Banks may be losing approximately $160,000 annually per institution due to outdated fraud detection systems wrongly blocking legitimate card transactions, with global industry implications and potential for modern AI-driven solutions.
Banks may be losing about $160,000 a year in interchange income because older fraud detection systems are wrongly blocking valid card payments, according to analysis by payment technology provider BPC. The company says the issue is often overlooked because banks tend to track fraud losses closely but rarely put a number on the revenue lost when genuine transactions are declined.
The concern is not limited to one market. Datos Insights has estimated that false declines could cost the global payments industry $297 billion by 2029, based on research across card issuers and payment processors in North America, Latin America and Europe. Other industry coverage, including recent reporting from PYMNTS, has also pointed to the hidden drag false declines create for banks and credit unions, from lost income to extra manual work and weaker customer retention.
BPC’s modelling assumes a mid-sized issuer with a portfolio of 10 million attempted debit transactions a month. Even at a false-decline rate of 0.50 percentage points, the company estimates that 50,000 legitimate transactions could be blocked each month, amounting to roughly $1.5 million in missed approved spend before interchange is counted. The analysis suggests that the pain is greatest in markets with higher interchange rates, while Europe’s lower estimated losses mainly reflect regulatory caps rather than better fraud performance. Separate analysis from FluxForce has also argued that mid-market banks relying on manual review are falling behind institutions using AI-driven tools, widening the gap in fraud prevention and operating efficiency.
The wider customer impact may be just as important as the direct revenue hit. Datos Insights found that 78% of financial institutions see failed payments as having a critical effect on customer experience, while one-third say they have lost 2% to 5% of customers because of payment failures. Khurram Ahmed, senior product consultant for fraud solutions at BPC, said most banks understand their fraud losses but not the cost of false declines, arguing that modern authorisation systems using real-time decisioning can reduce unnecessary blocks and recover revenue. BPC set out its findings in a guide on modernising legacy payment infrastructure, which it says includes several migration approaches for banks seeking to update systems without major disruption.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
