open banking as a payment recovery tool

How Pay by Bank can reverse the impact of credit card declines

Failed card payments are problematic on two counts. For shoppers, they’re concerning and inconvenient. For merchants, they’re a revenue blocker. And while they’re simply a fact of life in the e-commerce world, their impact can be reversed – on both sides – by the right payment recovery tool.

It’s first worth unpacking why card payments fail, with reasons falling into one of two types:

  • Hard declines, which are initiated by the card’s issuer. When someone tries to use a lost or stolen card, and it’s been reported, it’s a hard decline. Payments cannot be attempted again.
  • Soft declines, which occur when there’s a processing issue, when the payer fails to authenticate their identity, when an acquirer suspects fraud, or when the card has insufficient funds. Payments can be attempted again.

These reasons for failure expose the flaws inherent to card infrastructure, especially when compared to real-time account-to-account payments. A bank account cannot be mislaid or expire. In terms of them being ‘stolen’, it’s true that account takeovers are a problem. But because Strong Customer Authentication is embedded into the open banking payment process, it’s extremely difficult for fraudsters to initiate e-commerce payments. Further, processing problems are much rarer owing to the lack of intermediaries.

Open banking as a payment recovery tool

Cue a segue into open banking payments being a highly effective recovery tool for failed card payments. [Minor diversion: we’re using ‘real-time payments’, ‘account-to-account payments’ and ‘open banking payments interchangeably here. See this post for a detailed breakdown of each term.]

Let’s say a customer tries to pay for a new pair of trainers using their credit card, but it fails due to a technical issue. They’re invited to try again but the problem reoccurs. They really want the trainers, and the merchant naturally wants the customer to convert, so what happens?

Without an effective payment recovery method, the sale is lost. The customer will run out of patience and look elsewhere. The impact, then, isn’t just short term. The merchant is likely to lose the customer to one of their competitors – for good. Customer lifetime value shrinks to zero, as does the likelihood of any word-of-mouth recommendations.

The impact of failed card payments

This scenario is far too common. A 2021 report from LexisNexis Risk Solutions revealed that 60% of companies had lost customers due to failed payments. The really shocking statistic, however, is that less than half were “actively trying to improve their payment process”. This shows merchants globally are effectively resigned to the inherent flaws of card infrastructure. They know that card payments will continue to fail and that this will cost them money ($118.5bn collectively, in fact) – but they don’t see a viable alternative.

Two years is a long time in business. In 2021, the value of global open banking payments was almost $4bn. In 2023, this is expected to hit $57bn – a 1,325% increase in just two years. By 2027, only four years from now, their value will increase to $330bn. A viable alternative to cards hasn’t just been found; it’s being adopted at a rate that’s truly unprecedented. On a global scale.

Inviting customers to ‘Pay by Bank’

Back, then, to the frustrated shopper whose card payment keeps declining. If the merchant has enabled open banking, it can simply serve a pop up inviting the customer to ‘Pay by Bank’ instead. If the customer has already navigated away from the checkout, an email or text can be sent: ‘Your card payment failed, but don’t worry – you can Pay by Bank to secure your order.’

Land this message at the right time, in a way that plays to the customer’s preferences, and they’ll complete their purchase via a payment method that’s naturally faster, easier and more secure.

Furthermore, our data tells us that 80% of customers who try an open banking payment make a repeat purchase within one month. In other words, it directly contributes to increasing customer lifetime value – while also overcoming failed card payments and enabling merchants to avoid high card interchange fees. Is it any wonder that adoption rates are predicted to be so high?

Interested in using open banking as a payment recovery tool? We’d love to hear from you.