The world of payments can be a complex labyrinth, with hard declines and soft declines lurking around every corner. This scenario isn’t unique—leaving customers and businesses alike scrambling to find a solution when a credit card declined situation occurs.

The truth is, that credit card declines or failed payments can stem from various causes, from simple errors like incorrect billing addresses to more serious issues like suspected fraud or a credit card verification error. In such situations, it’s essential to contact your credit card company to resolve the issue.

Meanwhile, for business owners, it’s important to implement best practices to reduce hard and soft declines. That way, you can optimize your payment success rates and enhance customer experience. After all, in today’s increasingly global marketplace, the success of any subscription-based business hinges on offering multiple payment methods.

However, given the average payment decline failure rate of 7.9%, businesses must comprehend the intricacies of hard and soft declines to recoup lost revenue and promote a seamless customer experience.

Understanding hard declines

An image showing a person frustrated with credit card declines

When it comes to payment declines, hard declines are the stern, unwavering gatekeepers of the payment world. By definition, hard declines are permanent authorization failures that occur when the issuing bank does not authorize the payment.

Essentially, hard declines halt the payment attempt—requiring the customer to use an alternate payment method to complete the transaction.

Common causes of hard declines

Hard declines aren’t just random roadblocks; there are specific triggers that lead to their occurrence, such as:

  • Incorrect card details or account numbers
  • Invalid transactions
  • An expired card
  • Cards that have not been activated
  • The credit limit has been maxed out

For instance, imagine using an American Express Gold Card at a restaurant in Eastern Europe, only to have your credit card transaction be declined because the local merchant does not accept cards from your network. In such cases, this particular transaction may be due to local merchants not recognizing cards from your network, leading to a hard decline.

Another prevalent cause of hard declines is credit card fraud, which is the most widespread form of identity theft. With 65% of Americans with credit or debit cards having experienced fraud at least once, this is a real issue. If a credit card issuer suspects that a card may be stolen, they may take precautionary measures like locking the accounts. In these scenarios, a hard decline is a protective measure for the financial institution and the cardholder, preventing unauthorized transactions and minimizing the risk of financial loss.

Impact on businesses and customers

So, what happens when a payment is met with a hard decline?

Businesses suffer through lost sales, while customers are left with unfulfilled desires and, sometimes, frustrations.

For businesses, regular occurrence of hard declines can potentially damage their reputation. On the other hand, customers may experience dissatisfaction due to the inconvenience and potential embarrassment caused by a declined transaction. Additionally, if the root cause of the hard decline remains unaddressed, customers may choose not to return to the business—resulting in an increase in customer churn.

How to deal with hard declines

Dealing with hard declines doesn’t have to be a head-scratching puzzle. Here’s a straightforward roadmap to help you tackle hard declines:

  1. Proactively communicate with customers: Once a transaction faces a hard decline, reach out to the customer in the shortest time possible. This communication can help resolve issues, such as insufficient funds or expired cards, in a friendly and understanding manner. When it gets resolved, it’s a win-win for both the business and the customer—the customer has a successful purchase and the business doesn’t lose the sale.
  2. Offer alternative payment methods: Provide alternative payment options like different credit cards, PayPal, or other digital wallets to increase the chances of a successful transaction.
  3. Optimize payment processing: Work with a reliable payment processor with real-time error handling and retry mechanisms. These features can automatically address issues leading to hard declines. We’ll discuss this more later!
  4. Monitor and analyze data: Regularly analyze trends and patterns to identify recurring issues and take proactive steps to prevent hard declines in the future.

What are soft declines?

A customer's credit card being declined due to a low credit limit

While hard declines pose a formidable challenge, soft declines are akin to a temporary speed bump in the payment journey. They are like a gentle nudge that reminds customers to double-check the payment details.

Reasons behind soft declines

Soft declines, while less stern than hard declines, still have their reasons for occurring. These are typically temporary issues that can be resolved with a bit of attention. Here’s a breakdown of common reasons behind soft declines:

  • Exceeded credit limit: When a customer’s credit card balance reaches its limit, further transactions can result in a soft decline. Customers need to reduce their balance or choose an alternative payment method.
  • Authorization timeouts: Sometimes, transactions are declined because the payment processor’s authorization request (ex. One-Time Passwords) takes too long to complete. This can be resolved by retrying the transaction.
  • Payment gateway glitches: Technical issues on the payment gateway’s side can lead to soft declines. Always ensure that your payment processor’s system is running smoothly.

Impact on businesses and customers

Around 80% to 90% of all declines are soft declines. Unlike their more rigid counterpart, soft declines offer a chance at redemption right away. Soft declines are temporary, so merchants can process the transaction again right away once the requirements are met. For example, customers entered the wrong OTP, so the payment was declined. They can retry and request for a new OTP and if entered correctly, the payment goes through.

Still, soft declines can still be a source of frustration for both businesses and customers especially when they happen often.

How to deal with soft declines

Soft declines might be less intimidating than hard declines, but they still require attention and action. To ensure a seamless payment experience for both your business and customers, here’s a step-by-step guide on how to effectively deal with soft declines:

  1. Identify the reason for the decline: Was it due to an exceeded credit limit, address verification, or another issue? Accurate identification is key.
  2. Notify the customer: Send them a friendly notification or even a pop-up explaining the reason for the soft decline and what they need to do to resolve it.
  3. Make sure alternative payment methods are available: The more options there are, the faster the customer can retry their purchase.
  4. Implement automatic retries: Since soft declines are due to temporary issues, automatic retries can increase the likelihood of a successful transaction.
  5. Address technical issues: Ensure that your payment processing system is running smoothly. Resolve any technical glitches or hiccups that may lead to soft declines.

Hard declines vs. soft declines: key differences

Customers frustrated with hard declines and soft declines

Hard declines and soft declines may both result in a “no-go” for a transaction, but they have distinct characteristics. Here’s a quick side-by-side comparison of these two types of payment declines:

  1. Hard declines are permanent transaction rejections caused by severe issues such as fraud or insufficient funds. However, soft declines are temporary transaction rejections due to minor issues like exceeded credit limits or temporary bank issues.
  2. Hard declines are irreversible and cannot be recovered during the transaction. Soft declines can potentially be remedied right away.
  3. Customers must address hard declines directly by contacting their bank or card issuer to rectify the issue. Businesses can often resolve soft declines through communication and by providing alternative payment options—no direct customer intervention is required.

The role of payment processors in reducing hard and soft declines

A payment processor integration to reduce hard declines

Payment processors are unsung heroes in the world of online transactions—silently ensuring that your transactions go off without a hitch.

What should you look for in a payment processor?

Selecting the appropriate payment processor is a pivotal step toward mitigating hard declines and fostering business growth. When evaluating payment processors, businesses should consider factors such as:

  1. Compatibility: Ensure that the payment processor you choose is compatible with your eCommerce platform or website. Seamless integration is key to reducing technical issues that could lead to hard and soft declines. Fewer declines = less frustrated customers.
  2. Global reach: If you have international customers, opt for a payment processor that can handle various currencies and has a global presence. This minimizes currency-related issues that might lead to hard declines.
  3. Error handling: Look for a payment processor with robust error-handling mechanisms. Real-time error resolution and automatic retries can significantly reduce the occurrence of hard declines.
  4. Security features: Prioritize payment processors with strong security features to prevent fraud-related hard declines. Features like tokenization and advanced fraud detection can be invaluable.
  5. Customer support: Consider the quality of customer support provided by the payment processor. When issues do arise, having a responsive support team can make a significant difference in resolving hard declines quickly.

To start, you can check out this list of payment processors we compiled.

How to recover lost revenue: hard and soft declines aren’t the end of the line

Graph of payment trends going down then going up again

When hard decline and soft decline incidents pile up, you might be surprised at how much revenue you are losing due to involuntary churn. After all, these payments were from customers who were willing and able to purchase your product or sign up for your service.

However, it’s important to remember that not all is lost when a transaction gets declined, whether it’s a hard or soft one. Here are two strategies that would be great to have ready at your disposal.

Implement a dunning system in place

A dunning system is a proactive tool that helps businesses manage and recover revenue from customers with failed payments.

It consists of automated notifications sent via email or SMS that alert customers that their transaction has failed. This is especially useful for subscription businesses that automatically charge credit cards monthly. If one payment doesn’t go through, then the dunning system is triggered.

Dunning emails usually consist of a sequence of short reminders sent every few days or so. These messages contain instructions on how to retry their payments. It’s recommended to allow customers a grace period during which they can update their payment information or address the issue.

Once the dunning workflow is completed and the customer still hasn’t retried their payment, then they are tagged as churned.

Invest in a failed payment recovery strategy

Automated dunning emails are efficient and effective, but nothing beats the human touch. Consider investing in a service like Recover Payments. It is an integration combined with dedicated failed payment recovery specialists who conduct personalized omnichannel outreach strategies to help recover failed payments for businesses.

Business owners also get to see the progress and status of the payment being recovered, giving them noteworthy insights into what’s happening behind the scenes.

Tackle hard declines and soft declines head-on with a trusty payment recovery strategy

Failed payment recovery specialist on the job, assisting a customer who had a credit card declined

Hard and soft declines may pose challenges, but these are also opportunities for businesses to demonstrate their commitment to customer satisfaction

Recover Payments is here to assist you every step of the way in this journey. Our expertise in payment recovery and our dedication to your success make us your trusted partner in conquering payment challenges. Don’t let declines deter your business—contact Recover Payments today and embark on a path toward seamless payments and increased revenue.

Take the first step in maximizing your revenue: Contact Recover Payments now and let’s unlock the full potential of recurring payments for your business together.