Payment Failure | B2B Finance Glossary
What is a Payment Failure?
A payment failure is when a payment being made from one party to another doesn’t go through. Payments can fail for many different reasons. While many payment failures result in the loss of legitimate business, some payment failures are for a good reason and actually work to minimize the possibility of fraudulent transactions.
What Are the Reasons that Payments Fail?
As stated above, payments can fail for many reasons. Here are a few of the most common:
- The payment method is not supported. If the merchant does not support the consumer’s chosen payment method, they cannot purchase the desired good or service. For example, not all merchants accept all types of credit cards. So, if a customer enters card information from a card that is not supported, the payment will fail.
- There are insufficient funds. The payment will only go through if the customer has enough funds in their bank account or enough credit on their credit card.
- The credit card is expired. If the customer’s credit card is expired, the payment will fail.
- The data is mismatched. The payment will be blocked if the cardholder enters data that does not match the information the issuing bank has on file. Mismatched data can occur with both card numbers and passwords.
- The transaction exceeds the single charge limit. Even if a customer has enough money in their bank account to cover the transaction, sometimes there are limits to how much can be spent on a single transaction. The payment will fail if the customer tries to make a purchase that exceeds that limit.
- The internet connection is unstable. Stable internet connections are critical to completing online transactions. When a customer’s connection is unstable, their payment will not go through, which will be a frustrating experience.
- Downtime or maintenance is occurring. Sometimes, payment gateways, processors, or issuing banks have downtime. This happens when the site or product is being repaired or updated. When this happens, transactions fail because a key part of the payment infrastructure is paused.
- The payment is deemed inauthentic. If an issuing bank or merchant acquirer thinks that the customer’s attempted transaction is not authentic because it seems at odds with the customer’s previous charge history, they will block its ability to go through.
- The customer is making the payment from abroad. Banks and merchant acquirers can label a charge as inauthentic if the customer pays from a different country or location than where they usually reside. On top of that, not all credit cards support international charges.
- There is 3DS2 friction. 3DS2 is a multifactor authentication protocol designed to reduce friction in the online payment process. It allows businesses and their payment providers to send more data elements on each transaction to the cardholder’s bank. Banks and merchants can share information to determine if transactions are risky. If the transaction is determined not to be risky, it goes through. However, if it’s risky, the customer must provide more information to verify that the payment is not fraudulent. If the customer is unwilling to provide this information or cannot, the payment will not be processed, and it will fail.
How Can Merchants Prevent Payment Failure?
Sometimes, payment failures occur because of something on the merchant’s end, and sometimes, they occur because of something on the customer’s end. While it’s true that a merchant cannot do anything to change the fact that a customer might have insufficient funds in their account or a faulty internet connection that’s causing the payment to fail, there are things that merchants can do to prevent and recover payments that don’t go through.
Here are a few steps merchants can take to handle failed payments effectively:
- Let the customer know the payment failed. Sometimes, customers don’t even know that their payment did not go through. Sometimes, issuing banks and systems automatically inform customers about payment issues; sometimes, they don’t. So, if a customer’s payment is rejected, it’s a good idea to notify them of the problem. It’s also critical to include a call-to-action that will give them options to resolve their account immediately.
- Set up dunning email automation. Dunning is the systematic process of communicating with payers with outstanding invoices. Typically, dunning is inconvenient for everyone involved and requires businesses to make additional efforts to collect the payments due to them. However, an automated dunning process can help remind customers to pay what’s owed. Additionally, automated dunning processes can help with sending automated recurring emails that will continuously offer reminders to customers. It’s also essential to provide customers with assistance to help them resolve their failed payments.
- Schedule payment retry cycles. If a customer has insufficient funds to make a payment, it’s a good idea to implement automatic payment retries over some time. This process will simplify collection for your customer and help them make their intended payment.