How Payment Declines Tops List of eCommerce Challenges

Oct 16, 2023

In the ever-expanding realm of online shopping, eCommerce merchants are confronted with an array of persistent challenges. Cart abandonment rates hover around 70%, often because shoppers are presented with unexpected shipping costs or lengthy delivery times. But any friction in the checkout process can turn away potential buyers. Customers who need to fill out lengthy forms, create an account, or navigate through multiple pages might abandon the purchase. Of course, technical glitches such as issues with website loading, or a non-responsive payment gateway can deter customers from making a purchase. Such hiccups might not only lead to a single lost sale but can make customers reluctant to return.

Interestingly, while these challenges have been in the spotlight for years, there is another significant challenge that has not been a focus: Payment Declines.

Source: https://www.daasity.com/post/conversion-funnel-analysis

Payment Declines Cost eCommerce Businesses Billions

Payment Declines, often underestimated in their impact, wield the potential to cost eCommerce businesses billions. Research shows that approximately 10% of all eCommerce dollars are rejected during payment authorization. When considering the sheer volume of online transactions, this percentage translates to a staggering number. For example, in 2021, global e-commerce sales amounted to approximately $5.2 trillion. Even a modest 5% decline rate on that sum equals a hefty $260 billion in potentially lost revenue.

The future paints a more challenging picture. As the eCommerce market is expected to grow to $8.1 trillion by 2026, the absolute value of declined transactions will also increase, even if the decline rate remains constant. This growing number makes it critical for businesses to understand and tackle the root causes of these declines.

 

Understanding Card Issuer Declined Payments

There are several underlying reasons why card issuers may decline payments:

Non-sufficient funds (NSF): One of the most common reasons for payment declines. If the customer does not have enough funds in their account to cover the purchase, the transaction gets declined.

Fraudulent Transactions: Issuers have systems in place to detect suspicious activities. If a transaction seems out of the ordinary, the bank might block it, fearing potential fraud. While this protects the cardholder, it might also block genuine transactions, especially if the buyer makes an unusually large purchase or buys from a new location.

Invalid Card Data: Mistakes happen. Sometimes, customers enter an incorrect card number, leading to an immediate decline.

Technical Glitches: Sometimes, the problem isn’t with the buyer or the seller but with the bank’s systems. Technical issues can occasionally lead to transaction failures.

 

The Consequences of Declined Transactions

While the popular belief is that most transaction declines result from fraud prevention or stolen card usage, card decline statistics show that up to 70% of declined transactions are from legitimate customers. Losses due to these “false declines” were expected to reach $443 billion by 2021 – nearly 70 times more than anticipated losses from fraud.  Merchants are losing almost half a trillion dollars in revenue every year just because card issuers and banks are overly cautious.

Declined transactions have repercussions beyond immediate revenue loss. Ethoca reports that when faced with a decline, only 25% of customers would try another card, while 39% would abandon the cart altogether. Such statistics highlight the long-term customer relationship risks businesses face with each declined transaction.

Interestingly, the same report indicates that it’s not overzealous fraud models that present the most significant barrier to payments. It found that 44.4% of declines were due to insufficient funds on the customer’s card, emphasizing the importance of finding ways to increase authorization rates for customer transactions.

Navigating the Complex Landscape of E-commerce Payment Challenges

eCommerce is fraught with both potential and pitfalls. Payment declines, whether arising from issuers or inherent to the online shopping experience, should be a central concern for businesses. As the industry continues its rapid growth, understanding and managing payment challenges will be paramount for companies seeking to optimize revenue, maintain customer trust, and ensure a seamless shopping experience.