Merchant Override Decline

Introduction to Merchant Override Decline

A merchant override decline happens when a transaction is declined by a payment network or bank, even if it meets other requirements. Unlike typical declines due to insufficient funds or expired cards, this decline occurs when a transaction is flagged due to fraud prevention, high-risk Merchant Category Codes (MCC), or bank policies.

The Impact of Merchant Override Declines

Merchant override declines can disrupt revenue and damage customer satisfaction. A Visa report indicates that mishandling these declines can lead to a loss of up to 7% of potential revenue, particularly in high-risk sectors. Understanding the causes and how to manage these declines is crucial for maintaining smooth transaction processes.

Common Causes of Merchant Override Declines

1. Fraud Prevention

• Fraudulent activity is a major trigger for merchant override declines. Banks and payment processors use algorithms to detect unusual purchasing patterns, such as large purchases in short timeframes or purchases from unfamiliar locations.
• In 2022, 62% of all fraud-related transaction declines were linked to suspicious activities detected by payment processors (Mastercard).

1. Incorrect or Outdated Card Information

• Errors like entering the wrong CVV code or using an expired card can trigger an automatic decline.
• Up to 15% of declines in 2023 were due to incorrect card information (Braintree).

1. Insufficient Funds and Spending Limits

• Transactions exceeding the cardholder’s available credit limit or balance are automatically declined. However, a merchant override may occur if the transaction value is close to the limit and the bank detects potential risks.
• Stripe found that 27% of transaction declines were due to insufficient funds, with 8% involving a merchant override.

1. High-Risk Merchant Category Codes (MCC)

• Industries like gambling, adult entertainment, and online pharmaceuticals are categorized as high-risk by payment networks. Transactions from these MCCs are more likely to be declined due to the higher risk of chargebacks.
• According to Checkout.com, high-risk MCCs accounted for 18% of all merchant override declines in 2023.

1. Temporary Holds on Funds

• Temporary holds placed by hotels, car rental services, or other providers can lead to declines if the hold causes the cardholder’s balance to drop below the transaction amount.

Table 1: Common Causes of Merchant Override Declines

Resolving Merchant Override Declines

When faced with a merchant override decline, prompt and strategic action is necessary to minimize revenue loss.

Steps to Resolve Merchant Override Declines:

1. Contact the Issuing Bank or Payment Processor

• Reach out directly to the bank or payment processor to understand the specific reason for the decline. Some declines can be overridden with proper verification.
• Merchants working with authorized partners of Visa and Mastercard, such as Merchanto.org, can often resolve declines more efficiently. Visit Merchanto.org for more details.

1. Verify and Update Card Information

• Ensure that the customer has entered correct and up-to-date card details. Ask them to check their CVV, expiration date, and billing address.
• 73% of declines due to incorrect card information are resolved when the customer verifies and corrects their details (Visa).

1. Suggest Alternative Payment Methods

• Offering alternative payment options like PayPal, bank transfers, or digital wallets can help complete the transaction if the original card is declined.

Preventative Measures for Merchants

Preventing declines is more effective than resolving them. Here’s how merchants can reduce the frequency of merchant override declines:

1. Implement Fraud Detection and Prevention Tools

• Utilize tools provided by payment processors to flag suspicious transactions before they reach the decline stage. This includes AVS (Address Verification System) and CVV checks.
• Checkout.com reports a 35% reduction in merchant override declines for merchants using advanced fraud detection tools.

1. Regularly Update Customer Card Information

• Encourage customers to keep their payment information up-to-date. Automated reminders and secure payment gateways can help ensure that card details are always current.

1. Work with Payment Processors to Minimize Risks

• Payment processors like Stripe and Braintree offer services to help merchants identify and mitigate high-risk transactions before they lead to declines.

Table 2: Strategies to Prevent Merchant Override Declines

Best Practices for Managing Declines

Effective decline management can turn a potential loss into a sale. Here are some best practices:

1. When to Attempt an Override

• Overrides should be considered only when you have verified the transaction details and are confident that the decline was erroneous. Otherwise, attempting an override can lead to further complications, including chargebacks.
• According to Visa, only 5% of declined transactions should be overridden, typically those involving high-value or recurring customers.

1. Handling Recurring Declines

• For recurring payments, ensure that you have up-to-date customer information and that the transactions are processed at consistent intervals to avoid triggering declines.

1. Reducing Impact on Customer Experience

• Transparent communication with customers is key. Inform them immediately if a decline occurs and guide them through the steps to resolve it. Offering a seamless retry process can improve the chances of completing the transaction.
• Mastercard found that 72% of customers are more likely to retry a transaction if the decline process is handled efficiently.

1. Legal Considerations and Liability

• Be aware of your legal responsibilities when overriding declines. Mismanagement can result in liability for fraudulent transactions. Always follow the guidelines provided by your payment processor.
• Visa guidelines specify that merchants can be held liable for fraud if they process transactions that were previously declined due to suspected fraudulent activity.

Table 3: Best Practices for Managing Declines

Conclusion

Merchant override declines are a significant issue that can impact your business. By understanding the causes, implementing effective resolutions, and following best practices, you can mitigate their effects and ensure smoother transaction processes. Partnering with reliable organizations can provide the tools and support necessary to minimize these declines.

Following these guidelines can help merchants reduce the frequency of declines, protect revenue, and maintain a positive customer experience.