Failed transactions and payment failures can be incredibly frustrating for both businesses and customers alike. Not only do they disrupt transactions and cause customer irritation, but they can also result in the loss of valuable customers and revenue.
In this blog post, we’ll explore the reasons why payment failures occur from both the customer and payment processor’s perspectives. With real-world examples, we’ll guide you through the topic of failed transactions so you can learn how to minimize their impact on your bottom line.
Payment Failure from their Perspective
Imagine a customer excitedly browsing through your website, ready to make a purchase or subscribe to your service. They proceed to the checkout, enter their payment information, and eagerly await the confirmation of their order.
But instead of success, they receive the dreaded message: “Transaction Failed.” This moment of frustration can lead to lost opportunities for your business. The customer’s journey ends abruptly, and the chances of them returning to complete the transaction decrease significantly.
Not exactly the ideal customer journey from a payment processing point of view.
So how did all of this happen?
The Common Culprits of Failed Transactions
Various factors contribute to payment failures from the customer’s perspective. Insufficient funds in the customer’s account are often the culprits in a declined transaction, leaving them unable to complete their purchase.
However, outdated or expired payment information can also lead to failed transactions, requiring customers to keep their details up to date.
Additionally, not all merchants accept every type of payment method, leading to unsupported payment methods becoming an obstacle for customers.
Here’s a common scenario when it comes to failed transactions on the customer side:
John, a customer, tries to purchase a subscription to an online streaming service. However, his credit card on file has expired, and he is unaware that he needs to update his payment information. As a result, the transaction fails, leaving John unable to access the desired service until he resolves the payment issue.
The Dreaded Authentication Friction
In the age of heightened security, customers often encounter additional verification steps during the payment process. This authentication friction aims to protect against fraudulent activity but can sometimes lead to failed transactions.
Customers may be required to provide extra authenticating information such as fingerprints, face scans, or one-time passwords. However, if customers are unable or unwilling to provide this information, the payment can fail, causing frustration and hindering the completion of transactions.
Here’s how that story can play out in the real-world example:
Lisa wants to book a flight online. As she proceeds to make the payment, she is prompted to verify her identity through a one-time password sent to her mobile device. Unfortunately, Lisa is traveling and does not have access to her phone’s network. Without the ability to provide the required authentication, her payment fails, leaving her unable to finalize the flight booking.
Challenges with Failed Transactions For Merchants and Payment Processors
Payment processors strive to provide uninterrupted service to merchants and their customers. However, involuntary downtime and scheduled maintenance can disrupt the payment process. These technical hiccups can temporarily disable payment gateways, preventing merchants from accepting payments and causing frustration for both parties involved.
Just take a look at this real-world example: In July 2019, Stripe, a popular payment processor, experienced nearly two cumulative hours of downtime in one day. This outage affected numerous companies relying on Stripe for payment processing, rendering them unable to accept payments during that period. Such incidents, although rare, highlight the potential disruptions caused by downtime and maintenance.
Protecting Customers and Merchants
Security is a top priority for both customers and merchants. Financial institutions and banks employ algorithms to detect security threats and fraudulent activity by analyzing customer spending patterns and payment details.
While these security measures are in place to protect customers, they can also inadvertently lead to failed transactions. Unusual spending behavior, transactions from unfamiliar locations, or expired cards can trigger a bank’s security system, resulting in declined transactions that frustrate customers and impact merchants’ revenue.
Meet Mark. He travels frequently for business and often makes online purchases while abroad. During one of his trips, Mark tries to buy a product from an international merchant using his regular credit card. However, due to the unusual transaction location, Mark’s bank suspects fraudulent activity and declines the payment. Despite his genuine intent, Mark faces a failed transaction due to the security measures implemented by his bank.
The Complex Payment Process
The payment process involves multiple steps, from authorization and verification to funds transfer and settlement. Any disruption or error along this journey can lead to failed transactions. Issues such as insufficient funds, incorrect data transmission, or delays in authorization can result in payment failures from the merchant/payment processor’s perspective.
Real-world example: Emma, a small business owner, relies on an online payment processor to accept payments from her customers. However, a technical glitch in the payment gateway causes incomplete data transmission for a customer’s transaction. As a result, the payment processor fails to authorize the transaction, leading to a failed payment and potential loss of revenue for Emma’s business.
Failed Transactions in High-Risk Industries
High-risk industries, such as adult entertainment, online gambling, CBD products, or cryptocurrency, face unique challenges when it comes to payment processing. These industries encounter stricter regulations, increased scrutiny, and a higher likelihood of fraudulent activities, which amplify the risk of transaction failures.
There are three main reasons why businesses in high-risk industries face an extraordinary risk of frequent failed transactions:
Heightened Security Measures
Stringent security measures are implemented in high-risk industries to combat fraud. However, these measures can sometimes flag legitimate transactions as suspicious or decline them, causing frustration for customers and potential loss of business.
For example, a customer attempting to purchase a legal nutraceutical product online may face challenges when their transaction triggers the fraud detection system due to the nature of the industry. This can result in the customer’s payment being declined, leading to frustration and potentially driving them to seek alternative vendors.
Complex regulations imposed by governments and financial institutions create obstacles for legitimate transactions in high-risk industries. Compliance requirements can lead to delays, declined transactions, or account suspensions, impacting payment processing.
For instance, the legal cannabis industry or CBD industry faces numerous challenges in processing payments due to the varying regulations across different countries and jurisdictions.
In some cases, financial institutions may refuse to provide payment processing services to cannabis businesses due to the conflict between federal and state laws. As a result, legitimate transactions within the cannabis industry often encounter hurdles and failed payment attempts.
Limited Payment Options
Traditional payment processors may be hesitant to support high-risk businesses, resulting in limited payment options for customers. This limitation increases the likelihood of failed transactions and negative user experiences.
For example, online gambling platforms may face challenges in finding payment processors that are willing to support their operations. This can lead to potential customers experiencing payment failures when trying to deposit funds into their gambling accounts, resulting in a negative user experience and lost revenue for the merchant.
Did you miss: Is Your Industry Classified as High-Risk?
How to Mitigate the Impact of Failed Transactions in High-Risk Industries
While failed transactions pose significant challenges for high-risk industries, there are strategies that business owners can employ to minimize their impact.
Diversify Payment Options
Explore alternative payment methods to provide customers with more choices and increase the chances of successful transactions.
Work with High-Risk Payment Processors
Collaborate with payment processors specializing in high-risk industries, such as PayFasto, as we understand the unique challenges and compliance requirements.
Implement Robust Fraud Detection Systems
Utilize advanced fraud detection tools to differentiate between legitimate and fraudulent transactions, reducing false positives and avoiding mistaken declines.
Stay On Top of Regulatory Changes
Stay informed about evolving regulations within the industry to ensure compliance and minimize disruptions to payment processing.
Provide Excellent Customer Support
Establish efficient customer support channels to assist customers facing payment failures, offering alternative solutions and guiding them through the payment process.
With an understanding of the unique issues faced by high-risk industries, it becomes clear that failed transactions are not solely a matter of technical glitches or human errors but are deeply intertwined with the specific characteristics and dynamics of these sectors.
By proactively addressing these challenges, tailored payment processor providers like PayFastoPayment can pave the way for more successful transactions and sustainable growth for businesses in high-risk industries.