one-off payment that failed, make sure the email or SMS reads something like “Oh no, your payment failed”.
3. Help the Customer to Retry the Payment
Depending on the tools you use to manage your site, you may be able to automate the process of retrying the payment. However, if you can’t set up automated retries, or if the transaction gets declined again, you’ll need to get in touch with the customer using a different approach.
Note that even if they received multiple notifications over time, they may not have realized there was a problem with their payment method, so it’s crucial to never use any accusatory tone when communicating with them.
All you have to do is reach out to them via the available channels and ask them to update their payment information, add funds to their account, or contact their bank to authorize the transaction. In many cases, such a simple prompt is enough to resolve the failed payment issue!
It’s needless to say that failed payments can cause a lot of distress for business owners. However, if you follow the tips and tricks provided above, you are sure to minimize the likelihood of transactions being declined.
Besides, if some transactions fail anyhow, you will be able to handle the situation professionally and ensure that both your profits and the consumers’ shopping experiences are saved.
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