What is an Issuer Decline?

An issuer decline occurs when a transaction is rejected by the cardholder’s bank, also known as the issuing bank. This typically happens during the authorization stage of a payment, where the bank evaluates whether the transaction meets its criteria for approval. A decline indicates that the issuer has identified an issue preventing the transaction from proceeding. Common reasons for issuer declines include insufficient funds, an expired or invalid card, incorrect card details, or suspected fraud. The bank may also block transactions if the account has been flagged for suspicious activity or if it falls outside of the cardholder's normal spending patterns, such as if a purchase is made in a foreign country.

When an issuer decline occurs, the merchant typically receives a decline code providing a general reason for the rejection. However, these codes can sometimes be vague, requiring the cardholder to contact their bank for clarification. Understanding the cause of the decline is crucial for resolving the issue and ensuring the transaction can be completed successfully. Merchants can minimize the impact of issuer declines by offering alternative payment methods, ensuring secure payment processes, and communicating clearly with customers about the next steps when a transaction is declined.

Soft and Hard Declines Explained

Soft and hard declines are terms used to describe why a card transaction is rejected and how it can be resolved. Understanding the difference between these two types of declines is essential for merchants and cardholders to handle payment issues effectively.

Soft Declines

A soft decline occurs when the transaction is rejected due to temporary or fixable issues. These might include insufficient funds in the account, an expired card, or a temporary network error during the transaction process. Soft declines often allow the customer to retry the transaction after addressing the issue. For instance, if the problem is insufficient funds, the customer can add money to their account and attempt the payment again.

Hard Declines

A hard decline is more permanent and cannot be resolved by simply retrying the transaction. These occur when the issuing bank denies the payment for reasons such as a stolen or blocked card, an account being closed, or fraudulent activity. In such cases, the cardholder must contact their bank to resolve the issue, as merchants are unable to process the payment until the bank lifts the restriction or provides a replacement card.

Key Differences

The main distinction lies in whether the issue can be corrected quickly (soft decline) or requires intervention from the bank or a new payment method (hard decline). Recognizing the type of decline helps merchants and customers determine the best course of action to complete the transaction and prevent further disruptions.

The Impact of Issuer Declines on Merchants

Issuer declines can have a significant impact on merchants, affecting both revenue and customer relationships. These declines occur when a cardholder’s issuing bank rejects a transaction, often due to issues like insufficient funds, fraud concerns, or incorrect card details. While these declines aim to protect both merchants and cardholders, they can lead to challenges for businesses.

• Revenue loss
  One of the most immediate consequences of issuer declines is lost sales. When a transaction is rejected, the customer may abandon the purchase altogether, especially if no alternative payment method is available. This directly impacts a merchant’s revenue and can also lead to increased operational costs if the decline requires additional customer support or troubleshooting.
• Customer frustration
  Issuer declines can create a negative experience for customers, particularly if they are unaware of the reason behind the rejection. This frustration can erode trust in the merchant, even though the decline is caused by the bank. If customers feel the purchasing process is too complicated or unreliable, they may choose to shop elsewhere in the future.
• Increased chargeback risk
  In some cases, repeated declines can trigger disputes or chargebacks, especially if customers believe they were wrongfully charged or if the decline flags potential fraud. Chargebacks not only result in financial losses but also impact a merchant’s reputation and standing with payment processors.
• Operational disruptions
  Dealing with issuer declines requires time and resources, as merchants may need to investigate the cause, assist customers in resolving the issue, or adjust internal processes to reduce future declines. These efforts can divert focus from core business operations.

As you can see, issuer declines cause pretty serious problems, which is why preventing them is so important, so let’s talk about mitigation strategies further.

Ways to Prevent Issuer Declines

Minimizing issuer declines is vital for ensuring seamless transactions, fostering customer satisfaction, and avoiding unnecessary revenue loss. Although declines originate from the cardholder’s issuing bank, merchants can adopt specific measures to reduce their frequency.

1. Verify Payment Information

Mistakes in payment details, such as incorrect card numbers or mismatched billing addresses, are a common trigger for declines. Merchants can use validation tools during checkout to confirm that customers provide accurate information. Integrating Address Verification Systems (AVS) and Card Verification Value (CVV) checks adds an extra layer of accuracy and security to the process.

2. Optimize Fraud Detection Settings

While protecting against fraud is essential, overly aggressive fraud filters can inadvertently block legitimate transactions. Regularly reviewing fraud prevention settings and fine-tuning thresholds can reduce false declines. Implementing 3D Secure authentication offers enhanced protection without discouraging genuine customers.

3. Provide Diverse Payment Options

Offering a wide range of payment methods—such as credit and debit cards, digital wallets, and direct bank transfers—gives customers flexibility. If one option is declined, having alternatives readily available ensures that the sale isn’t lost.

4. Improve Customer Communication

Clear, actionable messages during a declined transaction can make a significant difference. Instead of vague error codes, merchants can display customer-friendly explanations, encouraging users to resolve the issue by contacting their bank or trying another payment method.

5. Implement Retry Features

For subscription-based or recurring payments, failed transactions can often succeed upon a second attempt. Automated retry systems can reprocess declined payments after a short interval, reducing manual intervention and improving success rates.

6. Regularly Update Payment Systems

Outdated payment gateways and software may lead to errors that result in declined transactions. Ensuring systems are up-to-date with the latest security standards and technologies helps avoid unnecessary complications and increases approval rates.

7. Educate Customers on Decline Reasons

Many customers are unaware of the factors that can lead to declined payments, such as insufficient funds or expired cards. Providing them with basic knowledge about common decline causes empowers them to address problems quickly and prevent future disruptions.