Introduction

In e-commerce, the smallest glitch can mean the difference between securing a sale and losing a customer—especially when it comes to payment failures. With 35.2% (Statista, 2020) of Indian customers saying that a failed payment is the most common payment problem they encounter while making online purchases, it is essential to address the problem effectively as a business.

Customers are unlikely to retry a purchase after their initial payment attempt has failed and more often than not a failed payment translates into a lost customer. This is why it is important to nip the problem of payment failure in the bud. This article will explore why your customers see the ‘payment error’ message and how to go about minimizing the instances of payment failures as much as possible.

What are online payment failures?

When it comes to businesses, online payment failures happen when a transaction is initiated from the customer’s end but the money does not get credited to the merchant’s account, regardless of whether the money has been debited from the customer’s account. When a payment fails, customers are often left exasperated, staring confusedly at the “payment error” message on their screen, without fully grasping why the payment failed to go through. 

Payment failures could happen for various reasons, whether it’s from the customer’s end or the merchant’s end. In order to understand accurately why the transaction failed but amount debited, we must first get to know the participants in an online transaction and the individual role they plan in making a transaction successful or not. 

Who are the participants in an online transaction?

There are several participants in an online transaction and an error on any of their part could easily result in a declined or failed transaction. Let’s get to know them:

1. The Issuing Bank: The cardholder’s bank from which the payment is initiated. 
2. The Acquiring Bank: The merchant’s bank in which the money is to be deposited.
3. The UPI /Net banking/ Card Network: Customer’s UPI /Net banking/ Card network rail that supports the transaction from the initiator’s account.
4. The Payment Processor: The third-party service provider that facilitates the movement of money from the customer’s account to the merchant’s. 
5. The Payment Gateway: The mechanism by which the customer’s card details are encrypted and authorized for the transaction.

Why do online payments fail?

Online payments can fail due to a multitude of reasons varying from network outages and server downtimes to fraudulent activity and insufficient bank balance. Let’s delve deeper into it:

1. Insufficient Funds: A common reason for encountering a payment failed message is the customer’s account not having enough funds to cover the transaction. Businesses should ensure that their payment gateways promptly inform customers of this issue while customers need to ascertain their bank balance and ensure the presence of sufficient funds
   
2. Incorrect Payment Details: Errors in entering the card number, expiration date, CVV, or billing address can lead to transaction failure. Ensuring customers double-check their details can reduce this problem.
   
3. Expired or Blacklisted Cards: Using expired cards is another frequent cause of payment failure. Businesses can prompt customers to update their card information regularly.

 On the other hand, some BIN numbers (generally the first 6 digits of the card number) may be blacklisted due to reasons such as suspicious activity on the card, a history of frequent non-payments, etc. These blacklisted cards are not permitted to initiate and follow through with transactions either.

1. Bank or Issuer Declines: Banks or card issuers may decline transactions due to various reasons such as suspicious activity on the card or the cardholder surpassing their spending limit for the day. Clear communication with customers can help resolve these issues quickly if the transaction failed at bank end.
   
2. Technical Issues: Sometimes the customer’s mobile network or internet connectivity may experience an outage, leading to failed payments. On the other hand, the merchant’s website itself may experience downtime due to issues that can range from coding errors and routine maintenance to hardware problems and hosting issues. During such events, payments will not go through as the website becomes inaccessible. Ensuring reliable infrastructure and connectivity can mitigate these issues.
   
3. Payment Gateway Downtime: Payment gateways may sometimes schedule intended downtimes for maintenance, security checks, etc. due to which payments will fail to go through during the scheduled period of downtime. Other than that, payment gateways may also face server outages which can result in unintended downtimes, leading to payment failure.
   
4. Fraud Prevention Measures: Transactions flagged as suspicious by fraud detection systems can lead to declines. Implementing robust yet customer-friendly fraud prevention measures is crucial so authentic customers are not left wondering why their payment failed.
   
5. Currency or Regional Restrictions: Some payment methods do not support certain currencies or regions, leading to failures. Offering multiple payment options can help address this issue. 

How do payment failures affect businesses?

Offering a seamless patient experience is crucial to your business thriving as digital payments are quickly becoming Indian customers’ favorite mode of payment. Apart from the obvious issue of revenue loss, payment failures can give rise to a plethora of problems that tarnish the overall image of your brand. Let’s look at them:

1. Revenue Loss: Failed transactions directly translate to lost sales, impacting the bottom line.
2. Customer Dissatisfaction: Frequent payment failures can frustrate customers, leading to a poor shopping experience and potential loss of repeat business.
3. Increased Operational Costs: Handling failed transactions often requires additional customer service resources, increasing operational costs.
4. Damage to Reputation: Persistent payment issues can harm a business’s reputation, leading to negative reviews and decreased customer trust.

Best ways to prevent online payment failure

Although payment failures are an inevitable part of the online payment ecosystem, there are certainly measures that you can take to mitigate them as far as possible. Let’s look at a few things you can do as a business to avoid payment failures:

1. Implement a robust payment gateway: Ensure that your payment gateway is reliable and capable of handling a high volume of transactions.
2. Use multiple payment gateways: Having multiple gateways can provide a backup in case one fails, ensuring smoother transactions and avoiding instances of the “payment failed” message popping up.
3. Offer multiple payment methods: Including a variety of online payment methods such as cards, e-wallets, UPI, etc. can cater to a wider range of customers.
4. Implement auto-retry features: Automatically retrying failed transactions can help recover potentially lost sales.
5. Make use of dynamic routing: Dynamic routing is the process of directing online payments through the pathway of the most effective payment gateway or processor. Dynamic routing works wonders in preventing online payment failures as it redirects the initiated payment to another payment gateway in case the primary payment gateway is facing downtime or outage, ensuring the payment processing is uninterrupted on your end. 
6. Regularly monitor and update systems: Ensure that your CRM software, e-commerce plug-ins, and other related systems are up-to-date and functioning correctly.

Dynamic Routing: A Game-Changer for Payment Reliability

Dynamic routing is a sophisticated feature that can drastically reduce payment failures. It works by intelligently directing transactions through the most efficient payment processors in real time. Here’s how it benefits businesses:

• Higher Success Rates: By choosing the best processor for each transaction, dynamic routing ensures higher payment success rates and reduces payment failures.
• Cost Efficiency: It can route transactions through processors with the lowest fees, optimizing cost efficiency.
• Reduced Downtime: In case one processor is down or facing issues, dynamic routing seamlessly switches to an alternative, reducing downtime and ensuring business continuity.
• Improved Customer Experience: Fewer failed transactions lead to a smoother checkout process, enhancing customer satisfaction and loyalty.

How can Razorpay help?

Razorpay Optimizer, Razorpay’s cutting-edge dynamic router, offers a suite of features designed to enhance payment reliability and success rates. Its infinity routing supports over 1,000 transactions per second, ensuring high capacity and reliability. The intelligent dynamic routing mechanism directs transactions to the most optimal payment gateway, while multiple navigation paths allow seamless flow through various banks, payment service providers, and gateways. 

With a 99.99% uptime, Razorpay Optimizer minimizes the risk of downtime, and its edge or client-side routing ensures continuity even if the payment orchestration layer, aka, Optimizer itself, faces issues. By leveraging these tools and strategies, businesses can significantly reduce online payment failures, ensuring a smoother and more reliable payment experience for their customers.

FAQs

• What are the most common reasons for online payment failure?

Online payment failure can occur due to various reasons including insufficient funds in the customer’s account, incorrect payment details, expired or blacklisted cards, payment gateway downtime, fraud prevention measures being triggered, etc. 

• How do online payment failures affect my business?

Online payment failures lead to revenue loss, customer dissatisfaction, increased operational costs, and damage to your business’s reputation.

• What are the best ways to prevent online payment failures?

To minimize payment failures, businesses can implement a robust payment gateway, use multiple payment gateways, offer various payment methods, implement auto-retry features, and use dynamic routing to direct payments through the most efficient payment processors.

• What is dynamic routing and how does it prevent payment failure?

Dynamic routing is the process by which a payment router directs online payments through the most effective payment gateway or processor. It helps prevent payment failure by redirecting payments to an alternative gateway if the primary one is experiencing downtime, ensuring uninterrupted payment processing and higher success rates.