As much as subscription companies like the recurring payments possible through credit card use, there are still plenty of problems that plague those who deal with credit card transactions — and more for those who treat such transactions carelessly.

I detailed a number of these problems in the first part of this two-part series.

Well, as you would imagine, customers have lots of complaints too.

Take a look at the things that bother credit card customers:

TYPES OF CREDIT CARD COMPLAINTS SUBMITTED BY CONSUMERS
BUREAU OF CONSUMER FINANCIAL PROTECTION 2017

(Source: Consumer Financial Protection Bureau)

It turns out that the number one complaint for consumers is billing. And if I make a non-data-driven declarative statement, billing is also a top concern for subscription companies.

In this column, I want to focus on the ultimate billing failure, when a card transaction fails. There are many ways for a transaction to fail, so let’s look at some data on transaction failure and then examine the trends and causes.

The following data is compiled and aggregated from PLC. This company works exclusively in the realm of “Recurring Billing” with “Card Not Present” companies. Without the jargon, PLC is a top industry expert in subscription billing. The data is aggregated from PLC’s PULSE platform, which looks at billing data only from companies that are subscription-based, recurring automatic billers.

CREDIT CARD DECLINES

There are a lot of reasons that a credit card transaction may be declined. Smart subscription companies monitor these declines and manage them accordingly.  Here are the most common decline codes and how they have changed over the past few years.

(Source: PLC PULSE)

Here’s the exact same data as a monthly timeline, showing the top four decline codes and all the rest aggregated as “other”:

(Source: PLC PULSE)

So what do each of these decline codes mean?

Do Not Honor: Transactions tagged with this code could be just about anything. This means that the card company simply wants you, as the biller, to decline the card and ask the customer to call the card company. You simply do not get to know why.

Credit Floor: This has to do with small transactions that do not actually require direct authorization. According to UniBul’s Money Blog, here archived at the Wayback Machine …

• Floor limit (sometimes called “credit floor”) is the amount above which credit card transactions must be authorized before being processed. … All card transactions conducted in a non-face-to-face environment have a zero floor limit, which means that all of them must be authorized, regardless of the amount. … In a non-face-to-face setting, the authorization occurs when the card account’s information is submitted online or over the phone. … once the card information is provided, it is routed to the card issuer through Visa’s or MasterCard’s network and then the card issuer’s response is routed back through the same channel, approving or declining the transaction.

Invalid Account Number: This code means that the number was keyed incorrectly, for example, with the wrong number of digits.

Processor Decline: According to Paypal, a processor decline indicates that “the customer’s bank (or other card issuer) has refused the transaction request. Sometimes you can tell why it was declined by reading the response code, but only the customer’s bank can confirm the specific reason.” Commonly, these refer to incorrect credit card numbers and expiration dates. Paypal says that decline rates of 10% or so are normal.

Lost/Stolen: According to the issuing bank, the card has been reported as lost or stolen. The best resolution is to ask the customer to try another form of payment.

Restraint: The restraint decline code is synonymous with “restricted.” Both terms mean that the customer has used the card outside of their normal spending habits, or that the card holder has been traveling.

Expired Card: Simply put, the card is past its expiration date.

Pickup: For some reason, the card issuer or bank wants the card returned.

Invalid Transaction Type: In this case, the card issuer just does not allow this type of transaction.

Insufficient Funds: The customer is over his or her credit limit for the card.

APPROVAL/DECLINE RATES

The dashboards of the media companies I surveyed reported approval rates per month for the past 24 months. Take a look:

(Source: PLC PULSE)

When you look at decline rates for subscription transactions, a decline rate of 15 percent is a common norm. Writing for Digital Transactions, Kevin Woodward points to a decline rate for recurring transactions 14.4 percent to 15.9 percent. That’s the flip side of the acceptance rates seen above.

Citing Visa | MasterCard publications and PLC, a post at Agile Payments has some relevant factoids:

• On average, 15% of recurring credit card payments are declined (with some industries exceeding 30% decline rates). 30% of all credit cards are reissued each year. 1.5 billion EMV chip cards were issued in 2015 and 2016. As of fall 2017 only 55% of payments were made via chip cards leaving many more to be issued.

Of course, decline / acceptance rates can tell several stories, depending on how well the billing company handles problematic transactions.

One simple way to make good on a declined transaction is simply to run the card again. However, there are nuances to take into account here, as described by Woodward, at the same article cited above:

• Soft declines might be recoverable by waiting a day or two and running the transaction again, a useful tactic if a credit limit is reached, or by timing the next attempt on the first or 15th day of a month, when many payroll deposits are made. Reversing these declines is especially valuable for merchants because their revenue streams might not exist without recurring payments from consumers

CHARGEBACKS

Even after a transaction processes correctly, there is always the danger of a chargeback. What’s a chargeback? — per Gwen Moran, writing at CreditCards.com,

• Credit card chargebacks happen when customers contact their credit card issuers to dispute charges. If an issuer deems a dispute valid, your merchant account is debited for a credit card charge that had previously cleared — and you’re out the money, plus a chargeback fee from the processor that may range from $15 to $100. Disputes may be considered valid for a number of reasons. In some cases, the purchase was made fraudulently by a third party, using the customer’s identity.

And for publishers and subscription-service companies, a danger is that subscribers may choose to cancel their subscriptions by disputing the card charge rather than through the usual process.

Chargeback analytics are represented by a chargeback rate. According to PLC, a rate of under 0.75% is fine for Visa and Discover; 0.75% to 1.0% is a matter for concern, and a chargeback rate over 1.0% is dangerous. For MasterCard, those ranges are: under 0.75%, fine; 0.75% to 1.5%, concerning; and over 1.5%, dangerous. The collected data confirms that — MasterCard consistently presented a higher chargeback rate.

According to the Chargeback.com blog, rates under 1.0% are most likely acceptable.

Subscription-based companies need to make sure they adhere to best-practice upfront recurring notification as well as subscriber/member communications and retention marketing to minimize the change of a chargeback. Auto-renew businesses will have higher rates due to, among other reasons, customers who cancel a subscription by contesting the credit card charge. The Chargeback blog gives the example of a subscription gaming site that got in trouble because chargebacks would sometimes spike as high as 2%. A common reason, especially for media companies and firms using recurring payments, is to cancel a recurring subscription — that’s almost a quarter of all chargebacks.

SOLUTIONS

Eventually, all credit cards expire, and every expiration poses a huge risk of losing the subscriber. Not all customers will max out a card, but when one does, how can a subscription company retain the business? Here are several ideas for dealing with the inevitable card declines and chargebacks.

MAINTAIN SUBSCRIBER ENGAGEMENT. Most importantly, be proactive, suggests Subscription DNA:

• Where it’s possible, never wait until an account is past due to reach out to a customer. In cases where a credit card is cancelled due to fraud or theft this won’t be possible, but it’s best practice to send out a few emails to clients whose credit card on file is set to expire soon.

If all is going according to plan, your excellent subscription service is already creating loyal and enthusiastic users. Extending and supporting that enthusiasm is an opportunity, not a chore.

USE AN ACCOUNT UPDATER SERVICE. If you can solve credit card decline problems without even contacting the customer, so much the better. That’s where an updater service can solve the problem of expired or replaced cards, by matching old card data to updated cards. According to PLC, when a merchant submits accounts to an Account Updater service, here are the possible responses the service will provide:

• Account Number updates that provide the correct account information for a given card.
• Expiration Date updates that provide the correct expiration date for a given card.
• Closed Account advisories that provide notifications that an account is now closed.
• Contact Cardholder advisories that provide information that typically results from the cardholder opting out of Account Updater programs during his or her payment card application process.

Consider the graphic below, showing the percent of matched cards and reasons that the old cards were initially declined and then successfully updated.

(Source: PLC PULSE)

According the PLC, the percentages vary, “due to market factors such as data breaches requiring reissuance of credit cards, poor market conditions forcing consumers to max out their credit cards and many other reasons.” Moreover, the value of the updating service is that you can use is as part of a re-presentment strategy.

IMPROVE CUSTOMER COMMUNICATION: Whether it is before expiration or after a payment is declined, contact with the subscriber is essential. The primary mode there is email. My Subscription Insider colleague Kathy Greenler Sexton has several examples of these outreach email messages. She notes several interesting strategies: a straightforward and simple call to action; persistent daily reminders; and the aggressive and busy approach. That last one only works for some company cultures.

And depending on your payment vendor, you should automate the email contact process when a card fails.

Over at the Baymard Institute blog, there’s an interesting claim: “We’re Salvaging 30% of ‘Card Declined’ Sales”:

• In the credit card error message we simply suggest the user try out an alternate payment method … The most straightforward solution is to offer one or more entirely new payment methods directly in your “card declined” error message. This can be as simple as offering a third-party checkout such as PayPal … The alternate payment method can however also be truly alternate, i.e. offering check, bank transfer or invoice payment – even if you don’t normally offer these payment methods to your customers.

Insider Take

With a careful attitude and due diligence, credit card transactions are a real boon for a business that depends on recurring charges. Understand the norms and the data standards in the industry to avoid pitfalls that can lead to catastrophe. Then managing these transactions will be much less fraught.