Payments Gateways: Combatting false declines and improving authorisations

When customers make a purchase, either online or in-store, they probably don’t think about what goes on in the background to process their payment. Before the merchant’s bank can process the transaction, it must confirm the card details have been entered correctly and that the card really belongs to the customer. This small but vital intermediary role is handled by a payment gateway.

Choosing the right payment gateway is crucial for merchants, because it directly impacts the customer experience, operational efficiency, and overall business success, but they are not a silver bullet against the dreaded ‘card declined’ message.

Payments can fail for a variety of reasons, ranging from incorrect card information to suspicion of fraud. While these declines can be helpful in filtering out fraudulent transactions, they can also have several significant impacts on a merchant's business, both in the short and long term.

Aside from the immediate loss of revenue, card declines can lead to a poor experience, especially if the issue is frequent. Customers may feel embarrassed in-person or lose trust in an online system, resulting in them abandoning the merchant for a competitor. Furthermore, some payment processors charge fees for retrying transactions after a decline, increasing operational costs for merchants who need to attempt multiple authorisations.

In extreme cases, excessive declines or chargebacks can lead to penalties or even termination of a merchant’s account by their payment processor, as it could be an indication of fraud or a failure to comply with payment security standards.

By addressing card declines, merchants can reduce revenue loss, enhance customer satisfaction, and maintain a competitive edge in the market. The experts at CONCRYT have created this guide to help merchants understand how to leverage their payment gateway to reduce the number of legitimate payments that fail, enhance the payment experience, and improve their bottom line. 

ANDRII SHEVCHUK, CTO & CO PARTNER OF CONCRYT

Payment gateways are an integral part of today’s digital commerce landscape. In a world where financial transactions are increasingly borderless and consumers demand seamless, secure payment experiences, payment gateways have become more than just transaction processors — they are now complex and multifaceted platforms that underpin global commerce.

This whitepaper aims to provide a comprehensive overview of payment gateways, highlighting their critical role in modern business operations, the technological advancements shaping the future of payments, and the key considerations for businesses choosing a gateway provider. Our goal is to empower businesses with the insights they need to make informed decisions about their payment infrastructure, ensuring that they remain agile and competitive in this fast-paced digital economy.

Your payment gateway essentially acts as the intermediary in electronic financial transactions. It bridges the gap between the customer, the business, and their respective financial institutions in one platform, enabling merchants to accept, process and manage various payment methods — both online and in-person — securely and efficiently. 

One of the main functions of a payment gateway is authorisation. The payment gateway forwards encrypted transaction data to your acquiring bank, which then sends the information to the customer's issuing bank or the relevant payment processor. The issuing bank or payment processor verifies the transaction details, including the customer's account balance and the validity of the payment method, before (ideally) approving the transaction. The payment gateway receives the response and sends it back to the business. 

But card payments are not always authorised, and can fail for a variety of reasons. According to Visa and Mastercard, an average of 15% of recurring payments are declined, but for some industries, the rate can be double that.

Those declines add up. Even a modest 5% decline rate on that sum equals a hefty $260 billion in potentially lost revenue. It’s therefore important to understand the most common reasons this happens.

THE MOST COMMON REASONS FOR DECLINE

• Insufficient funds — when a person or organisation does not have enough money in their bank account to cover a transaction, the transaction will usually be declined.
• Incorrect card details — this could include errors such as customers entering the wrong card number, providing an incorrect expiration date or mistaking the CVV.
• Suspicious activity — transactions or behaviours that appear unusual or potentially fraudulent. This is essentially anything that deviates from the cardholder's normal spending patterns. However, it’s worth remembering that while many believe that most transaction declines are caused by fraud prevention or stolen card usage, card decline statistics show that up to 70% of declined transactions are from legitimate customers. 
• Geolocation mismatch — this is when the location of a transaction does not match the cardholder's known or expected location based on previous spending patterns or real-time data, such as the cardholder's mobile device location.
• Card restrictions — sometimes limitations or rules are set by the card issuer that can prevent certain types of transactions or activities from being completed. These restrictions can be put in place for various reasons, including security concerns or cardholder preferences.
• Compliance and regulatory issues — when a card payment fails due to compliance and regulatory issues, it typically means that the transaction was blocked or declined because it did not meet certain legal, regulatory, or industry standards. These issues are put in place to protect consumers, prevent fraud, and ensure the financial system operates within the bounds of the law.

To add to an already diverse list of reason’s cards are declined, the terms ‘hard and soft declines’ also crop up, referring to how a card transaction is rejected. 

A soft decline happens when the transaction is rejected, but it’s due to a temporary issue that could be resolved or retried. For example:

• Insufficient funds: The account doesn’t have enough money, but the situation might change soon (e.g., more funds can be deposited).
• Card limit exceeded: The cardholder has hit their credit limit, but the limit could be increased or reset after payment.
• Technical issues: Sometimes due to network errors or connection issues, especially with the payment gateway.
• Suspicious activity flag: The issuer may have flagged the transaction for fraud protection reasons, but once verified, it could go through.

In these cases, the transaction can be re-tried after resolving the issue, such as ensuring funds are available or contacting the issuer. Conversely, a hard decline is a permanent rejection of the transaction, meaning it cannot be retried without taking further steps. Reasons for a hard decline include:

• Card stolen or lost: If the card has been reported as lost or stolen, any transactions are blocked immediately.
• Card number invalid: Incorrect or expired card details.
• Account closed: If the cardholder’s account has been closed or deactivated.
• Card blocked by issuer: This could happen due to security reasons or if the account has been flagged for fraud.

In the case of a hard decline, you cannot simply retry the transaction. The cardholder or merchant must resolve the issue, such as providing a new card or contacting the card issuer.

The eCommerce market is expected to grow to $8.1 trillion by 2026, and with it, the absolute value of declined transactions will also increase, even if the decline rate remains constant. Which brings us to the critical question: how can merchant improve authorisation rates?

Managing declines in an increasingly digital world is challenging. The authorisation rate—the percentage of transactions that you submit and are accepted by the cardholder's bank—can be 10% lower for online transactions compared to in person.

As a result, many businesses don’t retry declined transactions. Others retry too often, making the situation worse and increasing costs. But it is possible for merchants to customise strategies based on the type of decline code. 

BEST PRACTICES FOR MAXIMISING AUTHORISATION RATES:

• Integrate with multiple payment gateways. This is a common strategy, as integrating multiple payment gateways adds redundancy to your payment system, enhancing resilience, helping to reduce downtime, improving customer satisfaction, and ensuring smoother payment processing. This strategy also provides flexibility, allowing merchants to cater to diverse markets, negotiate better fees, and safeguard business operations in the event of technical or regulatory challenges.
• Use payment gateways that are trusted in the regions your customers are located. This is crucial, as customers are more likely to complete a purchase if they see familiar and trusted payment options during checkout. Offering local and familiar payment methods reduces friction in the payment process, leading to higher conversion rates and fewer abandoned carts. Popular regional gateways are also usually well-equipped to handle local currencies and can offer more favourable exchange rates than international processors. 
• Utilise intelligent routing. This is the most efficient way to send transactions through the gateway with the highest likelihood of approval based on historical data.
• Provide customers with a variety of payment methods. This includes credit/debit cards, digital wallets and bank transfers. Doing this increases the chances of a successful transaction. Remember, by 2026, digital wallets are expected to be the most popular eCommerce payment methods globally (54%), outranking both with credit cards (16%) and debit cards (10%).

By following these strategies, merchants can significantly improve their authorisation rates, enhance customer satisfaction, and increase revenue.

MORE TOP TIPS:

• Ensure the billing information provided by customers matches the information on file with their card issuer.
• Implement Address Verification System (AVS) and Card Verification Value (CVV) checks to reduce fraud and increase the likelihood of authorisation.
• Employ advanced fraud detection tools that can identify and filter out high-risk transactions without affecting genuine transactions.
• Utilise machine learning models that can analyse transaction patterns and identify legitimate transactions more accurately.
• Implement a retry mechanism with different parameters (e.g., time of day, different gateway) for declined transactions.
• Be mindful of the time zones of your customer base to avoid declines due to off-hours at issuing banks.

Crucially, ensure you are compliant with regional regulations like PSD2 in Europe and implement 3D Secure 2 (3DS2) for additional authentication.

Choosing the right payment gateway can be a challenge, particularly when they all have different pricing and transaction fees, features and inclusions. It’s helpful to consider the common features of the most popular payment gateways and prioritise those that are most important to your business. 

To help narrow your search, here are some payment gateway features that are essential in not only minimising false declines, but retaining customers and maximising revenue.

By carefully evaluating these factors, merchants can select a payment gateway that not only meets their current needs but also supports future growth and provides a secure, seamless payment experience for their customers.

Questions to ask when choosing a payment gateway:

• Is it available in your country and those of your customers?
• Does it keep financial information secure through encryption and other methods? Is it payment card industry (PCI) compliant for online payments?
• Which payment methods does it accept? Does it cover your customer’s needs?
• Does it easily integrate with your website, financial software and POS?
• Does it have a good record for customer support?
   

Payment gateways have revolutionised the current payments landscape, but as we move beyond 2024, what emerging trends and innovations will enhance payment gateways, and in turn, the overall payment experience, security and convenience for both businesses and consumers?​

According to data from Juniper Research, there will be an estimated increase of 83% in digital wallet spending by 2025, reaching $10 trillion, a shift driven largely by the success of Europe-based fintechs, which have responded to consumer demand with radical tech innovations, some if which will significantly impact payment gateways.

Rapid technological advancements, such as artificial intelligence, machine learning, and blockchain, are a great example of emerging tech shaping the future of payment gateways. AI and ML are revolutionising payment gateways by enhancing fraud detection, optimising transaction processes, and improving customer experience. These technologies enable advanced security measures, personalised services, and real-time analytics, contributing to a more efficient, secure, and user-friendly payment ecosystem. As AI and ML continue to evolve, they will further shape the future of payment gateways, driving innovation and creating new opportunities for businesses and consumers alike.

Blockchain technology is also likely to reshape payment gateways by enhancing security, transparency, and efficiency. Its ability to provide immutable records, reduce transaction costs, and streamline cross-border payments offers significant advantages over traditional payment systems. By integrating blockchain into payment gateways, businesses can improve transaction speed, reduce fraud, and offer innovative payment options, ultimately transforming the way financial transactions are conducted.

Finally, as more alternative payment methods become more popular, the dominance of cards as the favoured way to pay could be challenged, and impact payment gateway services. With an average 97% authorisation success rate, open banking transactions demonstrate a remarkable level of reliability and efficiency, and as such is sure to surge in popularity. 

Open Banking, cryptocurrencies, and peer-to-peer payment methods offer alternative payment options that emphasise speed, cost-efficiency, and convenience. As these technologies and payment methods continue to evolve and gain acceptance, they are likely to play an increasingly prominent role in the payments ecosystem, potentially reshaping how consumers and businesses conduct transactions. The future of payments will likely involve a diverse range of options, with cards coexisting alongside new and innovative payment methods, and merchants need to look for a payment gateway that it ready for these changes.

By looking at the future of payments, you can anticipate the next evolution of payment gateways.

In an ideal world, all merchants would enjoy a perfect authorisation rate. Unfortunately, the dream of zero declines is an almost impossible one, especially if you process a substantial number of payments. But by closely monitoring your authorisation rates and deploying the strategies outlined in this guide, you can improve authorisation rates, and be more aware of spikes in network declines that may require action. 

It’s important to remember that even small improvements can have a big impact: some large businesses have increased their authorisation rate by just 0.5% and captured millions of dollars in additional revenue each year.

The key takeaway is that leveraging the right payment gateway to improve authorisation rates significantly enhances transaction success, customer experience, and overall business profitability. By taking advantage of emerging advanced fraud detection tools, seamless integration with multiple acquiring banks, and optimising routing logic, payment gateways can help merchants to reduce declined transactions and increase approval rates.

Furthermore, choosing payment gateways that can support a variety of payment methods and currencies will allow your businesses to cater to a global audience, expanding your market reach. Ultimately, adopting a robust and well-optimised payment gateway system is essential for improving operational efficiency and maximising revenue in today’s increasingly competitive digital economy.

CONCRYT has developed proprietary payment software to handle the seamless processing of transactions. CONCRYT’s gateway is fully PCI DSS-compliant, with payment details tokenised to offer businesses the flexibility to move data between various payment service providers. 

Reliable and reputable, CONCRYT’s team of specialists is poised to anticipate and cater to payment needs in the ever-evolving commerce landscape.