Why your international payments are failing and how to avoid it

The problem starts with online card payments or card-not-present (CNP) transactions. Without the need for a physical card (or even the customer for recurring payments) to be present when the transaction is made, it’s a lot more difficult for banks to determine which are genuine and which are fraudulent. 

As such, false declines are already a big problem on these types of payments. 

When you add different local banking standards, payment methods, currency conversion, and thousands of miles between the seller and buyer into this mix, you create a much longer payment chain, and yes, you guessed it, more opportunities for something to go wrong and cause the payment to fail.

Going global for your growth strategy? Check out the updated guide on global SaaS selling

Understanding why cross-border payments can fail is the first step to optimizing your payments infrastructure and giving your business the best chance of capturing that revenue.

Here are the top 3 reasons international payments fail:

• Global banking communications
• Incorrect or incomplete payment information
• Currency conversion

Let’s take a closer look at what this means and what you can do about it.

When a customer tries to purchase something from your website, it triggers a set of events that need to happen for the payment to successfully reach your business’ account. 

This involves the acquiring bank (the one requesting the funds) and the customer’s (or issuing) bank communicating with each other. To confirm the transaction is legitimate and successful, there are a number of things that happen along this route, like fraud checks. 

Currently, there isn’t a standard format for these communications - meaning that the payment request made by the acquiring bank in the seller’s country might not be recognized by the customer’s issuing bank in another, which risks the payment being declined. 

Confusing right? Let’s look at an example.

A prospective customer with a US-issued card tries to purchase software from a seller based in the UK. Only they’re on holiday at the time and make the purchase using an Australian IP address. How does the US bank assess the request and make sure the transaction is legitimate?

What can you do about it?

The simple answer is by banking locally. 

Taking the example above, if the UK seller used an acquiring bank in the US, it’s far more likely to have a relationship with the customer’s issuing bank – which makes for a far more easily trusted transaction. 

Unfortunately what seems like a “simple” solution is actually far more complex when you put it into action but there are some different options for managing the process: 

• Set up local entities in each of the markets you operate in (and gradually build up your payment volume to be seen as a “trusted seller”).
• Use a payment service provider (PSP). You might have to create multiple accounts across different markets but it’s certainly less hassle than setting up different business entities around the world. 
• Use an all-in-one payments infrastructure provider. These platforms will already have a high volume of payments running through them and local banking relationships for you to utilize right away. 

We’ve already discussed the difficulty with how banks communicate so it’s not surprising (yet no less frustrating) that the information you need to collect from your customers varies depending on the market and the payment method being used to make the transaction.

To give your payments the best chance of being successful, you need to make sure that you’re collecting the right information. 

For example, to collect a credit card payment in the US you might need: 

• Cardholder name
• ZIP code
• 16-digit card number
• 3-digit security (CVV) code
• Card expiry date

But did you know that some credit card numbers can be up to 19 digits long? Or that to collect payments in the UK and EU, you need to collect additional information for 3DSecure?

Not to mention other payment methods that require different payment information altogether, like account number, sort-code, email address, and in some cases, phone number. 

What can you do about it?

Card validation is one way to make sure a customer has entered the right information before the payment is attempted. 

It involves setting parameters for the data you need to collect in the checkout, for example, the date format or card number length. This way, if a customer enters details that are incomplete or incorrect, they will be notified and unable to attempt the payment.

If you service customers in multiple markets, only accepting payments in one currency adds conversion as another step in the payment chain. Some banks might not even accept payments that are in a different currency to the currency in which the card was issued. Any smaller banks that do often use a third party (usually a larger bank) to navigate currency conversion. Additional banks mean more disparate systems, regulations and rules – making it a lot easier for payments to fail.

Your customers may also have to pay fees, charged by their bank for the currency conversion. Nobody likes surprise fees, and if you aren’t careful this issue can lead to more buyers filing chargebacks against you.

What can you do about it? 

Our data from working with thousands of software businesses around the world shows that payment acceptance rates increase significantly when a customer is charged in their local currency: 

• +1-2% in New Zealand, Australia, and Canada
• +5-11% in India, Japan, and Korea

Adding local currencies to your checkout isn’t always easy. With some providers, you’ll still need to set up multiple accounts in order to access new currencies, where others allow you to switch them on with the click of a button.

While fixing your international payment processing can help you capture more revenue from customers around the world, if the rest of your payments infrastructure is fragmented, you could still lose out in the long run. 

For example, let’s say you use the advice above and attract a load more customers from the US - great! But what does that mean for tax compliance? How will you retain those customers when it comes to renewal? Where are the upsell opportunities and how will you realize them?

Fixing the gaps in your payments and revenue operations is the best way to capitalize on the huge opportunity presented by moving into new markets. 

Let’s talk about yours today.