reasons saas payments are failing

Reasons Your SaaS Payments are Failing

The market for Software as a service (SaaS) is growing, and the industry is predicted to expand by 18% in 2022. Opportunities for revenue development accompany this expansion and increase competition for industry players. However, to benefit from the expanding sector, you must be prepared to compete. A better competitor might be one of the reasons why your SaaS payments are failing.

Failed payments are a problem, and for organizations that sell subscriptions, the success rate of client payments must be a priority. Recurring revenue is the lifeblood of SaaS enterprises, and payment failures lead to increased churn rates, which can have a detrimental effect on corporate revenue.

This article discusses several reasons SaaS payments fail and how to resolve these issues. 

Why Your Saas Payments Are Failing?

Here are some reasons why your clients’ payments may bounce back:

  1. Blocked payments

When payments are stopped, it’s because the bank considers the transaction to be high-risk and attempts to prevent fraud. Risky transactions may be identified when the postal code does not match the data provided by the card issuer.

The card issuer (a commercial bank) may authorize the transaction in such circumstances. Still, your business’s payment system might not charge the customer account, resulting in a rejected charge.  Blocked payments are one of the top reasons why your SaaS payments are failing.

  1. Lack of client information

If auto-renewal options have been set up, subscriptions are fantastic since they let the consumer enjoy their services without having to handle a monthly payment. Users are given more time and can function more efficiently as a result.

Unfortunately, they risk unintentionally terminating their subscription because they are unaware of any problems that could prevent their payment from being processed, such as an expired card or insufficient funds. And at your end, you keep wondering why your SaaS payments are failing.

Higher churn rates will result from you or your company’s poor or nonexistent communication. A notification that a payment is due soon is one approach to inform your consumers of upcoming transactions and give them time to prepare for the subsequent charge.

In some circumstances, this kind of communication could also be a compliance requirement. When a subscription is going to be renewed, you may be required by some jurisdictions or payment brands to inform your customers in advance. So a gap in communication can become the reason why SaaS payments are failing.

  1. Bank information error

Customers must enter information like the credit card number, CVV, shipping address, expiration date, and billing address when they reach the checkout page. That’s a lot of information; therefore, there is a high probability that the consumer may enter incorrect data.

Processing customer payments becomes challenging when their information is inaccurate; incorrect client information makes it impossible to accurately recollect payment specifics like credit card information. When this occurs, the payment process ends with an error or a message that payment was denied. 

  1. Incorrect API calls

Doing numerous test runs while creating a payment system API is recommended to ensure all errors are found early on. You should do these test runs because your clients’ payments frequently fail when API codes are not prepared to handle potential payment errors.

An incorrect API call leads to a failed transaction. An illustration of this would be if one of your clients attempted to buy a product on your website but was unsuccessful due to a weak network connection. A correct recall of their profile data from your corporate servers may not be possible due to a shaky connection. 

Therefore, even if the customer is honestly trying to pay you but an incorrect API call might be the actual reason why your SaaS payments are failing.

Include lines of code that foresee these issues if your business uses a payment system like Stripe. You can ask your customer to start a new online or credit card transaction. 

  1. Payment request formats

Bank partnerships are essential for successful payments. Unfortunately, there isn’t yet a widely accepted information-sharing method between banks. Processing cross-border payments intensify this problem because they lengthen payment chains and raise the possibility of error. The financial industry is aware of this problem, and ISO20022 is introducing universal standards for financial transactions.

Even if 10,000 banks become standardized as a result of ISO2022, there are still about 300,000 other banks that must be dealt with. 

  1. Currency conversion issues

Currency conversion can be the reason why your SaaS payments are failing. It can lead to unsuccessful payments, which could be the origin of fraud. Banks can occasionally reject international transactions because they are regarded as suspicious. Other times, a currency will have an effective rate of fluctuation, making currency conversion during payment challenges. Selling customers their native money and localizing your checkout process to use the client’s native pricing and currency will help you avoid these fraud triggers. 

How to Avoid SaaS Payment Failures

The reasons listed above make it clear that problems don’t always originate with the payment system. When there is a failed charge or declined payment, communicating the appropriate information to your client at the right moment can make all the difference for your business.

Here are a few methods to help avoid failed payments: 

  1. Notification of out-of-range payments

Some of your clients will handle payments from countries regarded as out-of-range depending on your SaaS company’s global reach. As a security precaution by the foreign bank, such transactions will probably fail. If you let your customers know that their nation might not be compatible, they may take preventative measures.

  1. Identify failed CVV or AVS checks.

The security checks on CVV or AVS codes might not be successful the first time due to network issues. When this problem arises, it can be fixed to make the subsequent attempt successful. The transaction might be fraudulent if the client’s current IP address and the country where the card was issued were different. Knowing why a customer’s credit card is failing makes it simpler to contact them and provide them with the necessary information to enable successful payments the following time. 

  1. Determine any card or financial constraints.

Some cards have structural constraints (such as HSA/FSA cards for healthcare services) or operational restrictions (such as the requirement that overseas card payments do not exceed $100), similar to circumstances in out-of-range countries. Customers are less likely to have credit card failure when encouraged to attempt alternative payment methods beforehand.

  1. Use dunning management

Dunning management is a crucial strategy to reduce subscriber churn and ensure that more payments for recurring services are processed. This management system entails informing customers of impending fees to confirm successful payment collection. Calls, texts, emails, and app notifications effectively connect with and reach your audience. In these emails, you should address payment failure or the customer’s wish to cancel their subscription. 

  1. Offer alternative payment methods.

Consumers desire the freedom to select the payment option that best suits their needs, and payment options have increased recently—additionally, several payment solutions aid in preventing forced churn. One reason is that digital wallets never expire, and it’s predicted that 43% of American smartphone users will utilize their digital wallets for payments by 2025.

Overall, digital wallets provide a more user-friendly and predictable payment experience, which reduces the likelihood of a failed transaction compared to card payments. Local clients will be more comfortable and familiar with these payment options and know what to anticipate from the checkout process if local payment methods are also used.

It is possible to use direct debits for recurring payments because they take money from the user’s account. There are many measures in place to protect the user, and preauthorization is one of them; therefore, the likelihood of a direct debit payment failing is low. 

How Do You Keep Track of Your Customers’ Declined Payments?

All SaaS companies struggle with the terrible but essential issue of keeping track of their clients’ payments. Since credit card payment failures account for most of your churn, having a plan to ensure you don’t lose any money is essential.

Here are two methods to keep track of declined payments:

  1. Connect to a reliable payment system 

A payment system’s effectiveness can be measured by how well it works with your checkout page. You may start receiving payments with some lines of code when using Stripe, for example. An intelligent payment system supports various payment types (one-time or recurring payments) and payment verification and functions seamlessly across devices.

  1. Contact customers and offer a solution

Send your customer an email outlining how to amend their payment information after a failed transaction. You can urge them to correct this specific information as they might not be aware that their card information has expired or their current IP address does not match the data stored by the card issuer. It is beneficial to indicate in a customer care email where the consumer should go to the bank, such as if they have to get a brand new card. The consumer is likelier to give your business another shot if they know more about how to make their payment correctly the following time.   

Key Takeaways

Now you know why your SaaS payments are failing. It should be your goal to prevent customer attrition and payment failure because the SaaS market is thriving. You must be proactive and check your company for any recurring mistakes that prevent payments from being received.

Additionally, you should optimize your payment processing to ensure excellent success rates, improved client relations, and increased revenue.

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