Soft Decline vs Hard Declines in Payments

Overview

In the world of online transactions, businesses are often faced with the challenge of dealing with payment declines. While many people understand that a declined payment means something went wrong with the transaction, few are aware of the difference between a soft decline and a hard decline. Knowing the difference between these two types of declines is crucial for businesses, especially those in e-commerce, to improve their payment success rates, enhance customer experience, and optimize their payment processes.

In this article by Academic Block, we’ll explain what soft and hard declines are, how they occur, and the best practices to handle them.

What is a Payment Decline?

A payment decline occurs when a financial institution or payment processor refuses to authorize a transaction. This rejection can happen for several reasons, including insufficient funds, expired cards, or even technical errors. There are two main types of payment declines: soft declines and hard declines.

Soft Declines: A Closer Look

A soft decline refers to a temporary rejection of a payment. These types of declines often occur for reasons that can be resolved quickly and don’t necessarily mean the customer’s payment method is invalid. A soft decline is typically a signal to the merchant that something went wrong with the transaction, but it’s not a permanent problem. Soft declines often result from issues such as:

1. Temporary Network Issues : Sometimes, the payment network may experience temporary disruptions that prevent the transaction from going through. This can result in a soft decline.

2. Card Issuer Limits : A soft decline may happen if the card issuer has set a daily spending limit that the customer has exceeded. This doesn’t mean the card is invalid, but it might prevent the transaction from going through at that moment.

3. Suspicious Activity : If the card issuer detects unusual activity, they may temporarily decline the transaction to prevent potential fraud. However, this is often a temporary decline that can be resolved by the cardholder verifying their identity.

4. Technical Issues : Sometimes, technical glitches, such as incorrect payment gateway configurations or problems with the merchant’s payment processor, can cause a payment to be declined temporarily.

How to Handle Soft Declines:

1. Retry the Payment : The most common way to handle a soft decline is to simply retry the transaction after a short delay.

2. Alert the Customer : If the decline was due to a problem with the card, inform the customer about the issue and ask them to update their payment information or contact their bank.

3. Optimize Payment Systems : To reduce the likelihood of soft declines, ensure your payment systems are well-optimized and regularly updated to handle high volumes of transactions.

Hard Declines: What You Need to Know

A hard decline is a permanent rejection of a payment. Unlike a soft decline, a hard decline usually means that the transaction cannot be processed, and no further attempts should be made. Hard declines are often caused by issues such as:

1. Insufficient Funds : One of the most common causes of hard declines is insufficient funds in the customer’s account. If the cardholder doesn’t have enough money to complete the transaction, the payment will be permanently rejected.

2. Expired Card : If the customer is using a card that has passed its expiration date, the payment will be hard declined. The cardholder will need to update their payment details to proceed.

3. Blocked or Stolen Card : If a card has been reported as lost, stolen, or blocked by the bank, it will result in a hard decline. In this case, the customer must resolve the issue with their card issuer.

4. Incorrect Card Details : Hard declines can also occur if the customer enters incorrect payment details, such as an incorrect card number or CVV code. This type of error needs to be corrected before the transaction can proceed.

How to Handle Hard Declines:

1. Request Updated Information : If the decline was due to incorrect card details, ask the customer to double-check and re-enter their payment information.

2. Customer Support : In cases of a blocked or stolen card, provide clear instructions for customers to contact their bank for assistance.

3. Transaction Alerts : Notify customers about hard declines immediately, so they can address the issue on their end as soon as possible.

Key Differences Between Soft and Hard Declines

Here are the key differences between soft and hard declines in payments:

Duration:

1. Soft Declines : These are temporary issues and the transaction may be successful if retried or if the underlying problem is fixed.

2. Hard Declines : These are permanent issues. The payment will not go through unless the customer resolves the problem, such as updating card details or correcting errors.

Reasons for Occurrence:

1. Soft Declines : Often occur due to temporary network issues, card issuer limits (e.g., exceeding daily spending limits), fraud prevention systems flagging the transaction, or other non-critical factors.

2. Hard Declines : Typically happen due to more serious, permanent issues such as insufficient funds, expired cards, blocked or stolen cards, or incorrect card details (e.g., wrong CVV or card number).

Impact on Transaction:

1. Soft Declines : The transaction may go through after retrying the payment or resolving the temporary issue.

2. Hard Declines : The transaction will not be processed, and the customer must resolve the issue, such as contacting their bank or updating their card details.

Action for Resolution:

1. Soft Declines : The business can retry the payment, or the customer can quickly address the temporary issue (like verifying identity with the bank or correcting card details).

2. Hard Declines : The business cannot retry the payment. The customer will need to resolve the issue (e.g., update payment information, contact the bank).

Likelihood of Resolution:

1. Soft Declines : High likelihood of resolution, as the issue is temporary and can often be fixed with a simple retry or customer action.

2. Hard Declines : Low likelihood of resolution without customer intervention. The problem usually requires an update to the payment information or resolution with the bank.

Understanding these distinctions can help businesses better manage payment declines, reduce transaction issues, and improve customer satisfaction by handling each type of decline appropriately.

Impact of Declines on Businesses

Payment declines, whether soft or hard, can have significant effects on businesses, especially those in e-commerce. Here’s how they impact business operations:

1. Lost Revenue : A decline, especially a hard decline, means lost revenue for the business. If customers don’t resolve the issue or update their payment details, the sale is lost.

2. Customer Frustration : Repeated declines, especially if not handled correctly, can lead to customer frustration and even cart abandonment. This can affect customer loyalty and the overall user experience.

3. Increased Operational Costs : Handling payment declines can require extra resources, such as customer support or technical troubleshooting. For every declined transaction, a business may need to invest time and effort to resolve the issue.

4. Negative Reputation : Frequent declines or poor handling of declines can tarnish a business’s reputation. Customers may view a merchant as unreliable if payments are constantly being rejected, even if the issue lies with the customer’s card or payment method.

Best Practices for Handling Payment Declines

Businesses can take several steps to minimize the impact of payment declines, whether soft or hard:

1. Monitor Payment Transactions Regularly : Keep track of all payment transactions to spot patterns of decline. This can help identify common causes and offer insights into how to reduce declines.

2. Offer Multiple Payment Options : Providing customers with a variety of payment methods, such as credit cards, digital wallets, and PayPal, can help reduce the risk of payment declines.

3. Improve Communication : Send clear, timely messages to customers whenever a payment is declined. Offer them simple steps to resolve the issue, such as updating their card details or contacting their bank.

4. Optimize Your Payment Gateway : Ensure your payment processor and gateway are up to date and capable of handling high transaction volumes. Implement fraud prevention tools that can reduce the occurrence of soft declines due to suspicious activity.

5. Be Transparent About Payment Policies : Clearly communicate your payment and refund policies to customers. If a payment is declined, make it easy for them to understand why and what steps they can take to fix it.

6. Use Retry Logic : For soft declines, implement an automatic retry logic within a specified period. If a transaction fails due to temporary issues, such as a network problem, a retry can often result in a successful payment.

Final Words

Understanding the difference between soft and hard declines is crucial for businesses to navigate the complexities of online payments. Soft declines are temporary issues that can often be resolved with retries or customer action, while hard declines are permanent rejections requiring more direct intervention, such as updating payment details.

By following best practices for managing declines, businesses can reduce their risk of losing revenue and improve customer satisfaction, ultimately fostering better relationships with their customers and optimizing their payment processes. Hope you liked this article by Academic Block, please share your thought below. Thanks for Reading!

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