Understanding Declines

Understanding Why Debit and Credit Cards Decline at the Point of Purchase: A Guide for Merchants

As a merchant, encountering declined card transactions at the point of purchase is a common but often frustrating experience. Understanding the main reasons behind these declines can help you address customer concerns, improve the checkout experience, and minimize lost sales. This knowledge-based article will outline the most common reasons for card declines and provide actionable insights for merchants to navigate these situations effectively.

1. Insufficient Funds or Credit Limits

The most straightforward reason for a declined transaction is insufficient funds in a customer’s account or reaching the credit limit on a card. For debit cards, if the linked bank account does not have enough funds, the transaction will be declined. Similarly, credit cardholders may face declines if they exceed their credit limit.

What Merchants Should Know:

Encourage customers to check their account balance or credit availability if they experience a decline.
Offer alternative payment options, such as splitting the bill between different payment methods.

2. Incorrect Card Information

Mistakes in entering card details are a common reason for declined transactions. If the customer inputs incorrect card numbers, expiration dates, or CVV codes, the transaction will not be authorized.

Best Practices for Merchants:

Ensure your payment system prompts customers to double-check their input for accuracy.
Train your staff to assist customers with verifying card details if needed.

3. Expired or Inactive Cards

A card that has expired or been deactivated (e.g., replaced due to loss or theft) will automatically be declined. Customers may forget to update their payment details for recurring transactions or present expired cards.

Tips for Merchants:

Politely remind customers to check their card’s expiration date if a decline occurs.
Inform customers to update their payment details for recurring services when using new or reissued cards.

4. Fraud Detection and Security Measures

Banks and card issuers use fraud detection systems to safeguard cardholders against unauthorized transactions. These security measures may sometimes lead to legitimate transactions being flagged and declined.

Reasons a Transaction May Be Flagged:

Unusual Spending Patterns: A transaction that deviates from the customer’s normal spending habits, such as a high-value purchase or an international transaction.
Frequent Small Purchases: Multiple, rapid transactions in a short time frame may trigger security alerts.
High-Risk Categories: Transactions involving certain high-risk industries may be declined as a precaution.

How to Address This as a Merchant:

Assure customers that declines related to fraud prevention are meant to protect their account.
Suggest that customers contact their bank or card issuer if a legitimate transaction is flagged.

5. Card Restrictions and Account Holds

Banks sometimes place temporary holds or restrictions on accounts, leading to declined transactions.

Types of Account Holds:

International Blocks: Cards may be restricted from making international purchases unless the customer notifies their bank in advance.
Spending Caps: Cardholders who set personal spending limits may reach their cap and have subsequent transactions declined.
Pending Charges: Authorizations for pending transactions, such as hotel deposits or rental car holds, can reduce the available balance and trigger declines.

Advice for Merchants:

Be aware that international travelers or those making large purchases might need to inform their bank to approve transactions.
If a transaction is declined, suggest that customers check for any pending authorizations or recent holds.

6. Technical Issues

Technical failures within the payment system can also result in card declines. These issues can occur at various points in the transaction process:

Potential Technical Problems:

Network Outages: Payment processors, banks, or card networks experiencing downtime may lead to declined transactions.
Connectivity Issues: Unstable or weak internet connections at the point of sale can disrupt processing.
Integration Errors: Payment terminals not properly synced with the payment processor or gateway can result in unsuccessful transactions.

Steps for Merchants:

Ensure that payment terminals and POS systems are regularly maintained and updated.
Have backup payment options available, such as mobile payments or alternate card readers, to minimize disruption during outages.

7. Issuer-Specific Policies

Card declines can sometimes be due to specific policies or temporary restrictions imposed by the issuing bank.

Issuer-Specific Decline Reasons:

Temporary Authorization Limits: New or high-risk accounts may have tighter spending limits.
Internal Reviews: Accounts under review for suspicious activity may be temporarily restricted.
Debt Concerns: Cards linked to overdue balances or significant debt may be blocked for new charges.

What to Communicate to Customers:

Inform them that their issuing bank’s policies or internal reviews may be affecting their card's usability.
Encourage customers to reach out to their bank directly to resolve such issues.

8. Geographic and Currency Issues

Transactions can also be declined due to location-based or currency-related restrictions. This is particularly relevant for international sales or purchases in foreign currencies.

Common Scenarios:

Currency Conversion Problems: Cards may not be compatible with certain currency exchanges or have high fees that trigger declines.
Location Blocks: To prevent fraud, some banks block transactions originating from certain geographic areas unless customers notify them in advance.

Merchant Recommendations:

Educate customers about the possibility of location-based card blocks and advise them to inform their bank before traveling.
Ensure your payment system is equipped to handle multi-currency transactions smoothly.

9. Preventative Measures and Best Practices

By understanding these common reasons for declines, merchants can take proactive steps to mitigate their impact and enhance the customer experience.