False declines become hidden profit killer for SA banks
Local banks lose significant amounts of interchange revenue as legitimate card transactions are consistently incorrectly declined by outdated fraud detection systems.
South African banks are experiencing significant revenue losses due to outdated fraud detection systems incorrectly declining legitimate card transactions. A new report by payment technology provider BPC highlights this issue, estimating that local banks could be losing up to $160,000 annually in interchange revenue. The study, titled "Modernisation without disruption," compares five markets – South Africa, Ecuador, Europe, Malaysia, and Morocco – and finds that South Africa has the highest revenue impact, largely due to its high interchange rates.
The report warns that avoidable false declines are becoming a hidden financial drain, particularly affecting customer experiences and retention. Banks have traditionally focused on preventing fraud losses, but false declines are now an overlooked cost. The root cause lies in ageing payment infrastructure and legacy fraud detection systems relying on rigid, rules-based logic, which incorrectly flag normal spending patterns as suspicious.
The issue is not market-specific but stems from outdated technology infrastructure. Europe has lower losses due to interchange fee caps, while Malaysia and Morocco fall between the extremes. The report emphasizes that the financial impact varies significantly based on each market's interchange structure, even with similar transaction volumes and false decline rates.
Banks need to modernise their core payment stacks to accurately measure the cost of blocked transactions and avoid revenue losses and poor customer experiences.
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