Hi {{first_name}},
I appreciate you putting yourself forward for the [[job title]] position. It takes initiative to apply internally, and I want you to know that was noticed.
We've decided to go with a candidate who had more direct experience in [[specific area]]. That's the deciding factor, not a reflection of your potential or your work on [[their current team or project]].
Your interest in this kind of work is something I'd like to support. Would you be open to a conversation about how to build toward a similar role down the line?
[[Your name]], [[your role]]