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Section 1
Credit card rejections
Effective management of rejection rates is becoming increasingly important for not-for-profit organisations, where a significant
variance in revenue can occur with a fluctuation of as little as 2% in rejection rates.
Through periods of changing economic and political confidence, we have witnessed an increase in rejection rates across
the sector.
1.1 Background
in 2007 there was a fundamental change where credit card issuers mandated industry wide changes from offline
‘unauthorised’ batch processing systems to online ‘authorised’ processing solutions. Here is some background on each.
Offline batch processing (‘unauthorised’)
These systems were implemented at a time where technology did not allow for card validity to be checked in real time.
Batches of recurring transactions submitted by merchants were exchanged between acquiring and issuing banks, who would
in turn post transactions to cardholder’s accounts. Merchants would receive funds for transactions regardless of balance of
account. In the event of a cardholder’s account rejecting (e.g. insufficient funds, cancelled card) the onus of responsibility
would lie with the Card Issuers for debt collection.
Online processing (‘authorised’)
In 2007, following large financial losses from these transactions, the Issuers realised that the only way to sustain the
existing model would be to force large increases in Interchange Fees (from card issuers to merchants). Instead, technology
advancement provided an alternative of converting the industry to an online ‘live’ environment. In this environment, the
validity of a card transaction could be verified at the time a transaction is processed. At the same time we saw the onus of
responsibility, and therefore debt collection, shift from the issuers to the merchants. The merchants were seen as the ones
who provided goods/services for funds hence would be responsible for the collection of funds with the cardholder.
As was the case with traditional payment methods (cash, cheque etc.) it was for the merchants to manage the accounts,
albeit armed with greater information on validity of cards.
Unfortunately in the short term these changes highlighted a large proportion of invalid card numbers held by merchants still
being processed regularly. Consequently, rejection rates for some merchant also increased where cards were no longer valid.
1.2 The rise of scheme debit
The industry has seen a major shift recently with a push from credit card schemes (Visa/MasterCard) towards Scheme Debit
Cards. Scheme Debit Cards operate through the same channels as a Credit Card, but debit the balance of a bank account, rather
than against a credit limit. This has given rise to some competition at shopfronts to use the ‘Credit’ button as opposed to
traditional debit ‘Cheque/Savings’ buttons.
Consumers are also trending towards these cards, because of concerns about their personal finances and additional
functionality, allowing payments to be made online or over the phone.
The downside for giving is a higher rate of rejection when looking for actual cleared funds in an account rather than verifying
against a credit limit.
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Section 2
Managing card rejection rates
Rejection rates themselves can vary greatly between organisations. Influenced by a number of factors including donor
demographics, frequency of donation, average donation size.
Where an average rejection rate of 7% may be typical for one organisation for another this figure may be 44%. Because of this,
it is important to monitor and be familiar with the specific donor average rejection rate for your organisation.
2.1 Response codes
There are a large number of responses that can be received for a declined transaction. Refer to your Transaction Specialist for
a listing of Response Codes via NAB’s own gateway NAB Transact.
For effective management of rejections, the following reasons for decline should be of particular focus.
Insufficient funds
insufficient funds account for the majority of all declined transactions, ranging from 60-75% for non for profit organisations,
depending on donor demographics. As such it is important to align card processing dates with the payroll cycles of donors.
From analysis of account balances within NAB we can ascertain that most commonly paydays fall on Wednesday for both
weekly and biweekly payment plans, with Monday and Friday being the least popular. (Refer Fig 1)
Mon Tue Wed Thu Fri
AverageCreditTransaction($)
Credit to Account by Day of Week
Figure 1 – Average Credit to NAB Retail Accounts by Day of Week.
Some companies choose to pay their employees once a month. These paydays most often fall on the first, fifteenth or the last
business day of the month. (Refer Fig 2)
AverageCreditTransaction($)
Credit to Account by Day of Month
Figure 2 – Average Credit to NAB Retail Accounts by Day of Month.
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We have also seen cyclical increases at end of quarter and Half year. Conversely there is a drop in transactions over the
traditional Christmas & January holidays. (Refer Fig 3)
Jul
AverageCreditTransaction($)
Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
Credit to Account Calendar Year
Figure 3 – Average Credit to NAB Retail Accounts by Calendar Year
Recommendations
If a transaction is declined for insufficient funds, we recommend re-attempts should be made up to five times for alternate
possible pay dates, with attention to where great approval is received.
As soon as credit or charge card transactions are processed, you’ll be able to see them in the NAB Transact payments
management portal. For analysis of decline codes as well as rejection rates you can also create and manage your own reports,
export them to .csv or .xls files, and perform reconciliations against your account.
Ultimately, donors are unique, so it is important to learn their payment patterns. For example, if a payment is successful on
a third attempt on 15th of the month, schedule that donor the 15th of the following month, rather than again experience
rejection on the 1st of month. It is important to note that all reattempts will skew what could be perceived as rejection rates
for any organisation.
Expired cards
for any merchant that maintains a recurring billing or giving program, expiry dates are a significant administrative overhead,
and source of declined transactions.
Recommendations
To facilitate more efficient processes, domestic Visa and MasterCard offer a “Recurring transaction indicator” which flags a
transaction to the card issuer to confirm that the merchant holds an authority from the cardholder for ongoing debits.
An expiry date is not required to be renewed for a Recurring transaction, as it is acknowledged that the relationship may
extend for longer than the active period of the card. In those cases the issuer will typically approve the transaction as long as
the account is in good standing and there is a valid card on issue for the account. This is true even if the cardholders current
card may have a completely different expiry date to the one that was used when the authority to undertake the transaction
was first provided.
It is mandatory for all Visa and MasterCard issuers and acquirers to support the Recurring transaction indicator. You should
check with your acquirer or payment gateway to find out how they need you to submit your transactions to take advantage
of this transaction type.
Card pick-up
Unfortunately there is not a magic solution for all declined transactions. For example, in circumstances where a card has
been cancelled or reported as lost, you will receive a ‘Pick-up’ message to indicate card is no longer in use.
Most card issuers will redirect transactions to a new account number for a period of time (importantly though, this is at the
issuers own discretion) provided the reason for re-issue was not fraud related.
On the other side, cardholders would be informed that they need to contact those merchants where they have authorities
for periodic debits.
In these cases it is important to remove this card from your debit schedule as no amount of re-attempts will be successful.
Once again any reattempts will skew the perceived rejection rates for your organisation.
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Database management
In the case of Card Pick-Up and/or repeated declines for Insufficient Funds where all attempts are unsuccessful, contact with
the donor is recommended to request new card details. It is acknowledged this gives an opportunity for donors to decline
making further contributions. However even a small uptake will significantly increase revenue.
Organisations need to develop a process for communicating with donors to obtain updated details while maintaining their
relationship to avoid drop out from recurring program. Effective programmes include electronic reminders (e-mail or SMS) to
operator call-back. In these cases request for payment of failed donations in addition to new payment details is common.
Conclusion
Not for profit organisations can benefit greatly from the convenience and ongoing commitment to giving that comes from
accepting card payments from their supporters. It is important then to pay particular attention to the trends and behaviours
of your particular donor network with a view to minimising card rejection rates of your organisation.
Copyright
Copyright in the information contained in this document subsists under the Copyright Act 1968 (Commonwealth) and, through
international treaties, the laws of many other countries. It is owned by NAB unless otherwise stated. All rights reserved.
You may download a single copy of this document and, where necessary for its use as a reference, make a single hard copy.
Except as permitted under the Copyright Act 1968 (Commonwealth) or other applicable laws, no part of this publication may
be otherwise reproduced, adapted, performed in public or transmitted in any form by any process (graphic, electronic or
mechanical, including photocopying, recording, taping or by storage in an information retrieval system) without the specific
written consent of NAB.
Where to from here?
To discuss how NAB can assist your organisation, contact one of our local Transaction Specialists:
Travis Higlett
New South Wales/ACT
Associate Director
02 9237 9838
travis.higlett@nab.com.au
Colin Boadle
Western Australia
Associate Director
08 9441 9246
colin.boadle@nab.com.au
Simon Pippett
Victoria/Tasmania
Director
03 8697 7350
simon.c.pippett@nab.com.au
Adam Nobbs
South Australia
Associate Director
08 8407 6374
adam.d.nobbs@nab.com.au
Jared Grant
Queensland
Associate Director
07 3234 6058
jared.grant@nab.com.au
Paul Chin
Northern Territory
Director
08 8943 7571
paul.chin@nab.com.au
