More Than 80% of Firms Struggle to Discover What Causes Failed Payments

Firms know that failed payments damage their reputation, lead to customer churn and increase staff workload.

Failed payments ultimately translate into a loss of sales and extra costs, eroding business profitability in both directions. However, despite the ripple effects of failed payments on profitability and customer satisfaction, most firms fail to detect the causes of them, underscoring the urgency for a more comprehensive approach to fraud prevention.

The PYMNTS Intelligence study “Fraud Management, False Declines and Improved Profitability” found that 82% of companies experience issues discovering what caused their failed payments, citing this as the most important challenge regarding these frictions.

The study, which drew from a survey of 300 executives from online firms generating more than $100 million in annual revenue, examined fraud prevention and failed payments in eCommerce.

According to the study, more than 1 in 10 online transactions processed by eCommerce players failed in the last 12 months. This represents a potential impact of approximately $31 billion in retail online sales in the third quarter of 2023, the last quarter with official records, as reported by the U.S. Census Bureau.

Not all failed payments are translated into the loss of a sale, but the erosion may be substantial. The study found that nearly two-thirds of eCommerce firms expressed difficulties recovering the customers who suffer this friction.

As for the reasons for failed payments, almost 48% of firms cited issues with the payment software as the most important one, 26% cited false declines, and 19% cited changes in card or account credentials.

By contrast, only one-third of firms that have experienced failed payments considered fraud as an important cause, and barely 2% as the most important challenge. Nevertheless, fraud remains a potential threat, especially in online operations. eCommerce fraud has advanced beyond the typical idea of stolen credit card data. Nowadays, scammers use sophisticated methods like account takeovers, return fraud and first-party fraud to exploit weaknesses in online transactions.

Firms must prioritize the enhancement of anti-fraud tools and screening mechanisms to accurately identify the root causes of payment failures and differentiate between genuine errors and possible fraud. Enhanced and modernized payment technologies that effectively reduce fraud and false declines not only protect against unauthorized payments but also improve the overall customer payment experience and help retain customers.