Educate Shoppers, and Offer Alternative Payment Solutions
by Tim Harris, CEO, FuturePay
The holidays are quickly approaching, and ecommerce merchants are facing the biggest consumer spending season on record according to the National Retail Federation. With an abundance of online transactions in their futures, e-merchants are bound to face a certain amount of credit card declines. It’s advisable to prepare a strategy for this situation, since it can easily lead to customer frustration and abandoned transactions. Smart ecommerce providers can preserve those transactions and maintain stronger relationships with customers whose cards are declined by offering a more flexible “Buy Now Pay Later” option, among other actions.
There are many reasons why a credit card transaction can be declined. When a consumer exceeds their limit, neglects to replace an expired card, or is the victim of fraud, these instances where the transaction is terminated can be frustrating for all parties involved. It causes exasperation and embarrassment for shoppers—and often results in lost business for merchants. Research firm The Baymard Institute calls business lost to credit card refusals “a leaking hole in many checkout processes” which can result in a loss of up to 5 percent of all potential sales.
The ability to decline “soft transactions” is a necessary protection for merchants, safeguarding them against far greater losses in the event of fraud. However, while it is necessary for merchants to exercise this protection, they can still minimize customer frustration by taking a few steps.
Educate Your Customers
Not all shoppers have a comprehensive understanding of the factors involved in a decline. They just know it’s an inconvenience that stands in the way of getting the merchandise they want—and that you want to sell them. This lack of understanding often fuels the frustration leading to transaction abandonments. The majority of declines are due to credit reasons, yet consumers are often unaware of their own financial situations.
To address this problem, an online decline should generate a potential explanation for why the card holder was rebuffed. This also helps since shoppers tend to blame the merchant for a decline, as opposed to their own issues, or their banks.
Offer an Alternative Payment Option
In addition to educating shoppers on why their credit cards may have been refused, it’s helpful to direct them to a simple, quick alternative payment method. Buy Now Pay Later solutions are gaining momentum as a substitute for credit cards. This payment method is seeing favor with Millennials who are already acclimated to online transactions and feel that credit cards are unnecessary.
Furthermore, when a digital revolving credit solution is used as opposed to an installment-based plan, consumers can re-use their credit line indefinitely, as long as they stay in good standing. This can create a coveted long-term relationship with the shopper. Buy Now Pay Later options also tend to increase the dollar amount of overall purchases, since its more flexible repayment structure better accommodates the consumer’s budget. A BNPL offering may in fact lead to higher-volume purchases, and it reduces the likelihood of default compared to an installment plan.
In the grand scheme of ecommerce, BNPL and digital revolving credit solutions may help merchants divert customers away from credit cards all together, even for shoppers whose accounts are in great shape. But in the meantime, the ability to provide a more flexible, instant alternative to a declined card might help merchants plug that “leaking hole” and salvage a lot of viable transactions.