Card issuer rejection explained

Card issuer rejection is a frustrating experience for both the merchant and the customer.  It’s often a result of a customer not having enough funds in their account, but it could also be a sign that the customer is attempting card fraud.

Card issuer rejection is designed to protect all parties, which is why it’s a vital component of both the online and in-person card payment process.

But what exactly does card declined by issuer mean? And if the card is declined by the issuing bank, what are the merchant's responsibilities, and can the payment be salvaged?

We’ll answer these questions and more to ensure you can face card issuer rejection with confidence and limit its impact on your business.

What does card issuer rejection mean?

Card issuer rejection occurs when an online or in-person debit or credit card payment is declined by the card issuer, the institution that issued the card to the customer. As the merchant you’ll receive a response code that alerts you that the transaction can’t be processed and provides a reason for the rejection.

The cardholder may just need to re-enter their card details, or  contact the card issuer to resolve the issue. In rare cases, the response code may also highlight that the transaction is suspected as fraudulent. There are two types of card issuer rejection, soft declines and hard declines.

Read more: bank response codes

Soft decline vs. hard decline

Soft declines are by far the most common and are usually the result of a temporary issue. Once the issue has been resolved, the merchant is able to retry the transaction. Soft declines usually happen if further cardholder authentication is required - or if there are technical or infrastructure issues during payment processing.

Hard declines are permanent and occur when the card issuer rejects the payment. They cannot be retried regardless of any further action taken by the cardholder. Hard declines are usually due to more serious issues, such as when the card used for the payment has expired or has been reported lost or stolen.

As a merchant, in most cases you should not attempt to retry payments with the same card if you receive a hard decline. Both Visa and Mastercard have some steep fees for merchants that repeatedly retry hard-declined payments.

Learn more: Card testing fraud

Why do card issuers decline payments?

We’ve touched on a few of the reasons why a card might be declined above. Here we’ll go into a bit more detail about what each means and how you might be able to resolve any issue you encounter.

Incorrect card details

The most mundane of reasons for a declined payment, and the one that’s easiest to recover from. If the customer enters any details - for example, their name, the card number, the CVV, or their PIN if in person - incorrectly, the card issuer will reject the payment. Usually this can be solved by the cardholder re-entering their card details correctly.

Insufficient funds/credit limit

Insufficient funds are another common reason for a card decline. In fact, they’re the joint most frequent card decline code. When a transaction is attempted, the card issuer checks the customers bank balance to check they have enough in their account to cover the payment. If they don’t, the payment will be rejected. Likewise, if accepting the payment would surpass the customer’s credit card limit, the transaction won’t be authorized.

Unusual transaction or suspicion of fraud

This covers all manner of payments that are sufficiently strange to seem suspicious to the card issuer. If the card issuer is alerted to an odd transaction, they’ll block the payment as a precaution. In many cases, the cardholder is genuine but they’re attempting to pay for something from a new location or for a product or service that is strange or unusually expensive. Often, this will trigger a message to the cardholder, which they just need to respond to to confirm their identity and authorize the payment.

However, it could be that the customer is actually trying to commit fraud, so, as the merchant, you need to be vigilant. Don’t retry a suspicious transaction unless approved to do so by the card issuer.

Lost or stolen card

If the card holder has reported their card as lost or stolen, the issuer will reject the payment. As above, this is to prevent any attempt at fraud. Again, the cardholder could be innocent but may have forgotten to alert their bank that they’ve found their lost card. Don’t retry the payment unless you’ve confirmed the customer’s identity.

Expired card

Some cardholders don’t realize that their card has passed its expiry date and is no longer usable. If this happens, you’ll have to ask them to use an alternative means of payment while they renew their card with their issuer.

Read more: Card-on-file payments explained

Consequences of issuer declines for merchants

Issuer declines can cause all sorts of problems for merchants, from minor inconvenience if the issue can be quickly resolved to lost revenue if the customer is unable to make a payment. ProfitWell claims that only three in 10 failed credit card payments are recovered.

But it’s not only a financial issue.

Rejected payments can also damage merchant-customer relationships and, at their worst, result in the customer choosing not to buy from you again. That’s because, regardless of the reason (and as we’ve seen above, it’s probably because they don’t have enough cash in their account) customers can, in their frustration, blame the merchant.

False declines (when a legitimate card transaction is rejected by mistake) are another big problem. This could be a merchant or card issuer error; either way, four in ten consumers refuse to continue with a purchase after a false decline, resulting in a lost payment for the merchant.

How to manage declined transactions

If you just experience a soft decline while trying to make a customer payment, you should do what you can to try and resolve the issue.

If in person, as you will have received the alert and code that explains the issue, you can communicate it to the cardholder and they can try and sort it out. Sometimes, the error code might only say that there has been an issue without any information about what it is. In this case it’s worth just retrying the payment.

If the customer is trying to make an online (card-not-present) transaction, you can set up automation so that if you receive a soft-decline it triggers an automated alert to the customer in the merchant's checkout window. These alerts can be based on the decline reason that explains why the transaction was declined. This lets your customers know exactly which information they need to correct, making it easy for them to go ahead and complete the transaction.

However, if the payment cannot be made via the original method, this presents more of an issue. The best way to avoid an abandoned purchase is to offer your customers as many different payment options as possible, from PayPal to digital wallets and even cryptocurrency. That way you maximize your chances of success and keep your customers happy.

Whatever the issue, providing excellent service is the surest way to avoid a rejected payment damaging the customer-merchant relationship. And even if they can’t make one purchase, a good experience will ensure they return to make another.

Checkout.com has an automated soft-decline retry feature for merchants that’s designed for Strong Customer Authentication (SCA) soft declines in the European Economic Area (EEA) and the UK. It’s automatically enabled for all affected payments.

When a non-3D Secure (3DS) payment is declined, Checkout.com automatically upgrades the payment to 3DS with a link that enables the cardholder to authorize the payment. Find out more about flexible 3DS authentication and learn how you can avoid failed payments.

Learn more: Card not present fraud: Know the prevention measures