Meta Title: How to Reduce Payment Failures: Recovering Lost Revenue and Boosting Conversions
Meta Description: Discover proven strategies to reduce payment failures and increase success rates, such as smart routing, retry systems, and alternate payment options.
Consider this scenario: A customer adds things to their cart and checks out, but payment fails. They give up on their purchase due to frustration. Now increase this by hundreds of transactions every day; the income loss is astounding.
Payment failures have a direct impact on revenue, customer trust, and retention. According to a Chargebee analysis, while 35% of transactions fail on average, this figure can reach 70% or higher in many circumstances, resulting in revenue loss and involuntary churn.
Another PYMNTS survey discovered that more than one in every ten online transactions completed by eCommerce players failed in the previous year, potentially costing retailers $31 billion in online sales in the third quarter of 2023.
Even a small percentage of rejected payments can result in millions of dollars in lost revenue for e-commerce and SaaS companies that rely on perfect digital transactions. Technical difficulties, bank declines, outdated cards, fraudulent checks, and inadequate payment routing are all common factors.
This article explores why payments fail, their impact on businesses, and, most crucially, how you can improve your payment success rates.
Top Reasons for Failed Transactions
Understanding the underlying reasons for payment failures is critical to reducing revenue losses. Listed below are some of the most common causes:
1. Insufficient Funds
This happens when a customer does not have enough money in their bank account or available credit to finish the transaction.
2. Bank Declines and Security Checks
Banks often decline transactions to prevent fraud for security reasons. However, many legitimate payments get wrongly flagged and declined due to:
- Large or unusual purchases
- Transactions from foreign locations
- Mismatch in cardholder details
- Multiple rapid transactions within a short period
This heightened scrutiny can lead to false declines, causing legitimate transactions to be rejected.
3. Payment Gateway Issues
Payment gateway failures occur when there is downtime, significant latency, or network difficulties. During big sales events, payment gateways may get overloaded, resulting in a larger rate of unsuccessful transactions. Businesses that rely on a single payment channel are more likely to have these issues.
4. Expired or Incorrect Card Details
Card expiration is a major concern, especially in subscription-based SaaS businesses. If consumers neglect to update their billing information, payments are refused, resulting in involuntary churn.
Similarly, submitting incorrect card information (wrong CVV, expiry date) can result in payment problems.
5. Fraud Prevention Blocks
Banks and payment processors use fraud detection systems, which might falsely label normal transactions as fraudulent. Overly tight fraud procedures might result in false positives, invalid transactions, and dissatisfied consumers.
How Smart Routing and Retry Mechanisms Reduce Failures
One of the most effective ways to reduce payment failures is to optimize payment routing and payment retry logic.
1. Smart Payment Routing
Smart routing uses AI-powered technologies to choose the optimal payment processor based on real-time success rates.
If a payment processor fails frequently, the system will automatically divert the transaction to another processor. This strategy has been demonstrated to increase transaction success rates considerably.
Benefits of Smart Routing
- Higher Success Rates: Ensures payments are processed through the most reliable gateway
- Reduced Transaction Latency: Faster payment processing improves customer experience
- Lower Operational Costs: Reduces manual recovery effort
For example, smart routing can increase transaction success by 20% and lower costs by 15%. Cascading improves reliability by 30%, cutting down on downtime. Together, these upgrades boost customer satisfaction by 25%.
2. Intelligent Retry Logic
Instead of immediately rejecting a transaction, sophisticated payment retry logic attempts the payment later or via another method.
For example, if a payment fails because of insufficient money, the system will retry the payment on payday when the customer’s funds are available.
3. BIN-Based Routing
Bank Identification Number (BIN)-based routing helps firms select the most successful acquiring bank for each transaction. Businesses can use historical success rates to route transactions through banks that have lower decline rates. This method can significantly enhance payment success rates.
The Role of Alternative Payment Methods in Reducing Failures
Offering alternative payment methods can drastically reduce payment failures while increasing consumer satisfaction. Here’s how:
1. UPI and Digital Wallets
Integrating APMs like Unified Payments Interface (UPI) and digital wallets (e.g., Google Pay, Apple Pay, PayPal) gives customers more payment alternatives. This flexibility can help mitigate concerns like bank declines or card-related problems.
For example, the broad adoption of UPI in India has transformed digital transactions by making payments more accessible and lowering failure rates.
2. Tokenization and Stored Payment Methods
Tokenization enables organizations to retain client payment information securely. This decreases friction at the checkout and minimizes errors caused by incorrect or outdated information.
Businesses can improve security and reduce payment failures by substituting sensitive card information with a unique identifier or “token.”
3. Subscription-Friendly Payments
Direct debit systems enable automated recurring payments in subscription-based structures. This approach reduces the impact of expired cards and manual errors, resulting in more constant income streams.
Machine learning algorithms can also predict invoice payments, which improves cash collection and reduces payment errors.
Example: A subscription-based SaaS reducing churn by 15% using stored card tokenization.
Real-World Examples of Success Rate Optimizations
Several industries have successfully employed techniques to optimize their payment acceptance rates:
- E-commerce: Implemented alternative payment methods → Success rate increased by 18%.
- SaaS: Used smart retry logic for subscription renewals → Reduced involuntary churn by 12%.
- Marketplace:Shifted to AI-powered payment routing → Reduced failed transactions by 25%.
Conclusion
Payment failures remain a major business concern, hurting revenue streams, consumer trust, and long-term retention. On the other hand, companies that adopt a proactive approach to improving their payment procedures can benefit significantly.
Businesses that use AI-powered smart routing have significantly raised transaction success rates by automatically routing payments to the most dependable processors.
Alternative payment mechanisms, such as digital wallets and UPI, have also been shown to reduce the chance of bank declines. Meanwhile, clever retry mechanisms and tokenization have enabled subscription-based businesses to avoid involuntary churn.
Plural by Pine Labs is a comprehensive payment platform that simplifies digital transactions for businesses. It provides safe, smooth, and optimized checkout solutions, including one-click checkouts, tokenization, and BNPL alternatives.
Don’t let payment failures cost your business millions! Partner with Plural for frictionless transactions today.
Plural by Pine Labs has received an in-principle authorization from the Reserve Bank of India (RBI) to operate as a Payment Aggregator.
