What Is a Soft Decline in Payment Processing (and What Merchants Can Do About It)

Soft declines make up the majority of declined transactions for merchants. Unlike hard declines, there are steps you can take to mitigate and resolve these issues. These transactions are declined for temporary reasons that can often be fixed by updating information, switching payment types, or retrying the transaction.

To learn more about credit card soft declines and how to manage them, read on.

TL;DR

• What is a soft decline? At its heart, this type of card decline is considered temporary. Because it involves non-permanent issues, it can often be resolved.
• There are a few key differences between a soft decline vs. hard decline. For example, hard declines tend to involve permanent causes and are often considered non-recoverable revenue if the customer doesn’t add a new payment method or take action.
• Soft declines can occur due to expired cards, payment network glitches, incorrect address information, the wrong CVV code, and insufficient funds.
• In Europe, authentication failures are a common source of declined cards.
• If the user reaches their account or spending limit, the transaction may be declined.
• As a business, you can prevent declined transactions by communicating proactively with your customers. Before recurring transactions occur, send them reminder emails so that they can update their card information.
• One of the best ways to prevent declined transactions is to offer multiple payment methods. If a transaction is declined, offering an alternative payment method can help you recover the revenue.
• When retrying card transactions, try running the transaction at a different time of day or right after payday.
• Dynamic routing can help you mitigate the impact of payment processing errors. 
• With the help of a payment processing expert like PayCompass, you can improve your risk management strategies, implement dynamic routing, and prevent declined transactions at your company. 

What Is a Soft Decline in Payment Processing? 

So, what is a soft decline? And what is the difference between a soft decline vs. a hard decline?

A soft decline is when a customer makes a payment, but the payment is refused by the financial institution. This occurs for reasons that are temporary and not permanent, such as a problem with the processing network or an expired card.

Why Do Soft Declines Happen?

Besides understanding the soft decline meaning, it’s also essential to understand why declined transactions occur. In most cases, the majority of declined transactions are due to soft declines. While each case is different, there are a few common reasons why a credit card soft decline may occur.

• Insufficient Funds: One of the most common reasons why a transaction is declined is because of insufficient funds. For whatever reason, the customer doesn’t have enough money in their account to cover the transaction. This problem can be mitigated by always offering alternative payment methods and sending reminder emails before processing recurring payments.
• Authentication Requirements (SCA/3DS): In regions like Europe that require strong authentication measures, authentication failures are quite common. These occur when a customer fails authentication and verification requests.
• Fraud and Risk Flags: Sometimes, transactions are flagged because of an unusual volume, different transaction locations, new merchants, or odd spending patterns.
• Expired Cards: If the card is expired, it will be declined. Businesses can prevent this potential issue by prompting users to update their card details before the transaction happens. It should also be noted that expired cards may be a hard or soft decline, depending on the card issuer involved.
• Address Verification Service (AVS) Issues: If the AVS field is omitted or does not match what is on file, it can lead to a card decline because it is seen as an increased risk. In this circumstance, the customer may want to try again and make sure their zip code and AVS data are accurate. With most issuers, AVS mismatches are often classified as hard declines.
• Card Verification Value (CVV) Problems: The CVV is the three-digit number on the back of some cards (or the four-digit code on the front of other cards). If the customer incorrectly types this number, the card will be declined.
• Account Limits: Often, financial institutions will set account limits or spending limits. If the account’s limit is reached, the card will be declined. In this circumstance, the best option is to offer the client a different way to pay. If the declined transaction happened in error, the customer may want to contact their bank to determine the underlying issue.
• Technical Malfunctions: Unfortunately, payment processing systems and networks can sometimes cause card declines to happen. When this occurs, merchants can try the transaction again. If it still fails, they can use intelligent rerouting to route the transaction through a different gateway or acquiring path.

What Is the Difference Between a Soft Decline and a Hard Decline? 

When it comes to a soft decline vs. a hard decline, there are a few important differences that you should know. By understanding how these declined transactions differ, you can figure out the best method for dealing with them.

How Businesses Can Prevent Soft Declines From Happening

For businesses, there are a few effective techniques you can use to prevent soft declines from taking place. 

• Give Customers Multiple Payment Methods: Let customers know that multiple payment options are available. Even if one payment option fails, they can still try another one to complete the transaction. 
• Regularly Get Customers to Update Payment Information: Some credit card soft declines happen because a card has expired or the number is entered incorrectly. Periodically, send reminders to customers to make sure their payment information is updated. As soon as a card expires, they should receive a notification so that the payment method can be updated before it needs to be used for a transaction.
• Use Dynamic Routing: Intelligent payment routing and redundancies can help you prevent card declines that occur due to network or gateway issues.
• Notify Customers Before They Are Billed: By sending out notification emails before the billing date, you can give customers a chance to update expired cards or cards that have insufficient funds.
• Create a Plan for When to Retry Transactions: Update your system settings so that cards are retried at strategic times, such as later in the day or after payday.
• Ensure Strong Authentication Measures: By putting Strong Customer Authentication (SCA) and 3DS measures in place, you can prevent some soft declines from happening.

What To Do When a Soft Decline Happens

Even with the best precautions, soft declines will eventually occur. When they do happen, there are a few steps you can take to mitigate the problem and help your customer complete their transaction.

Provide Transparent Communication

One of the most important things you can do is communicate throughout the process. Prior to the transaction, there should be reminders about upcoming payments and requests to update expired cards. If the card is declined, let the customer know why. 

In some cases, you can work with the customer to update payment information and retry the card. When this isn’t possible, let them know that they can use a different payment method to complete the transaction.

You should be especially proactive about communicating before recurring payments. Besides reminding clients to update their information, send out reminder emails before the recurring charge takes place so that customers can make changes if they have insufficient funds or other issues.

Retry the Transaction

Once a transaction fails, pay attention to the error code. If the problem is related to the card number or something fixable, you can solve the underlying issue and retry the card. For network errors, try rerunning the card later in the day or on a different day.

Offer Payment Alternatives

To avoid losing the transaction, immediately offer the customer alternative payment options. If you have a good payment processor, you should be able to provide them with card payments, mobile wallets, ACH payments, and similar alternatives.

Double-Check Authorization Requests

When a customer fills out an authorization request, don’t automatically pass it along to your payment processor. Take a moment to read through each line of the authorization request. If any information is missing or incorrectly filled out, you can fix it now and avoid a declined transaction later on.

How PayCompass Can Improve Your Transaction Approval Rates

Soft declines are often considered a type of recoverable revenue. While the card may initially be declined, there are ways you can effectively overcome the card decline. By offering alternative payment methods, retrying the card strategically, and sending out payment reminders in advance, you can prevent and mitigate credit card soft declines and maintain your company’s cash flow.

At PayCompass, we can help improve your approval rates through better risk management tools, improved routing, and strategic processing setups. Often, soft declines occur because of payment gateway errors, gateway outages, and other technical glitches. PayCompass has years of experience working in the payment processing industry, so we understand how to avoid these common issues. As a result, we can dramatically reduce the number of declined transactions at your business.

From navigating authentication requirements to handling CVV declines, we can help you mitigate common decline reasons. When declines do occur, our rules for retrying transactions are customized to ensure the highest level of results possible. We limit retries to prevent issuer penalties and optimize the timing to ensure maximum success.

Final Thoughts

So, what is a soft decline? And how can you mitigate the impact of declined transactions at your company?

Ultimately, a soft decline involves a temporary reason for a transaction’s failure. It may occur because of an AVS mismatch, the wrong CVV, insufficient funds, or gateway errors. By preventing these common reasons and learning how to resolve them quickly, you can ensure your company’s cash flow continues as smoothly as possible. 

Because these reasons are caused by temporary problems, getting customers to make updates or retrying the transaction can often solve the problem. For businesses, it also pays to be proactive. By working with an experienced payment processor, you can optimize your routing, handle authorization requirements, and boost your approval rates.

If you want to learn more about soft declines vs. hard declines, we can help. Reach out to PayCompass today to take the next step in optimizing your payment systems.