Understanding declined payments: causes, impact, and potential solutions

Being informed by a cashier that a payment has been declined, especially in a public setting like a store, can be difficult. With 50% of all payments in the UK in 2022 made via debit cards, payment declines are a growing concern among consumers and businesses alike.¹

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While the reasons for payment declines can vary, it’s essential to understand the potential impact and possible solutions.

What is a payment decline?

A payment decline can happen when a consumer attempts to make a purchase, but the card issuer, payment gateway, or financial institution doesn’t authorise the transaction.

One common type of payment decline is a card decline, which involves debit or credit cards. These can be particularly frustrating for consumers who’ve taken the time to browse a store, choose their products, and head to checkout — only to discover their payment has been rejected.

For businesses, payment declines can result in lost sales and revenue. If a business experiences a high rate of payment declines, they may even face regulatory challenges.

Causes of payment declines

Some frequent causes of payment declines include:

• Insufficient funds
• Expired or invalid cards
• Technical issues and glitches

Insufficient funds

Insufficient funds are one of the biggest reasons payments are declined. This occurs when the account linked to the payment method doesn’t have enough money to cover the transaction.

Regardless of the cause, these payment declines are often inconvenient, requiring the individual to look for a cash machine, borrow money from a friend, or walk away from the purchase. Some financial institutions may also charge overdraft fees when a payment is declined due to insufficient funds, adding extra financial burden to an already stressful situation.

Expired or invalid cards

Expired or invalid cards (such as those not yet activated, or ones reported lost or stolen) are another common cause of payment declines.

To help reduce the chance of payment declines:

• Check the expiry date: While many financial institutions will normally send reminders or mail new debit and credit cards automatically, always pay attention to the expiry date.
• Activate new cards: Make sure to activate new cards as soon as possible to replace the expired or invalid ones.
• Update payment information: For those with recurring payments, updating payment information after receiving a new card can help avoid service interruptions.
• Monitor account activity: Regularly checking account activity helps spot any unauthorised transactions.

Technical issues and glitches

Payment declines can also occur due to technical issues and glitches in the payment processing system, such as server downtimes, software bugs, and other transaction errors.

Unlike other causes of payment declines, these are often beyond the control of both a consumer and business. But because they’re often unpredictable, they must be tackled quickly.

To mitigate technical glitches, businesses can:

• Conduct system maintenance regularly: This may identify potential issues before they lead to payment declines.
• Implement redundancy measures: Backup systems may ensure that transactions are processed even if the primary system fails.
• Communicate with consumers proactively: Transparent communication about technical issues allows businesses to manage expectations and reduce frustration.

Impacts of payment declines

Payment declines may lead to several potential impacts. Here are some examples:

• Consumer frustration: A declined transaction means consumers are forced to abandon their shopping carts, which may be particularly troublesome if they’re trying to purchase essential goods or services.
• Impacts on credit scores: While payment declines don’t directly affect credit scores, the underlying issues that lead to declines can have a financial impact. For example, repeated instances of insufficient funds can result in overdraft fees, which, if left unpaid, can negatively affect one's credit score.
• Lost revenue: Every declined transaction is a lost sale, which can significantly affect a business's revenue, especially if frustrated consumers choose not to return.

How to reduce payment declines

Here are some possible tips to help reduce payment declines:

• Set automated reminders: Whether a calendar alert or a note on a to-do list, individuals can set reminders to check their account balances or update expired cards regularly.
• Better money management: Budgeting tools and apps can help track spending and alert users when they are nearing their account limits.
• Have multiple payment methods as a backup: Multiple payment methods can act as a safety net if one fails.

Want to find out more about how to manage your money? Read on for tips on personal budgeting.