Why Do Pre-Paid Cards Fail?

There are a number of factors that would impact a prepaid card's success with recurring billing functionality. One of the challenges is that these factors can vary all the way down to the issuing card brand/bank level, so it's challenging to issue a blanket configuration. Here are some of the factors to consider when investigating payment failures due to card type:

1) Authorizations
Depending on your configuration, an initial card authorization (done whenever a full amount isn't processed at signup, such as with a trial signup) only validates for $0 or $1 - basically checking to see if the card number is valid but not if the card has funds. This can mean that a card with a low balance can be approved at signup.

2) Payment types
When Recurly submits a signup to your gateway, it's sent with the "Initial" flag - this basically exposes the transaction to more authorization, like checking CVV and AVS. Subsequent transactions are then submitted with a "Recurring" flag, so that the gateway knows not to expect CVV or check for AVS. Some prepaid cards reject "Recurring" transactions, which would lead to the initial signup going through but subsequent payments failing (some types of corporate cards experience this pattern as well).

3) Fund availability
Since pre-paid cards rarely get recharged, the bulk majority of payment declines will be around insufficient funds. One way merchants have solved this is to process a larger authorization - this is done by charging the amount of your subscription, and then immediately voiding it. While this doesn't guarantee that funds will be available when the trial period is over, it does help protect against fraudulent signups. 

Merchants processing $0 authorizations (ZDA) may want to start by moving to $1 authorizations to see if renewal rates improve. If, after a month or two a merchant may try changing their signup process to charge (and then void) the full transaction amount. Each one of these stages should last 2-4 weeks to properly benchmark the changes. 

Finally, some payment gateways with advanced fraud control will allow merchants to block cards by type. If prepaid cards are an issue for your business, you may want to check with your gateway and see what functionality they support here.