What is the difference between hard and soft decline in payments?

When a customer makes a payment, the last thing a business wants to see is a declined transaction. Payment declines can disrupt sales, frustrate customers, and complicate the checkout process. However, not all declines are created equal. In the payment industry, declines are generally categorized into two types: hard declines and soft declines. While both prevent a transaction from being completed, understanding the differences between them is crucial for resolving issues quickly and maintaining smooth operations.

Hard declines and soft declines differ in their causes, implications, and solutions. Knowing how to handle each type of decline can improve customer satisfaction, reduce lost sales, and enhance overall payment efficiency. This guide will delve into the specifics of hard and soft declines, offering insights on how to manage them effectively and strategies to prevent them in the future.

What is a hard decline?

A hard decline occurs when a payment transaction is permanently rejected by the card issuer, meaning the decision is final and the transaction cannot be retried without changing the circumstances. Hard declines indicate serious issues that need to be resolved before the transaction can be attempted again.

Common reasons for hard declines

1. Stolen or Lost Card: If a card has been reported as lost or stolen, any attempted transactions using that card will be automatically declined to prevent unauthorized use.
2. Invalid Card Number: Transactions will be hard declined if an incorrect or non-existent card number is entered, indicating a mismatch with the card issuer’s records.
3. Account Closure: If the cardholder’s account has been closed or suspended by the bank, any payment attempts will result in a hard decline.
4. Fraud Alerts: Suspicious activity that triggers a fraud alert can lead to a hard decline. This is done to protect the cardholder and prevent unauthorized transactions.
5. Expired Card: Using a credit or debit card that has passed its expiration date will lead to a hard decline since it is no longer valid.

What is a soft decline?

A soft decline, unlike a hard decline, is a temporary rejection of a payment transaction. It often occurs due to issues that are potentially resolvable, allowing the transaction to be retried after addressing the problem. Soft declines are generally caused by less critical issues compared to hard declines and can often be remedied quickly.

Common reasons for soft declines

1. Insufficient Funds: The most common reason for a soft decline is that the cardholder’s account does not have enough funds to complete the transaction. This issue can be resolved if the account is funded later.
2. Card Limits Exceeded: Credit cards may have daily or per-transaction spending limits. Transactions exceeding these limits may be temporarily declined until the limit resets or the cardholder adjusts their limit.
3. Temporary Technical Issues: Network glitches, downtime at the issuing bank, or problems with the payment gateway can cause temporary declines, which may resolve on their own after some time.
4. Card Not Present: For online or phone transactions where the physical card is not present, additional security checks may be required, resulting in a soft decline if these checks are not passed.
5. Verification Required: If additional verification (such as a PIN, password, or one-time passcode) is needed but not provided, a soft decline may occur.

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Key differences between hard and soft declines

Understanding the differences between hard and soft declines is crucial for businesses to implement effective payment strategies and minimize customer inconvenience.

1. Finality of Decision:
   • Hard Declines: Final and cannot be retried without resolving the underlying issue. The cardholder typically needs to take action to address the problem.
   • Soft Declines: Temporary and often retryable. These declines can sometimes be resolved by simply attempting the transaction again or verifying details.
2. Severity of Issue:
   • Hard Declines: Indicate more severe, often security-related issues, such as fraud, invalid card details, or expired cards.
   • Soft Declines: Typically caused by temporary problems, such as insufficient funds, card limits, or minor technical issues.
3. Action Required:
   • Hard Declines: Usually require the cardholder to update their payment information, contact their bank, or resolve the issue before retrying the transaction.
   • Soft Declines: May be resolved by retrying the transaction after a short time or providing additional verification.

How to handle hard and soft declines

Effectively handling payment declines is essential for reducing lost sales and maintaining customer satisfaction. Here’s how businesses can address both hard and soft declines:

Handling hard declines

1. Notify the Customer: Immediately inform the customer that their payment was declined and provide a reason if possible. Encourage them to check their card details or contact their bank.
2. Provide Alternative Payment Options: Offer other payment methods, such as using a different credit card, debit card, or online payment services like PayPal, to complete the purchase.
3. Secure Payment Data: Ensure that all customer payment information is stored securely to prevent issues like card details being flagged as invalid due to data breaches or input errors.

Handling soft declines

1. Retry the Transaction: In many cases, retrying the transaction after a short wait can resolve the issue, especially if the decline was due to temporary network issues or technical glitches.
2. Prompt for Verification: If the decline was due to verification requirements, ask the customer to provide the necessary details, such as a PIN or password, to complete the transaction.
3. Offer Assistance: Provide clear instructions on how customers can resolve common issues, such as checking their account balance, updating card information, or adjusting card limits.

Best practices for reducing payment declines

By adopting best practices, businesses can minimize the occurrence of hard and soft declines, leading to smoother transactions and better customer experiences.

1. Keep Customer Payment Information Updated: Regularly prompt customers to update their payment information, especially if they have recurring payments. Ensuring that card details are current can prevent many hard declines.
2. Implement Robust Fraud Detection: Use advanced fraud detection systems to minimize the risk of fraudulent transactions and reduce the number of declines due to security concerns.
3. Optimize Payment Gateway Settings: Configure payment gateways to handle soft declines by retrying transactions automatically after a short interval, which can help complete successful payments without manual intervention.
4. Educate Customers: Provide information on how to maintain active and updated payment methods and the importance of sufficient funds and card limits.
5. Monitor Decline Patterns: Analyze data on declined transactions to identify common issues and take proactive steps to address them, such as adjusting fraud settings or improving user instructions.

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FAQs about hard and soft declines

What can cause a hard decline?

• Hard declines are often caused by severe issues such as reported card theft, invalid card numbers, closed accounts, fraud alerts, or expired cards.

Can a soft decline become a hard decline?

• Yes, if a soft decline issue is not resolved and the same problem persists (e.g., repeated insufficient funds), it could lead to a hard decline eventually.

Should merchants always retry soft declines?

• Retrying soft declines is often recommended, especially if caused by temporary issues like network errors or insufficient funds. However, merchants should consider the reason provided and take appropriate action if retries fail.

How can businesses reduce the frequency of hard declines?

• Businesses can reduce hard declines by ensuring accurate data entry, securing customer payment information, and educating customers about keeping their card details up-to-date.

Is there a fee associated with declined transactions?

• Some payment processors may charge fees for declined transactions, especially if fraud prevention measures are triggered. It’s essential to review the processor’s fee structure to understand the costs involved.

What should customers do if their transaction is hard declined?

• Customers should contact their bank to understand the reason for the hard decline and take necessary corrective actions, such as updating card details, verifying account status, or addressing fraud concerns.

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Understanding the difference between hard and soft declines is essential for managing payments efficiently and maintaining customer satisfaction. By knowing how to handle each type of decline and implementing best practices to minimize their occurrence, businesses can enhance their payment processing, reduce the number of failed transactions, and provide a seamless customer experience.

If you’re looking to optimize your payment process and reduce transaction declines, contact Gr4vy today to learn about our advanced payment solutions designed to support your business’s success.