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Recurring Decline Codes and the Imperfect Science of Reducing Churn

November 18, 2022
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Recurring Decline Codes and the Imperfect Science of Reducing Churn

As a recurring merchant, you likely see 10%-25% of your recurring transactions decline daily. For some industries and depending on your price point, this number can be significantly higher. Declines on recurring billing mean you have either lost the revenue and have to retry the card or reach out to the customer. If you do end up collecting the money, it's at a much higher cost (customer care, email, gateway fees, processing fees, etc.) then if it was approved the first time.

Additionally, most recurring billing platforms don't offer the granular functionality to dynamically route your transaction for optimal approvals. Add to this that most merchants use a gateway or similar service to connect to a processor, and the costs and declines continue to mount.

Traditional Gateways Add Cost and Reduce Approvals

Gateways are an easy way to drop in payment functionality, but without an in-house payment resource, most merchants either don't use the gateway correctly or, more likely, your gateway is not certified on the appropriate platforms with the correct data for recurring purchases. Additionally, because gateways connect to a variety of platforms, the actual decline data is obscured by an internal code based on their mapping. This means your system is not providing you the true network decline but one that the processor, gateway, and billing system have transformed.

This mapping and lack of integration to recurring-oriented processing platforms add to merchant costs, reduce approval rates, and limit functionality and retry logic. Not to mention adding obscured fines and fees from a network.  

The Top Declined Credit Card Codes and What To Do About Them.  

Credit card decline codes are nothing new. As many as 15% of recurring transactions and between 4.5% and 5% of standard purchases made with a credit card are declined. Why the gap? E-commerce and recurring decline codes are 10%+ higher than standard purchases because the data passed from your platform and gateway are not compliant with recurring best practices. Additionally, issuing banks have more risk with e-commerce and recurring transactions, so they are stricter on what they approve. Therefore it's imperative you use a provider that is experienced in recurring billing and understands these requirements for your business.  

If you know what the codes mean, you can help your customer solve the problem so their transaction will be approved. Not only does this mean you retain a sale, but it also creates a seamless experience for the customer, reducing frustration or potentially delaying delivery or locking them out of your service unnecessarily.

This is a win-win-win as the customer often maintains the relationship with the merchant. The issuing bank of choice for that consumer remains top-of-wallet where the customer would otherwise use another card, and the merchant collects more revenue with fewer fees and less risk.  

Digging Into the Imperfect Science

Do Not Honor

"Do Not Honor" is by far the most talked about and misunderstood decline code. It happens when the customer's bank refuses to send a verification token back to your system for one reason or another, essentially saying, "as a bank, we will not honor this transaction." This code has been more prevalent as issuing banks continue to obscure recurring decline codes with "Do Not Honor" or "Generic Decline" when, in reality, they are failing to provide more granular data to the merchant.  

"Do Not Honor" is a soft decline, meaning as a merchant, you are eligible to retry the transaction within the stated Visa/Mastercard limits. In our experience, "Do Not Honor" reacts similarly to "Insufficient Funds," and there's likely great success in retrying these declines later. If you track declines by issuing bank (Card BIN or Account Range), you will likely see banks flip-flop volume from one code to another, with "Do Not Honor" usually taking center stage.  

Insufficient Funds

Most recurring merchants see "Insufficient Funds" as the second most common decline code by volume in their portfolio. In this decline, the consumer lacks the funds or available credit limit to purchase the item/service. This is unlikely to be a false decline and can most likely be remedied by one of the following:

  • Retry the transaction when funds are available on the card.
  • Reach out to the consumer, letting them know their payment method was declined. It's best practice not to provide the decline code for two reasons:

Instead, asking your customer for an alternative payment method may be best. Let them know their bank is refusing payment and that it may be best to call their credit card company when they get home to clear up the situation so that it doesn't slow them down in the future.

Invalid Card Number and Expired Card

At a minimum, recurring merchants should be enrolled in a Legacy/Batch Account updater. In the U.S., all banks must participate in this program, but depending on your card mix, you can find that up to 20% of your portfolio isn't being updated.

If you are a more advanced merchant, you are likely using or looking at using a Real-Time Account Updater to augment or replace your legacy product. While the future of payments is moving to real-time updates, we recommend reviewing this option with your provider, as using it effectively without dramatically increasing fees means tokenization requirements and a proper payment architecture.  

Don't Be Surprised When Expired Cards Approve

If you aren't getting updates on expired cards, it may not be an issue. American Express links their card numbers in addition to offering an Account Updater service, so it's common for the card on file with Amex consumers to work on recurring purchases well past card expiration and even with new numbers.  

Visa and Mastercard consistently have expired cards with recurring merchants that continue approving well past any expiration date. Just because your customer's card is expired doesn't mean it will be declined. Best practices for these codes are as follows:

  • Enrolled in Batch and/or Real-Time Account Updater with your processor/provider.
  • Ensure your architecture and integration are aligned to avoid unnecessary duplicate fees for updates and ensure your system is storing the appropriate token/volume/id to avoid paying for updates on each transaction.
  • Pay for only successful updates.
  • Create an email flow for customers whose cards are about to or recently became out of date. This may be different from any communication for declined cards or those you are retrying.  
  • Use a service that supports Network Tokens, PAN, Processor Tokens, and all associated services. Flexibility in configuration will allow for better architecture, network compliance, reduced risk on the merchant (PCI), and higher revenue with less cost.  

Hard Declines (Visa)

Visa has a regulation prohibiting hard declines on cards using their network. Many merchants may be ignoring this regulation and paying fines on each attempt, but in our experience, the regulation is well-positioned. The recovery rate on Visa hard declines is infinitesimally low. After running analytics on these approvals, it's likely the processing/gateway/platform costs, in addition to the network fees on each out-of-compliance retry, are more expensive than the revenue collected.  

Revolv3 recommends you stop any billing/retry after receiving a hard decline of a Visa card and contacting the consumer to update their payment method.

Hard Declines (Mastercard)

Unlike Visa, Mastercard does not have a hard decline requirement. While many processors and networks will recommend you don't retry these decline codes, that may not be the best advice depending on your card mix and transaction amount. Revenue recovered retrying Mastercard hard declines is much higher than with Visa.  

How can cards that the bank/network says will never approve, approve? Welcome to the imperfect science of payment decline codes.  

Final Thoughts

Payment processing is never a one-solution-fits-all problem. Revolv3 remains committed to recurring, installment, and credential-on-file merchants in e-commerce to close the approval rate gap and reduce false declines. A little effort to pick quality partners and limit data manipulation in the transaction flow can multiply your return on investment.

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