There are so many factors that can cause a recurring credit card transaction to be declined: out-of-date or inaccurate card information, insufficient funds or temporary hold, gateway issues, and fraudulent activity, to name just a few. When payments are unsuccessful, subscription businesses can lose subscribers to involuntary churn.
It’s important to understand why payments are being declined and how to implement an effective decline management strategy.
Recurly Research examined data from over 1,300 subscription businesses and compiled comprehensive benchmark data on the top reasons for payment declines, how long it should take to recover these payments, and what rates of recovery can be expected. View the research here. And read on for additional analysis and explanation of the data.
Top Payment Decline Reasons
While there are many different industries and verticals offering subscription services, they experience similar reasons for payment declines. In fact, the top five reasons a card is declined were identical for both B2B and B2C businesses. Some of these messages include “Temporary Hold”, “Insufficient Funds”, and “Declined.” Four of the five decline reasons are categorized as ‘soft’ declines, which can be repaired by retrying the card. “Invalid Card Number” is the only ‘hard’ decline in the top five, meaning retries will not be effective. Instead, recovery may require contacting the cardholder to update their card information.
Time to Recovery by Payment Decline Reason
Our research showed that the majority of decline recovery takes place within a short time-frame, ranging from two to twelve days after the initial decline—indicating that quick action leads to better results. However, some declines, like “Temporary Hold,” have a slightly longer recovery window: up to fifteen days after the initial decline message. Additionally, we observed that B2C businesses generally have a longer time frame to recover declined transactions than their B2B counterparts.
If a transaction can’t be repaired through retries, it’s important to contact the subscriber directly as subscriber updates can lead to recovery
Recovery Rate by Payment Decline Reason
Of the five most common decline reasons, “Insufficient Funds” had the highest recovery rate. This is expected since most subscribers will replenish their card’s funds within several days of an “Insufficient Funds” notification, allowing the subsequent transaction to succeed. The three most common decline messages (“Declined”, “Temporary Hold”, and “Insufficient Funds”) all had recovery rates over 45%, highlighting how important it is to implement a strong decline management strategy.
This is underscored when looking at the recovery rate of “Invalid Card Number” declines, which is over 20%. As mentioned above, this is classified as a hard decline so it is not automatically retried. However, a well-designed dunning strategy and a subsequent card update, this decline message can be resolved.
One overarching trend that we observed was that B2B businesses had higher recovery rates than their B2C counterparts across all decline reasons. B2B businesses often benefit from a subscriber base that consider the service to be mission-critical and will not let it lapse.
The better your understanding of why recurring payments are being declined, the more effective your decline management strategy can be, leading to higher MRR. Benchmark data can be an invaluable tool, providing actionable insights into trends in your industry and amongst your peers.
For additional benchmark data, visit Recurly Research.