Hard Declines vs Soft Declines: Key Differences

In the world of digital payments, understanding the difference between soft declines and hard declines is crucial for businesses, especially those operating subscription models or recurring billing systems. These terms refer to different types of payment failures, and knowing how to address them can help reduce involuntary churn, improve customer satisfaction, and increase overall revenue.

What is a Soft Decline?

A soft decline occurs when a payment is temporarily rejected due to an issue that is often fixable without major intervention. The key characteristic of a soft decline is that it may be retried successfully at a later time.

Common Reasons for Soft Declines:

1. Insufficient Funds: Most recurring merchants see "Insufficient Funds" as the first or second most common decline code by volume in their portfolio. In this decline, the consumer lacks the funds or available credit limit to purchase the item/service. This is unlikely to be a false decline and can most likely be remedied by retrying the transaction when funds are available on the card or reaching out to the consumer, letting them know their payment method was declined. Asking your customer for an alternative payment method may be best. Let them know their bank is refusing payment and that it may be best to call their credit card company when they get home to clear up the situation so that it doesn't slow them down in the future.
2. Technical Errors: Network issues, timeouts, or disruptions in communication between the issuing bank and payment processor.
3. Card Limit Exceeded: The cardholder may have reached a spending limit for the day or month, but the limit resets later.
4. Expired Card: The card on file has expired, but the customer may update the details. If you aren't getting updates on expired cards, it may not be an issue. American Express links their card numbers in addition to offering an Account Updater service, so it's common for the card on file with Amex consumers to work on recurring purchases well past card expiration and even with new numbers. Visa and Mastercard consistently have expired cards with recurring merchants that continue approving well past any expiration date. Just because your customer's card is expired doesn't mean it will be declined. There are best practices for common credit card decline codes that merchants should follow. 
5. Temporary Hold: Some banks may flag a transaction as suspicious, but this issue can be cleared up quickly.

In most cases, soft declines can be successfully retried. Payment systems often automatically attempt to process the payment again after a short delay or notify the customer to take corrective action.

What is a Hard Decline?

A hard decline, on the other hand, occurs when a payment is permanently rejected and cannot be retried successfully without further action from the cardholder. This rejection is more definitive, meaning the issue is unlikely to resolve itself without the cardholder’s direct involvement.

Common Reasons for Hard Declines:

1. Suspected Fraud: The issuing bank believes the data or buying habit represents a risk and is declining the transaction.   
2. Stolen or Lost Card: The card has been reported as stolen or lost, and the bank has blocked further transactions.
3. Closed Account: The cardholder’s account has been closed, either by the customer or the bank.
4. Card Number Error: Incorrect card number or other card details that cannot be processed.
5. Fraudulent Activity: The issuing bank has flagged the transaction as fraud and is preventing it from going through.
6. Card Restrictions: The card may not be authorized for international transactions, online purchases, or recurring billing.

When a hard decline occurs, the Networks recommend resolving them by having the customer update their payment details, contact their bank, or use a different payment method.

Impact of Soft vs. Hard Declines on Businesses

For businesses, especially those dealing with recurring billing, soft declines represent an opportunity to recover revenue with minimal intervention. Many payment systems offer automated retries, and by notifying customers of soft declines, businesses can prompt them to take corrective action.

Hard declines, however, pose a greater challenge. If a hard decline happens, businesses risk losing that customer unless they actively seek out new payment details or communicate with the customer to resolve the issue. Additionally, retrying hard decline transactions is against Network regulations and incur a fee/fine for each attempt that can result in very high costs, especially for merchants with lower average tickets.  

Strategies for Reducing Payment Declines

To minimize both soft and hard declines, businesses can implement several strategies:

1. Dunning Management: Automating follow-ups with customers after failed payments can help recover soft declines quickly. Sending reminders, retrying payments after a delay, and offering alternative payment methods can significantly improve success rates.
2. Account Updater Services: These services automatically update expired or replaced card details, reducing the impact of card-related declines.
3. Proactive Customer Communication: Notifying customers of upcoming charges, card expirations, or failed payments in real-time can prevent declines from becoming long-term issues.
4. Smart Retry Logic: By using machine learning or data analysis to retry payments at optimal times (e.g., after payday or at certain hours), businesses can increase the chances of success for soft declines.
5. Focusing on Approvals: Using a system that focuses on first pass approvals before recovery efforts. A platform like Revolv3 packages each data point in each transaction for the best possible routing, leading to higher approval rates and preventing declines. 
6. Data Integrity: The root cause of many declines can be traced back to merchant habits pre-authorization. Merchants questioning why ‘Suspected Fraud’ tops their decline codes should look at customer address validation, Network Transaction ID configuration, and transaction coding. There is a high probability that poor data management is leading to more than the average number of false declines, or even turning soft declines into hard declines. 

Understanding the distinction between soft and hard declines is essential for managing payment failures effectively. Soft declines offer an opportunity to recover revenue with minimal effort, while hard declines require more proactive customer engagement. Businesses that implement smart payment recovery strategies can reduce involuntary churn, improve cash flow, and enhance customer relationships. The best option is to use a payment system that prevents declines from happening in the first place. 

Streamline Payment Processing With Revolv3

If you’re looking for a payment provider that prioritizes first-pass approvals over relying solely on recovery and retry methods, Revolv3 is the answer. Leveraging AI and machine learning, Revolv3 carefully analyzes every data point in each transaction to ensure optimal routing, maximizing approvals and revenue capture. Unlike other providers that emphasize retry and recovery tactics—often with added fees for each retry, platform costs, and a percentage of revenue—Revolv3 is committed to quality payment processing by only charging for successful transactions. Contact us today to see how Revolv3 can help your business reduce declines and boost revenue.