A customer attempting to make a purchase with a credit or debit card starts a (usually) speedy authorization process that’s verifying a number of customer data points in the background.

1. When a customer enters their card information either in-person, online or over the phone, the Merchant sends the authorization to their Acquiring bank
2. The Acquirer then sends the request to the credit card issuer to check if the customer’s card is valid, and whether they have enough funds to make the purchase
3. If there are sufficient funds to cover the purchase, an authorization hold is put on the customer’s credit card for the dollar amount of the sale
4. An authorization code is then sent back to the Acquirer letting them know whether the transaction has been approved or declined
5. The Acquiring bank then responds to the Merchant with the authorization code, if applicable, letting them know whether the authorization has been approved or declined by the issuer
6. If the authorization has been approved the Merchant can then send the authorization for settlement to receive their funds and complete the purchase

This process takes just a few seconds.

Declined Authorizations

While authorizations are usually speedy, these requests for payment can also just as quickly be declined by the Acquiring bank or the issuer. These declines can be especially prolific for Merchants processing recurring or subscription billings in the high-risk space.

According to Visa and MasterCard, an average of 15% of recurring/subscription payments are declined for a variety of reasons. This percentage can be significantly higher for high-risk Merchants. Merchants usually have trouble in deciphering what to do with declines. The response codes themselves can provide some level of direction, but tracking subsequent decline salvage success rates and impacts can be challenging.  

It’s important for Merchants in a Card Not Present (CNP) recurring/subscription-based business to be extremely knowledgeable about the different types of declines they receive. How a Merchant handles these declines can impact their overall revenue in both a positive and negative way.

Merchants should work with their Acquirer to understand the decline reason codes they are sending back, along with what they should do to attempt to recoup the sale on each decline. There are many strategies to manage your declines, but there are some industry standards.

6 Strategies for Lowering Initial Declines

1. Merchants should make sure they are using the Address Verification Service (AVS) that’s provided by Acquirers and issuing banks. AVS checks the billing address submitted by the customer against the billing address on record to detect fraudulent transactions
2. Merchants can provide additional information such as the Card Verification Value (CVV) code, IP address verification (if possible), and 3D secure. It’s important to note that if Merchants are batch processing, they ARE NOT allowed to store CVV codes anywhere in their systems
3. Merchants should do their best to keep fraud and dispute rates low. Merchants who have more payment disputes with the issuer will see a higher number of declines. Acquirers and issuers also have dispute and fraud levels they need to stay below, so if Merchants are significantly adding to their risk, they will block the transaction and not submit it to the issuer.
4. Merchants should use Account Updater— a service offered by Visa, MasterCard, and Discover to let Merchants know when customers have received new card numbers or expiration dates. This will help lower the number of declines with an “Invalid Account Number” or “Expired Card” decline code. Account updater also alerts Merchants to accounts that are closed, negating the need to retry. This service can not only reduce the number of Merchant declines, but it also increases positive customer experience levels, as they will be provided a seamless billing process without needing to lift a finger
5. Recurring billing Merchants should always send transactions with a recurring indicator, and a network transaction ID which alerts the issuer and Acquirer that a given customer has previous history with the merchant. If Merchants are not currently doing this, they should work with their Acquirer immediately to understand how they can begin
6. Merchants need to understand that their decline salvage processes can have a significant impact on initial settlement rates. Reprocessing of specific decline codes dozens of times will cause the Merchant’s MID to be flagged by issuers.

4 Strategies for Retrying Declines

If a Merchant is comfortable with their understanding of which decline codes they can resubmit, they can develop a retry logic strategy either in-house or through a third-party vendor. Retry strategies are different for every Merchant and are arrived at through structured champion-challenger testing and comprehensive analytics to determine what works best.

Four common retry strategies are:

1. Resubmitting for authorization at the beginning, middle, or end of month can be highly effective within a Merchant’s debit and prepaid portfolio. This technique will help recoup declines that fall into the “Insufficient Funds” bucket. There are specific issuers, like Comerica, where the window to successfully settle a decline is extremely narrow.
2. Resubmitting at a different time of the day. Some issuers have higher processing volumes at certain times that could affect a Merchant’s authorization rates. It’s also worth noting the local time zone of the issuer can play a role in increased declines
3. Attempting a multi-acquire strategy. If Merchants work with more than one Acquirer, they may find success in sending declined authorizations to their other Acquirers. This technique will often get an approved authorization even though the Merchant didn’t do anything different with the data they sent
4. Understand that not all decline response codes are equal. Many response codes can be reattempted while some should never be. Aggressively attempting to authorize decline response codes, such as closed account, will yield nothing and will most likely negatively impact your initial settlement rates.

It’s important for Merchants to test different strategies for their businesses and see what works. Merchants need to ensure their decline salvage processes are following the rules and regulations of the card brands. Merchants understandably want to bill as much revenue as possible, but they also need to stay compliant with the guidelines. They need to realize that their decline salvages strategies, if ill conceived, can have a significant negative impact on their initial settlement rates.

BONUS INFORMATION: Be aware that refunds also decline. Not tracking and mitigating declined refunds can cause increased disputes and elevated levels of regulatory scrutiny.