SaaS Failed Payments: Why Are You Losing Revenue and How To Fix It

Out of the many roadblocks to keeping customers happy with your SaaS business, the one that hurts the most and deserves your immediate attention is failed payments.

Why?

Because that is money left on the table.

Did you know that 48% of subscription churn comes from failed payments?

Yes, SaaS payment declines are the bully that makes your customers switch products.

As a service to your customer, it’s crucial to put a stop to this, and the perfect way to do that is with a Merchant of Record. An MOR can be your ally in securing the revenue that rightfully belongs to your business.

Read on and find out:

What are SaaS Payment Declines
8 SaaS Payment Failure Reasons
4 Ways to Reduce SaaS Failed Payments
Is the Merchant of Record the Right Solution?
How Can PayPro Global Help?

What are SaaS Payment Declines?

When a financial transaction involving credit cards or other payment methods cannot be processed due to various reasons, it is known as a payment decline. These payment declines are essentially failed transactions, which for SaaS businesses is a loss.

To effectively address payment failures and minimize their occurrence, you must first understand why these situations happen in the first place.

Otherwise, how will you know what needs fixing?

8 SaaS Payment Failure Reasons

Processing a transaction involves multiple components, including a payment gateway, payment processor, shopping cart, card network, and issuing bank, all perfectly synchronized.

In order for the payment process to be successful, each of these moving parts should independently approve the transaction.

However, considering the sensitive nature of payment data, plus the wide range of fraud measures taken to secure customer information, it’s entirely possible this may not happen.

Any break in the sequence will ultimately lead to a payment being declined, and that can include a legitimate one.

With that being said, here are some of the most common reasons why failed payments appear:

Card-Not-Present

All online transactions are Card-Not-Present (CNP), undergoing thorough scrutiny and having a greater chance of failing than those made in person due to the increased probability of fraudulent activities taking place.

Because of this reality, banks generally take the if in doubt, decline approach, which, of course, leads to legitimate transactions being denied.

This constitutes a serious problem for subscription-based businesses, especially during times of renewal. In those instances, neither the card nor the customer is present, making it extremely difficult to react to a payment decline quickly, causing customer churn and revenue loss.

But if you partner with a reseller like PayPro Global, relying on the accumulated experience in managing the payment process, as well as benefiting from built-in fraud detection and prevention, this would keep your transaction from being flagged as fraud.

Lack of funds

The reason for 26% of all failed payments, insufficient funds certainly qualifies as one of the most common reasons why transactions are declined, especially those made using credit cards.

Failed transactions due to lack of sufficient balance are a major concern for subscription renewals, not necessarily because of losing immediate revenue but because it can increase the likelihood of customer churn.

Currency Conversion

Exclusively supporting transactions in a single currency across all your operational regions could affect your payment acceptance rate. Plus, the customer’s cards may be in a local currency, and the bank might not approve the transaction because of this.

Fluctuating currency conversion rates can complicate payment chains, making them longer. This, coupled with bank policies regarding international transactions due to fraud concerns, could cause significant challenges, leading to increased payment declines.

Compliance Issues

As cross-border commerce faces increasing regulatory scrutiny, SaaS businesses are now obligated to conform to a diverse array of policies and security standards that directly and often negatively impact the flow of their payment processes.

For example, selling B2B SaaS in Europe requires businesses to follow PSD2 regulations, including the multi-factor authentication system. This means that unless SCA (Strong Customer Authentication) is approved during the checkout phase, the transaction will fail.

Also, it’s relevant to point out that for recurring revenue, you still need to to SCA from time to time, not only the first time.

Not complying with mandated financial regulations when selling internationally can and will lead to a low payment authorization rate, affecting your overall business profitability.

Invalid or Missing Payment Information

30% of failed payments happen because incorrect payment information has been entered, and 24% are due to expired credit cards.

Surprising, isn’t it?

Expired cards, credit card numbers, CVV, expiration date, billing addresses — there are a lot of details that customers need to enter when reaching the checkout page.

Because of this, there is a high probability that customers might get some things wrong. Unfortunately, when that happens, and because processing payments is complicated, the transaction process fails.

For recurring businesses, this can be a major revenue problem, to put it mildly.

Payment Request Formats

In the payment processing landscape, a detail that holds significant importance is the standardization of information messaging.

Unfortunately, there is no universal approach among banks for sharing information with one another, amplifying the risk of false declines in cross-border transactions, particularly those with longer payment pathways.

While the problem has been recognized and steps have been taken to resolve the issue by introducing common standards like ISO20022 for 10,000 banks, it is still not enough because there are still a substantial number of banks facing complexities.

Suspicious activity

Astoundingly, in 2021, eCommerce payment fraud resulted in a $20 billion loss.

Both banks and card networks are intensifying their scrutiny of suspicious activities. But as security standards heighten, unfortunately, there is a growing risk of genuine payments being wrongly flagged as fraudulent and subsequently declined.

Therefore, it comes as no surprise that payment failure due to suspicious activity accounts for 28% of all declines.

Merchant Account Configurations

Another relevant reason for declined payments is your merchant account configuration.

You might be surprised to find out that in the contract you have with your payment provider, there are merchant account settings referring to the maximum number of transactions per item, region, day, or month, as well as for certain credit card types or currencies.

Anything above those transaction limits will not be processed.

In this particular situation, the only solution is to reevaluate the agreement with your payment provider.

Read how to reduce SaaS failed payments on PayPro Global’s Blog.