Hard vs. Soft Declines in Payments: Which One Is Impacting Your Business?

Sending and receiving payments isn't always as easy as it look. While the entire process might seem like an easy-to-accomplish task, it comes with its native intricacies, which depend on the multiple participants involved.

While successful payments are every merchant and customer's dream, many other possibilities exist wherein a payment is declined midway. There are various reasons for a payment decline, the most common being fraud prevention, invalid transaction details, and expired card details. 

It is essential to delve deeper into the various decline types to understand each type, its causes, and its underlying impacts.

What Are Hard Declines?

Hard declines are straight to the point and usually come directly from the issuing bank/agency. Some common reasons for hard declines include a stolen customer's identity, a stolen card, expired card details, a closed account, or any other valid reason that impacts the online transaction.

The issuing bank or the customer's bank issues a hard decline, and such failed payments shouldn't be retried. In most probable cases, since the underlying reason is inevitable, it's best to have the customer rectify the problem before retrying a payment.

Common Causes of Hard Declines

Since hard declines aren't random, merchants should consider these reasons. Some common reasons for hard declines include, but are not limited to:

1. Fraudulent transactions
2. Stolen cards
3. Expired cards
4. Maxed credit limits
5. Inactive cards
6. Invalid transactions

While all the above reasons lead to a hard decline, the first reason is that fraudulent transactions are the most common. Almost 65% of Americans have fallen prey to debit/credit card fraud at least once.

On similar grounds, when a customer tries to make transactions with a stolen or expired card, the issuing bank will immediately decline the transaction.

Similarly, the transactions are declined when a customer tries to transact on a maxed-out credit card or uses an invalid card type in a specific country/location. 

What Happens When a Payment Is Met With a Hard Decline?

Whenever a transaction is declined, a decline code is generated. The decline code helps the merchant decode the real reason and identify whether it is a soft or a hard decline.

Once a customer has identified the transaction as a hard decline, the payment shouldn't be retried; instead, it should be addressed directly with the issuing bank.

How to Manage Hard Declines?

Even when dealing with hard declines, it does not have to be the end of the world for your online business. There are a few ways in which you can deal with hard declines effectively: 

1. Offer Alternative Payment Methods

The first and foremost option is to provide alternate methods to your customers, especially when dealing with an expired or invalid credit/debit card. If cards are unavailable, you can share your business’s direct payment details, including wallets and other viable payment options.

2. Leverage Adaptive Routing for Payment Processors

Adaptive routing gives granular control over payment flows, allowing payment to define and establish connections between:

• Checkout Rules: Define the mapping between the presentation country, payment methods, and providers.
• Checkout Groups: These enable user segmentation within a country based on specific criteria, such as business lines or user personas.
  
  Additionally, merchants can devise specific conditional logic IFTTT (if this is the case, then that) with this tool. These are some of the expected components of adaptive routing:
  
  1. Outcome-based learning: Adaptive Route’s routing algorithms update their response based on the outcome of every transaction, as they’re trained on 2500+ error codes.
  
  2. Data Engine: Adaptive Route’s data engine processes over 1 billion data points and provides recommendations based on historic PSP statuses.
  
  

3. Communicate With Customers

There is not much a merchant can do to reduce/thwart hard declines. Instead, to keep your brand’s loyalty and customer experience intact, you should communicate as much as possible with your customers to ensure you can conclude effectively. 

4. Monitor and Analyze Your Data

If your hard decline volumes are increasing daily, it’s time for some data crunching. By monitoring and analyzing your payment trends, you can identify the root cause of your mounting hard declines and address the main reason to ensure a faster payment turnaround for defaulting customers. 

Any trends you establish will facilitate better customer communication and a smoother payment experience for your business’s reputation.

What Are Soft Declines?

On the contrary, soft declines are temporary bumps in the payment journey, which can be addressed with a few retries. As with hard declines, the issuing bank approves the transaction, which the payment service provider declines. Like all soft declines, such transactions can be rectified quickly.

Since this decline variety deals with authorization issues, almost 80-90% of all declines fall within this category. 

Common Reasons Behind Soft Declines

Even though soft declines are easy to rectify, you can look at a few underlying issues to make the process smoother. 

1. Credit Limit Exceeded:

   Customers might often spend more than their allotted credit limit, leading to a decline. 
   
   

2. Authorization Timeouts:

   The processor uses multiple verification layers to enhance security on online transactions. If the verification codes take too long, an authorization timeout can occur. 
   
   

3. Processor Glitches:

   If the payment gateway or the payment processor is facing a technical glitch in processing payments or is undergoing maintenance, it can lead to a soft decline.
   
   

4. Do Not Honor:

   The bank levies a hold on the card, often known as 'Do Not Honor'. In such cases, the customer must contact the issuing bank to remove the hold and retry the payment. 
   
   

5. Invalid Card Type:

   Some cards, such as corporate cards, might only work on limited online platforms. The customer requests these restrictions, which the customer/bank themselves can remove.

What Happens When a Payment Is Met With a Soft Decline?

In soft declines, the authorization from the issuing bank is successful, placing a hold on the customer's funds. However, since the settlement is pending, there are two options available to a merchant. 

The first option is to process the sale by requesting a settlement from the processor. Alternatively, the merchant can reject the sale via an authorization reversal and request a release of the held funds. 

How to Manage Soft Declines?

Soft declines are easier to manage than hard declines. You can manage and reduce your soft declines and improve your payments with a few essential steps. Here are some ways to control this decline type: 

• Notify Customer

Since soft declines are primarily customer-dependent, your customers will play a significant role in helping you resolve the issue. As a first step, notify your customers and ask them to resolve the problem, either with the issuing bank or the processor.  

• Offer Alternate Payment Methods

If a customer’s card details are incorrect, expired, or invalid, you can ask them to pay via an alternate method, such as a wire transfer, direct debit, or a payment wallet. At best, you should try to keep the process simple and user-friendly so your customers don't feel hassled or burdened with the extra steps. 

• Implement Smart Retries

Many payment processors and payment gateways offer the option of intelligent retries, which can make the process easier for both the customer and the merchant. Through this methodology, you can enable payment algorithms that will continue to try the payments until they are successful. 

• Address Technical Issues

One of the most prominent reasons for a soft decline is technical issues. Since many parties are involved throughout the payment process, you must be wary of technical problems and the downtime they cause. If recurring technical issues continue to cause roadblocks during your payment process, you should address them sooner rather than later. 

• Identify Reasons for Declines

Even when you are facing frequent soft declines, you can identify and analyze your decline reasons to establish a common pattern. With the correct information, it becomes easier to implement corrective measures and resolve any imminent issues causing payment declines for your customers. 

Hard vs Soft Declines: The Crucial Differences

There are some significant differences between hard and soft declines, some of which are highlighted below:

Decline Codes to Distinguish Between Hard and Soft Declines

As a merchant, you need more time and patience to review multiple decline reasons, especially when distinguishing between hard and soft declines.

You can refer to the various codes and use them as identification parameters to make it easier. Here are some codes that can help shed light between hard and soft declines:

Hard Declines

• 41 Hold call, Pick up card (fraud account): The issuing bank declares a fraud, so the cardholder details can’t be used again.
• 78 No account, no such account exists, invalid account, or nonexistent account: As per the issuing bank, there is no record of a corresponding account.
• 93 Violation, cannot complete: The bank has identified an issue with the account that has caused them to decline proactively.

Soft Declines

• 10 Partial approval: The cardholder has insufficient credit or money in the bank, leading to a partial transaction approval.
• 65 Activity limit exceeded or insufficient funds: The customer needs to add more funds to their account.
• 97 Invalid CVV: The issuing bank can’t match the provided CVV to the account details on record.

List of Card Decline Codes: There are some commonly used card decline codes, some of which are listed below: 

01: Refer to issuer

02: Refer to the issuer (special condition)

03: Invalid merchant

04: Pick up card (no fraud)

05: Do not honour

06: Error

07: Pick up card (fraud)

10: Partial approval

12: Invalid transaction

13: Invalid amount

14: Invalid account number

15: No such issuer

19: Re-enter transaction

21: No action taken

25: Unable to locate the record in the file

28: File temporarily unavailable for update or injury

41: Lost card, pick up

43: Stolen card, pick up

51: Insufficient funds

52: No current account

53: No savings account

54: Expired card

55: Incorrect PIN

57: Transaction not permitted – card

58: Transaction not permitted – terminal

59: Suspected fraud

61: Exceeds approval amount limit

62: Invalid/restricted service code

63: Security violation

64: Transaction does not fulfil AML requirement

65: Exceeds withdrawal limit

70: PIN data required

75: The allowable number of PIN entry attempts exceeded

76: Unsolicited reversal

78: Blocked, first use

79: Already reversed

82: Negative CAM, dCVV, iCVV, or CVV results

85: No reason to decline

86: Cannot verify PIN

91: Issuer or switch unavailable

92: Unable to route transaction

93: Transaction can’t be completed – legal violation

96: System error

97: Invalid CVV

1A: Additional customer authentication required

R0: Recurring charge stopped at customer request

R1: Recurring charge stopped at customer request

What Are the Most Common Decline Codes?

The decline codes list is extensive, as different service providers might use specific native codes to help merchants with specific decline reasons.

Despite the differences, there are some standard codes used within the industry. Some of these include the following: 

• 51 - Insufficient funds: Inadequate funds in the customer's account during authorization.
• 65 - Withdrawal limit exceeded: The transaction exceeds the maximum withdrawal account threshold.  Additionally, this code may specify the frequency of the limit, such as daily, weekly, or monthly.
• 05 - Do not honor: The issuer won't process the transaction. The customer must contact them for further details.
• 54 - Expired card: Use of an expired card.
• 14 - Invalid card number: The provided card number does not match the list of active cards in the issuer's database.
• 97 - Invalid CVV: The CVV number provided does not match the issuer’s records. Incorrect CVV numbers may also result in code 63, which indicates a security violation.
• 94 - Duplicate transaction: The details match an earlier transaction, and the processor is flagging it to prevent an erroneous double charge.
• R0 or R1— Recurring charge stopped at customer request: The issuing bank blocked a recurring charge at the customer’s request.
• 03 - Invalid merchant: Merchant's payment processor software misconfiguration.
• 41 or 43 - Pick up card, lost or stolen: The customer reported a lost or stolen card.
  
  

How to Recover Lost Revenue: Hard and Soft Declines?

The harsh reality is that you can only recover some of your lost revenue due to hard and soft declines. While the former is inevitable, the latter might provide some relief. Nonetheless, there is never a 100% recovery; what’s genuinely possible is risk mitigation and workarounds to reduce the revenue losses. 

Here are a few tactics you can employ to recover lost revenue when faced with hard and soft declines: 

• Implement Smart Retries

Payment optimization platforms use intelligent algorithms to offer services, including smart retries. Whenever a transaction is declined due to incorrect/expired card details, retrying the payments will not help, as each time, the payment will be declined. However, whenever a payment is declined due to a technical issue, you can realize a payment post-authorization with smart retries. 

Such automatic retries can help track stuck payments and reduce manual efforts, leading to better revenue outcomes for an online business. As a result, you can concentrate on working on payments that require immediate action versus payments that are stuck due to temporary issues.

• Get Real-Time Visibility on Your Payment

Whenever a payment is declined, you need to act on the request by reaching out to the client or requesting payment via an alternate method. Either way, the idea is to get the due credits for your sale so that you consistently rank high on customer revenue. 

With real-time visibility, there is always an excellent option to make well-informed, data-backed decisions, leading to better management and payment realization. Payment optimization platform like inai offer an all-in-one standalone solution, a specially designed suite of services that gives you real-time payment visualization and personalized recommendations so that you can add more value through multiple touchpoints that matter to your business needs.

• Leverage Your Data to Get Actionable Insights

With sufficient insights, you need to make sound, data-backed decisions. An analytical-driven platform will give you recommendations based on how you want to process the anomalies to create success stories. 

inai, a data intelligent solution, provides you with all the necessary intel to help you make meaningful decisions, which can help bridge the gap between your issues and solutions. 

• Tokenization for Automatic Account Update

The tokenization process for automatic account updates helps curb declines due to expired card details. With this service, you can update the details of tokenized cards and ensure all the details are up to date without having to contact the customers periodically.

A tokenizer is an excellent tool for dealing with the following issues:

• Expired Card
• Change in Card Number/PAN
• Canceled, Lost, or Stolen cards
• Cancelled authorization

Since this is an automated process, it can prove helpful for managing subscription-based recurring payments.

Optimize, inai’s Optimal Payment Solution You Need

Online payment transactions can fail for various reasons. Payment Service Providers (PSPs) share multiple pieces of information to help merchants understand the reasons for the decline.

These are typically called decline codes, each describing the failure in detail for better classification. In theory, some providers share the response from the acquirer or the issuer bank (the acquirer response), which provides the merchant with more granularity on why the transaction failed.

Different providers have their native coding, nomenclature, and language/explanation for the same error. Such ambiguity makes it difficult for merchants to understand the various norms, especially for those who work with multiple providers.

What Is the Present Behavior of the Product?

inai only utilizes error information by showing the distribution of failed transactions by different error codes aggregated by transaction volume and count. 

Each category can be filtered by:

1. Time Duration
2. Currency
3. Provider
4. payment method

To enhance this further and make it worthwhile for our merchants, we propose the following:

1. Aggregate the error messages/codes across providers
2. Identify and condense the payment failures to prevent merchant-induced or merchant-controlled failures.

Such categorizations go a long way in helping you tag your error codes effectively and work on them to reduce ongoing issues. Further on, with our detailed data visualization, insight recommendations, and intelligent algorithms, you can reduce soft declines and improve your top line.