Payments can fail for a variety of reasons, from incorrect card information to suspicion of fraud. In fact, there are dozens of decline codes, each one representing a different reason a payment can be declined. While declines help you filter out fraudulent transactions, they can also result in the loss of legitimate payments, damaging your bottom line and your customer experience.

Online businesses face unique challenges when managing card declines. 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. Issuing banks use more conservative logic to approve or deny an online transaction because of the increased risk of fraud, even if it's a legitimate sale. This causes you to not only lose that particular sale, but can also lead to losing all future sales from that customer. In previous studies, Stripe has found that when high-value customers experience a decline, they transact less frequently in the future and may even move to a competitor.

While there is no way to eliminate network declines completely, this guide will help you understand how to reduce the number of legitimate payments that fail. You’ll learn about the different types of declines, how to improve your authorisation rate and how Stripe can help.

We’ve also put together a list of the most common industry terms related to declines and authorisation, so if you’re unfamiliar with any phrases in this guide, please refer to the glossary.

Understanding network declines

When a customer completes a purchase on your site, your payment provider takes the charge details and sends them through the card networks, such as Visa, Mastercard or China UnionPay, to the issuing bank (the customer’s bank) as a payment request.

This request includes details, such as the cardholder’s address, your business category and transaction amount, encoded into a message referred to as an ISO 8583. Issuing banks use complex logic to decide when to decline charges: there are 128 fields in the ISO 8583 message, and each issuing bank can choose how to interpret and combine them.

Network declines, also referred to as issuer declined charges, mean that the customer’s bank has declined the transaction request. Transactions are typically declined for one of the following reasons: there are insufficient funds available on the card, the card information is wrong or outdated, or there’s suspicion of fraud or incorrect behaviour (for example, if an issuing bank thinks a lost or stolen card is being used). Issuer outages and lack of card authentication can also contribute to failed payments.

Many transactions are categorised as generic declines, showing a "05: Do not honour" decline code. "Do not honour" could mean anything from insufficient funds to multiple denied payments in a row.

Issuing banks use "Do not honour" for a variety of reasons. Their systems may not be set up to return informative decline codes: for example, some banks classify nearly all declines as "Do not honour". Or they may purposely hide the specific reason for the decline, such as if they are investigating a pattern of fraud and have decided not to publicly identify a transaction as suspicious.

How to manage network declines

Managing declines is challenging, especially when you don’t know the specific reason for the failed payment. As a result, many businesses don’t retry declined transactions. Others retry too often, making the situation worse and increasing costs.

A better approach is to customize your strategy based on the type of decline code and the specific issuing bank. For example, you can optimize your chances of successfully saving a failed transaction by targeting the specific reason for that decline, rather than applying a blanket strategy to all declines. Some businesses even add an additional layer of customer segmentation, changing their strategy based on the decline code and the lifetime value of the cardholder.

There are a number of factors that lead to declined transactions, like your business location, business model, customer mix, and more. Here are some best practices that most businesses can use to manage declines, based on the three most common categories for declined transactions.

Stripe can also help you automatically manage declines—learn more in the “How to increase authorization rates” section.

• Insufficient funds: Prompt your customer for another payment method or obtain authorization to retry the transaction at a later date, when the original payment method is more likely to have adequate funds. If your customers are in the US, you could ask to rerun the charge on the first or 15th of the month (when many Americans get paid). If you run a subscription business, Stripe’s Smart Retries can help you recover more revenue by retrying payments when they have the best chance of success, based on signals from the Stripe network.

• Inaccurate or outdated card information: If charges from first-time customers are declined due to inaccurate card details, it’s likely that they simply made a mistake when entering their card information, so reach out and ask them to re-enter it. If transactions are declined using cards you have on file, the card information is likely outdated. Ask your customers to update their credentials and ensure that your payment provider or processor offers a card account updater, network tokenization, or a similar service to automatically update your customers’ expired or renewed card numbers.

• Suspicion of fraud: Rather than risk retrying a fraudulent transaction, make sure you have fraud prevention and management tools in place to help detect and block illegitimate charges. These tools can provide additional details about the customer and transaction that prove they are legitimate, giving you more confidence on whether to retry the charge.

Keep in mind that card networks impose restrictions on how many times you can retry a transaction. For example, many card networks only allow 4 to 6 retries within a 15-day window.

How to increase authorisation rates

Having a perfect authorisation rate – with zero declines – is nearly impossible, especially if you process substantial payment volume. However, if you closely monitor your authorisation rates, you’ll be able to notice if and when network declines spike and take appropriate action. 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.

There are a number of things you can do to increase your authorisation rate, including:

• Collect and submit additional billing information: Make sure you’re including as much information as possible in the charge requests, which gives the banks more details to verify legitimate transactions. In particular, passing the ZIP code or postal code and CVC can help improve authorisation rates for businesses in the US and UK.

• Optimise your payments flows: If your business schedules services for a future date, determine when you will charge the customer and how much. Let’s say you own a car rental company and customers schedule a rental for one month away. Will you charge them at the time of booking or once the rental is complete? Will you place a £10 or £100 hold on their payment method? A £10 hold is more likely to go through, but if the rental costs more than £10, you could risk not collecting the full payment later. The optimal payment flow is a balance between customer experience, conversion rate, and costs, which will look different for every business.

• Keep your fraud rates low: Businesses with high chargeback rates—the number of customers who dispute a payment with their bank—tend to see more declines. We recommend you use a machine learning fraud solution like Radar, which lets you choose how aggressively you want to block suspicious payments depending on your appetite for risk, write custom rules, and get advanced fraud signals.

• Accept digital wallets: Apple Pay and Google Pay lead to higher acceptance rates thanks to two-factor authentication, where customers enter a password or biometric ID.