What Is a POS Signature Decline Fee?

Businesses sometimes encounter unexpected charges related to processing card transactions. One such fee that can impact a merchant’s operational costs is the Point of Sale (POS) signature decline fee. Understanding this fee helps businesses manage their finances more effectively and avoid unnecessary expenses. This fee is distinct from other types of processing charges and arises under specific circumstances during a payment attempt.

Defining the POS Signature Decline Fee

A POS signature decline fee is a charge levied by payment processors or acquiring banks when a credit or debit card transaction is ultimately declined, even if a signature was obtained or requested during the process. This fee is incurred by the merchant, not the customer. Acquiring banks, which facilitate the transfer of funds from the cardholder’s bank to the merchant’s account, charge this fee to cover the administrative and network costs associated with attempting to process a transaction that ultimately fails. Even if the payment does not successfully go through, the payment system still expends resources to process the authorization request. These fees can vary, sometimes appearing as a flat rate per failed transaction or as a small percentage of the transaction amount.

Even after a customer provides a signature or interacts with a chip card reader, the transaction can still be rejected by the issuing bank for various reasons. The fee covers the costs incurred by the payment network and the acquiring bank for verifying transaction details and communicating with the cardholder’s issuing bank, regardless of the final approval. Merchants absorb these costs, as they are generally not permitted to pass them on directly to customers. These specific charges are typically outlined in the merchant’s payment processing agreement.

Common Reasons for a Signature Decline

A transaction can decline for various reasons, even after a signature has been obtained or requested. One frequent cause is insufficient funds, occurring when the cardholder’s account lacks the necessary balance or available credit to cover the purchase. This accounts for an estimated 30-40% of all declines. An expired card is another common reason, leading to approximately 5-10% of declines, where the card’s validity period has passed.

Incorrect card information, such as an erroneous card number, expiration date, or security code (CVV), contributes to about 15-25% of declines. Issuing banks may also decline transactions due to suspected fraud, which makes up 10-20% of declines. This can be triggered by unusual purchasing patterns, transactions in new locations, or a card being reported lost or stolen. Finally, technical issues within the payment network, the card issuer’s system, or the merchant’s point-of-sale equipment can also cause declines, representing about 5-10% of occurrences.

Strategies to Minimize Decline Fees

Merchants can implement several strategies to reduce their exposure to POS signature decline fees.
Ensure the accuracy of card data entry, as errors in card numbers, expiration dates, or security codes frequently lead to declines.
Regularly update and maintain POS systems, including software and hardware, to mitigate declines caused by technical malfunctions.
Invest in EMV chip card readers and contactless payment options to enhance security and streamline real-time authorization checks, potentially reducing decline rates.
Train staff on proper card acceptance procedures, including verifying card details and understanding common decline codes to respond appropriately.
Review processing statements regularly to identify patterns in decline fees and address underlying issues.
Offer customers multiple payment options, beyond just credit and debit cards, to circumvent potential declines.