There is nothing more frustrating than standing on a long line waiting to pay for items only to have a credit or debit card in good standing red flagged—the dreaded false decline. But that false decline can prove even more painful for the credit union than for its members, because research suggests consumers who experience a false decline stop using the card—sometimes for good.
"The rise in false declines cuts across all U.S. issuers, credit unions and banks," said Lee Wetherington, director of Strategic Insight for ProfitStars, a division of Jack Henry & Associates. "It's estimated that 15% of all cardholders have had at least one transaction falsely declined in 2015."
Wetherington, who is also a credit union member, recently experienced a false decline with his Apple Pay account. He said it was for three reasons: He had crossed a state line, he was shopping somewhere he had never shopped before and he had made a relatively large purchase (more than $400).
"These three criteria together triggered a red flag in the authorization engine employed by my credit union to automate decisions about approving/declining debit card transactions in real time," he said.
According to Business Insider Intelligence, 82% of cardholders who experience a false decline feel inconvenienced, embarrassed or irritated, and Javelin Strategy & Research reports that 40% of falsely declined cardholders abandon the card in question.
"This is an epidemic that is decimating credit unions' cards," Wetherington said.
The Visa Mandate
In an effort to reduce fraud and false declines, Visa announced a mandate in October requiring that card issuers provide card-carrying members with transaction SMS alerts. MasterCard will adopt the same stance in April 2017.
As more stringent regulations are enacted, credit union executives are not only looking to comply, but also offer members with more control over how and when cards are used. This is the case for Kinetic Credit Union, explained CEO Janet Davis.
"When Visa recently released the mandate that requires issuers to provide cardholders with an option to enroll in transaction alerts, CardValet was the perfect solution," she said.
Roughly one month ahead of the Visa mandate, Kinetic CU launched Fiserv's CardValet, which allows members to monitor and control their card activity via their smartphones in real-time. Members can also turn card on and off, establish transaction limits and receive alerts on card usage.
"Whether it's their own card, a dependent's card, or for their small business, CardValet makes members feel safer using their cards, leading them to perform more transactions with that card and promoting top-of-wallet behavior," said Fiserv's Vice President of Card Services Angel Siorek. She added that approximately 300 CUs are using CardValet.
The $370 million Columbus, GA-based Kinetic CU supports more than 49,000 members, 25, 971 of which are credit and/or debit cardholders and 11,192 of which are active mobile banking members.
Since launching CardValet in September 2016, Siorek said 80 members have enrolled in the program with 65 actively using the control and alerts. "1,360 alerts were triggered and 1,797 transactions filtered through the controls that our members have set within the app," she noted.
Decreasing False Declines
While third-party vendor solutions can decrease false declines and fraud, Wetherington said that aside from offerings like CardValet there are methods credit unions can deploy to further reduce instances.
"Many credit unions are upgrading their authorization engines to add an acceptance layer to the existing fraud layer, such as the history, profitability and/or importance of a specific member will be factored into the final decision about whether to approve or decline any given questionable transaction red flagged by the fraud layer," he said.
Another proactive option gaining popularity is mobile geolocation, which verifies the presence of the cardholder in the location where a questionable transaction arises.
"If the cardholder's mobile phone is determined to be present where the card is being tendered for payment, the transaction is approved," said Wetherington. "Other issuers are sending real-time actionable alerts to the cardholders' mobile phone whenever a questionable transaction is in process, giving the cardholder the power to approve or decline the transaction directly."
