Voice of the Industry

Rescuing credit card declines

Friday 24 February 2023 08:00 CET | Editor: Raluca Ochiana | Voice of the industry

Chanan Lavi, CEO & Co-Founder at Kipp, talks about maximising profits for merchants while reducing credit card declines, without putting extra pressure on the customer.


Unnecessary declines of credit card transactions for online purchases manage to frustrate three parties at once:

  • The customer, who spent time researching a product for features and price, filling a shopping cart, and checking out — only to be told (without explanation) that they can’t complete the purchase.

  • The merchant, who invested in building a sales funnel, marketing campaigns, branding, maintaining the site, and expensive customer service, only to lose that sale at the very final stage.

  • The issuer, who lost the commission purchase from someone who has chosen that specific card over another and may very well demote that card in their wallet, both at this store and at others.

The source of these declines? The fraud prevention systems used by card issuers to protect themselves from fraudulent transactions and chargebacks. While some are obviously valid, many rejections aren’t justified.

A necessary evil?

The phenomenon of sacrificing a given fraction of transactions is not a necessary, dismissible ‘cost of doing business’; it represents a substantial financial loss. How ubiquitous is it?

  1. In a recent survey conducted by Profitwell, credit card declines were the single largest reason for customer churn among B2B subscription businesses, accounting for 20-40% of the churn and cancellations.

  2. Merchants experienced more fraud in 2021 than in 2020, with new types of fraud affecting 62% of merchants. And, with that increase, so does the number of declines.

  3. Even worse, they don’t get a second chance; the average merchant only recovers one in three declined credit card transactions.

  4. It’s estimated that false declines will grow to a staggering USD 443 billion by the end of 2022. That’s not the cost of all declines (some justified) but only the sum that could, and should, have been saved by issuers leveraging a more effective fraud prevention strategy.

There’s a good reason why this happens – issuers expect their fraud prevention software to protect them, erring on the side of minimising risk when there isn’t sufficient data for a clear picture. Merchants, by contrast, are often willing to risk a chargeback as their profit per transaction is higher, and they have already invested more in the process.

Sample scenario for each stage

Each of the following sentences represents a helpful data point in assessing fraud — but only some are available to the issuer:

A frequent business traveller loses her laptop. She received it as a gift (the issuer doesn’t see her as a big spender), and, before this trip, she visited an office supply website to purchase accessories herself, as well as some small travel items for her ’on-the-go’ office. She now needs a new machine. Using her phone, she visits that same online office supply store — to order a new laptop to be delivered overnight to her hotel room, in Berlin. 

Her transaction is rejected, and she has no idea why. She has the money. She hasn’t done anything wrong. She’s got meetings to attend and no time to troubleshoot this.

From the issuer’s perspective, there is a large purchase, uncharacteristic of the customer’s typical pattern. It seems that she just used her card in a German clothing store, far from her home city, and laptops are a category that criminals prefer, as they are relatively small and easy to resell. This customer has instantly joined a massive number of people who will experience the same frustration: in March 2022, 30% of those experiencing declines did so from ‘Activity thought to be suspicious’.

The result? The customer visits the nearest mall, purchasing the laptop with another credit card, just to make sure it’ll go through this time. She has now wasted time, paid more for the product, and both the merchant and the issuer lost revenue. The competition — the mall store owner and another issuer —makes the sale with no effort or investment whatsoever.

We understand the issuer’s analysis and rejection. But there’s a strategy that can sharpen this picture, moving the transaction from the hazy ’gray area’ into a safer category. It’s all about data that comes from the merchant.

The data is there. It’s time to use it to save the sale

Her office supply e-store, for example, knows that:

  • The customer has been shopping with them for years;

  • Shows no declined charges or abandoned carts;

  • She has recently bought that extra mouse and laptop bag, indicating she’s using it;

  • She has purchased overseas a number of times with a different card;

  • She has always purchased with the same device ID.

These clues provide enough confidence, assuming the merchant can share them with the issuer, to drop the risk level significantly. If merchants had an easy way to interact with issuers, this is one of the many ways they could work together for mutual interests.

There is no black and white. Let’s shrink the gray

Merchants can increase issuer authorisation rates with Kipp’s platform, where they can collaborate and share data with issuers to reduce both fraud and insufficient fund declines. The enriched data, together with the ability of the merchant to participate in the cost of the issuer risk, reduce the rate of unnecessary declines and allows the issuer to approve more transactions. Only by having merchants and issuer banks working together can their data create a more effective decision-making process.


This editorial is part of The Paypers' Fraud Prevention in Ecommerce Report 2022-2023, the ultimate source of knowledge that delves into the world of fraud prevention, revealing the most effective security methods for companies to stay one step away from bad actors and secure their businesses. 

About Chanan Lavi

Chanan is an experienced payment expert. Before founding Kipp, he held senior positions that included e-payments management, optimisation, and Business Development roles for leading merchant and financial companies. Chanan holds an MA in Economics and MBA from the Jerusalem Hebrew University.



About Kipp

Kipp is a global fintech company enabling issuing banks and merchants to jointly approve legitimate transactions that are currently being declined. The company's platform optimises the traditional payment model for increased revenue, customer satisfaction, and loyalty. Kipp's founders and team are fintech veterans and payment optimisation professionals.

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Keywords: fraud prevention, credit card, merchants, chargebacks, false declines
Categories: Fraud & Financial Crime
Companies: Kipp
Countries: World
This article is part of category

Fraud & Financial Crime


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