Declined card transactions: How online merchants can address the potential €15bn revenue hole caused by declines

Abstract

Declined card transactions present a significant problem for the payment industry, causing inconvenience for consumers, lost sales for merchants and lost revenue for card issuers. An analysis of card-based e-commerce across the EEA and UK indicates a decline rate of 10 per cent for domestic transactions and 18 per cent for cross-border transactions, leading to a total declined value of €60bn per annum. Using data obtained from different sources, including merchants’ own records, and gateway, acquirer and scheme data, this paper identifies the main reasons why transactions are rejected, grouping them into four categories: valid business declines, avoidable business declines, risk-based declines, and technical declines. The study argues that merchants should focus on reducing decline rates in the latter three categories. Approaches might include use of the schemes’ account updater service; localisation of acquiring to the same country as the card issuer, where possible; smart routing to acquirers with higher success rates for the given transaction attributes; use of network tokens; leveraging of strong customer authentication exemption rules; and correction of technical issues in authorisation requests, such as incorrect setting of flags indicating the acceptance environment. According to PSE’s analysis, actionable codes account for around 25 per cent of all declines, totalling €15bn of transaction value (and €74m lost interchange for issuers). The paper therefore suggests that those merchants that are prepared to investigate and analyse the underlying causes of their declines have much to gain.