A high volume of credit card declines can lead to a series of negative consequences for merchants, including penalties from the payment network that gradually increase as high denial ratio remains unsolved for a long period of time. There are many reasons why a credit card transaction can be declined by the issuer.
These are the most common ones:
1. Insufficient funds #
According to Ethoca, more than 44% of all denied transactions happen because the payment method selected by the customer didn’t have sufficient funds (in case of debit cards). If the customer tried paying with a credit card, it simply means that he has hit the credit limit, and his issuing bank won’t allow the purchase to go through.
2. Transaction error #
The second most common reason for credit card declines (20.6%) is that the customer mistakenly entered erroneous data while entering his payment details.
3. Lost/stolen card #
According to the research conducted by Ethoca, about 10% of credit card denials happen because the rightful owner reported the payment card as lost or stolen – as a result, the transaction was declined by the issuing bank. In this case, it is recommended to not retry the transaction neither to provide additional goods and services to the cardholder. In case of a stolen card, make sure to report the transaction attempt to the corresponding issuing bank.
4. Unusual activity #
Another common reason for declines is that the credit card company observed an unusual activity on the credit card.
Some activities may include shopping in neighbourhoods that are known for fraudulent practices, sudden change in shopping habits by the cardholder, and sometimes even making small purchases is enough to trigger a decline if the transaction looks like testing. Usually, before the thief starts spending frivolously with the stolen credit card, he will test it out to see if it works by purchasing an item for a small amount, or just filling up the car at the gas station. If a customer typically buys gas in the same area of your location but you suddenly fill your tank up in another part of the city, an alert can be triggered as well.
5. Unusual location #
Similar to uncommon activity, making a purchase from an uncommon location can also trigger an alert of suspicion for possible fraudulent practices. Typically, your credit card issuer is familiar with the geographic boundaries of your regular transactions, and making purchases from another country (even if they are not actually fraudulent) can sometimes alert issuers.
6. Change in shipping address #
Another common reason for credit card declines can be as simple as a change in the shipping address of the customer. If the issuer doesn’t recognize the new shipping address and it doesn’t match his usual billing address, the transaction could be declined.
7. Temporarily holds #
Sometimes, the transaction was declined because the customer hit an “invisible” credit limit on his payment card. This happens when companies make pre-authorized charges on a purchase, putting a temporarily hold on a certain amount of money to ensure that the transaction isn’t fraudulent or that the customer has enough funds in his card.