Payment collection is vital for merchants relying on subscriptions and recurring billing. Unfortunately, credit card decline rates present a serious challenge when processing recurring payments. Declines can result from fraud, reissued cards, the switch to EMV cards, as well lost and stolen cards. Regardless of the cause, these declined cards present problems for billers.
- 15 percent of recurring credit card payments decline, with some industries exceeding 30 percent
- 30 percent of all credit cards are reissued each year
- 1.5 billion EMV chip cards were issued in 2015-2016
- The likelihood of obtaining new information from the customer on the first attempt after their card has been declined is just 5 percent.
*Information based on PLC | Visa | MasterCard
Every merchant faces these problems. Billing platform providers and their users must look at all potential causes in order to properly mitigate their collective impact.
One mitigation tool that is often overlooked is the Recurring Indicator.
A Recurring Indicator informs the credit card issuing bank that the transaction being sent is part of a regular billing. There are many different credit card issuers, ranging from major players like Chase to the much smaller ones, including local credit unions. These issuers all have the ability to deny or decline a charge to their customer’s credit card.
The process for deciding whether to decline or approve varies from issuing bank to bank. Certain issuers are much more strict in their approval process. As an example, consider a card that expires this month. One issuer may decline immediately because of the outdated expiration, where another may allow the transaction to be approved through the last day of the month. In some instances, transactions still get approved with the expiration date three or four months past.
A factor in this “logic” of accepting cards with past expiration dates is the Recurring Indicator. If the issuer has seen this transaction every month for the past 7 months they can be more lenient in their approvals. The Recurring Indicator is their programmatic method for “seeing” past transactions.
These softened approval criteria help mitigate some of the other causes for declines as well.
So if you are not sending this indicator, your decline rates are likely at least slightly higher than they could be. Every improvement you can make in approval rates will create more revenue and reduce your payment processing workload.
The technical part of sending the Recurring Indicator should be addressed in your payment partner’s API. Here is some general information:
Recurring payments are transactions for which a cardholder provides written permission to a merchant to periodically charge his account number for recurring goods or services. These may include payment of charges such as insurance premiums, subscriptions, membership fees, tuition, or utility charges. Address verification must be performed with the initial authorization request, but is not required on subsequent recurring transactions that contain the recurring transaction indicator. Address verification is required to be obtained on a yearly basis.
Visa requires that the initial authorization and settlement transaction indicate how the merchant obtained the cardholder number (face-to-face with the cardholder present, by mail or telephone order, over the Internet, etc). The initial authorization and settlement request should not contain the recurring transaction indicator; only subsequent transactions will contain the recurring transaction indicator.
MasterCard and American Express require that both the initial and subsequent authorization and settlement transactions contain the recurring transaction indicator, as well as clarification of how the card information was obtained from the cardholder (face-to-face, Internet, mail order, etc).
Work with your existing payment partner to ensure you have access to Credit Card Recurring Indicator capabilities as well as understanding the technical requirements that go along with them.
Using the Recurring Indicator is one step you can take to ensure your SaaS payment processing is maximizing revenue collection and minimizing workload related to uncollected payments.