Introduction 

Digital payments have taken center stage in today’s increasingly digitized world and are now essential to all modern transactions. The rapid growth of digital payments has ushered in a new era of convenience, efficiency, and financial inclusion. However, this surge in digital transactions also brings its own set of challenges, the biggest among them being the management of payment failure.

The digital payment landscape has transformed the way individuals and businesses transact, and a seamless flow of payments is essential for maintaining financial stability and customer relations. Over the past few years, India has been experiencing significant milestones in digital payments, both in terms of value and volume.

As of last year, India recorded 89.5 million digital transactions. According to the report, India will account for 46% of all real-time payments worldwide. Nearly 114 billion digital transactions took place nationwide in the fiscal year 2023. This shows the robustness of India’s payment ecosystem and its fast acceptance across industry sectors and economies.

However, when digital payments encounter glitches and disruptions, the repercussions ripple through various facets of a business’s functioning. Uncertainty, cash flow problems, revenue loss, higher administrative costs, operational disruption, and the potential for customer churn are a few of the significant challenges.

Additionally, when there are numerous failed transactions—which is particularly likely with recurring payment models—serious regulatory compliance problems might arise, aggravating the issue. The impact of payment failure is significant and ranges from financial losses and operational inefficiencies to customer dissatisfaction and can even cause reputational damage.

Why Do Digital Payments Fail?

Digital recurring payments can fail for a number of reasons, generally owing to administrative, financial, or communication-related issues. Here’s a breakdown of digital recurring payment failure reasons from both the customer’s and the business’s perspectives:

reason-for-payment-failure

Why Business Payments Fail:

  • System Glitch: Technical difficulties with the company’s payment processing system, such as software bugs, hardware problems, or issues with system integration, could stop transactions from being processed.
  • Payment Gateway Issue: Payment gateways are responsible for processing transactions between the business and the customer’s bank. Technical glitches, server downtime, or connectivity problems with the payment gateway lead to failed payments.
  • Data Transmission Error:Error-free data transmission between the various systems involved in payment processing is essential. Transactions that fail could be the result of any problems during this process.
  • Change in Payment Regulations:Businesses need to keep their systems and procedures up-to-date with regulatory changes, as they can affect payment processing. Not being able to adapt may cause denied transactions and failed online payments. 
  • Lack of Retry Mechanisms: Automated retry techniques are necessary to handle unsuccessful payments. Businesses risk missing out on recovering transactions that initially failed owing to momentary difficulties without retry mechanisms in place.
  • Communication Issue:Customers often could miss bank notifications or alerts regarding denied transactions. This lack of awareness can result in delayed actions to address the issue and can eventually lead to customer churn. 

Why Customer Payments Fail: 

  • Insufficient Funds: Lack of funds in the customer’s bank account for recurring debits is a common reason for digital payment failure. 
  • Change in Payment Method: Customers can receive an online payment failure message because their payment method is not supported. It can happen when their current payment method (e.g., debit card) has expired and needs to be updated, or in the case of a new payment mode being used. 
  • Security Concerns: Banks employ security measures to detect suspicious transactions. If a recurring payment triggers these security checks due to unusual activity from the customer’s end, the bank may decline the transaction until the customer verifies its legitimacy, which can cause payments to fail. 
  • Authorization Failure:To combat fraud, several banks need additional authorization or permission procedures for recurrent payments. The transaction could fail if a customer does not complete certain steps, like verifying the payment.  
  • Data Entry Errors: Customers must enter their payment information accurately during the setup of recurring digital payments. Errors, such as typos in the card number or incorrect CVV, can lead to declined payments.
  • Exceeded Limit: When a transaction exceeds the customer’s preset transactional limits on cards, bank accounts, or merchant-specific limits, a payment failure can take place.

Failed Payments: Impact & Consequences For Businesses

Businesses face several challenges due to payment failure, which can significantly impact their operations, revenue, and customer relationships. Recurrent payment failure can have various ramifications that not only cause inefficiencies and losses for the business but also hamper the customer experience.

The aftermath of payment failure is multidimensional and affects organizations in many different ways:

  • Lost Revenue: When recurring payments fail, they directly impact a business’s revenue stream. The loss of expected income can disrupt budgeting, significantly affect profit margins, and hinder growth plans.
  • Customer Dissatisfaction: Failed payments inconvenience customers who rely on automated transactions. It can erode trust and loyalty, leading to negative publicity and potential churn.
  • Administrative Overhead:Failure to process payments necessitates additional administrative work. As businesses must determine the cause of the failure, get in touch with clients, and start new attempts or collections.
  • Increased Churn: Payment failure, especially if frequent, can contribute to higher customer churn rates as dissatisfaction grows and customers seek more reliable alternatives. 
  • Cash Flow Disruption: Recurring payments from customers contribute to a steady and predictable cash flow for a company. When payments are unsuccessful, the expected cash flow is disrupted, which makes it difficult for businesses to manage expenses, investments, and operating costs.
  • Regulatory Compliance Issues: Payment processing often involves compliance with financial regulations. Frequent payment failure might lead to compliance breaches and legal consequences for the company. 
  • Reputational Damage: Recurring payment failure can damage a company’s reputation. Customers may perceive the company as unprofessional and unreliable, affecting its credibility. 
  • Financial Instability: The financial stability of a business may be impacted by ongoing payment failure. Plans for growth and expansion may be hampered by the inability to rely on consistent income.

Managing Failed Payments: Effective Recovery Strategies

Managing declined payments is a critical aspect of sustaining a healthy cash flow for businesses that rely on recurring revenue models. There are a range of payment processing optimization techniques designed to minimize revenue loss and enhance financial stability to help enterprises recover declined customer payments.

Businesses can employ the following recovery strategies to tackle the challenge of failed payments.

  • Payment Notifications: When a payment fails, automatic messages are sent to customers as payment alerts. These notifications inform the consumer about the unsuccessful transaction, give details regarding the problem (if any is available), and instruct them on how to fix it. 

Email is the most common method of delivery for payment alerts, but SMS, in-app messaging, and other channels can also be used. The objective is to immediately notify customers and encourage them to take action to rectify the payment failure, which could be updating their payment information, retrying the transaction, etc.

  • Automated Retry System: One of the primary strategies for recovering declined payments is an automatic retry mechanism. It entails setting up an automated procedure that, after a certain period of time, retries a failed payment transaction. 

For instance, if a payment is unsuccessful on the day it is due, the system may automatically try it again the next day, then on successive days, or periodically over the next week. Automated payment retry systems increase the chances of successfully collecting the payment without requiring manual intervention.

  • Retry With Alternative Methods: Businesses can attempt to collect payments using backup payment methods that the customer has on file if the primary payment method fails. 

For instance, they may attempt to charge the customer’s linked bank account if a credit card payment is unsuccessful. Even if the primary approach fails, this strategy offers flexibility and can assist firms in recovering failed payments.

  • Dunning Process: Businesses can initiate a dunning process for notifications that involves a series of automated, escalating alerts sent to the customer following a failed payment. The goal of the dunning process is to nudge the customer to take action, such as updating their payment information or resolving the issue causing the payment failure. 

A well-structured dunning process helps improve payment recovery rates. Usually, the process begins with gentle reminders and progresses to become more urgent. Firms can carry out dunning through email, SMS, and automated phone calls.

  • Automate Recurring Payments: Automating recurring payments from customers’ accounts can help prevent payment failure in the first place. Businesses can make sure customers’ payments are automatically collected on the due date by setting up automated recurring payments.

This minimizes the risk of payment failure due to customers forgetting to pay manually. eNACH eMandates offers a seamless and automated recurring debit process, which can help businesses streamline their periodic payment collection processes and make it efficient.

eNACH eMandate- How Does it Boost Payment Success Rates?

Businesses can significantly increase the success rates of their recurring payments and subscriptions using eMandate, a simple payment automation solution. Here’s how eMandates contribute to higher payment success rates:

  • Prompt Payments: With eNACH eMandates in place, payments are initiated automatically on scheduled due dates. This eliminates delays or missed payments that can occur when relying on manual payment and authorization procedures. 
  • Reduced Missed Payments: eMandates are linked directly to customers’ bank accounts. This reduces the chances of payment failures due to issues like expired credit cards, insufficient funds, or declined transactions associated with traditional payment methods.
  • Automated Monitoring and Retry: If the original transaction fails, eMandate systems can be configured to make additional payment attempts. Automated monitoring makes it easier to find and fix payment issues.
  • Enhanced Security:Strong authentication and encryption protocols are used in eNACH transactions, making them extremely safe. By fostering trust among businesses and customers, electronic mandates lower the possibility of fraudulent transactions or unlawful payments.
  • Customer Convenience: eNACH eMandates offer convenience to customers as they don’t need to remember payment dates or manually initiate transactions. Because of this simplicity, customers are more satisfied and are less likely to discontinue services. 
  • Streamlined Payment Management: eMandate provides a centralized system for managing recurring transactions. This simplifies the process of tracking, verifying, and managing customer payments, reducing administrative overhead and the risk of errors.
  • Recurring Payment Efficiency: eNACH eMandates improve the payment process for companies that depend on recurring payments, making it more reliable and efficient. As a result, there is a better success rate for recurrent revenue collection.
  • Assured Compliance: eNACH eMandates adhere to regulatory requirements, ensuring that payment processing complies with industry standards and government regulations. This minimizes the possibility of legal issues that can impact payment success. 

Minimize Payment Failures with SignDesk eMandate

In the rapidly growing digital payment landscape, businesses need to prioritize mitigating payment woes for customers and ensure their financial systems are running smoothly even in the case of a failed payment. Automating recurring payments is one of the simplest ways firms can reduce payment failure rates.

eMandate plays a pivotal role in reducing recurring payment failure by offering a seamless, automated auto-debit mechanism that enhances efficiency, security, and customer satisfaction.

Book a free demo with our eMandate experts to learn how you can automate customers’ recurring payments and decrease payment failure rates.