Case Study: Card Issuer Using Shadow Limits
The Challenge
A leading card issuer, already using shadow limits, faced mounting competition to keep its card as the preferred top-of-wallet payment option. Despite leveraging shadow limits, too many transactions were still being declined due to perceived risk, jeopardizing customer satisfaction and loyalty.
In a competitive landscape where every transaction counts, high decline rates not only frustrated customers but also pushed them toward rival issuers. To secure its position as the go-to payment choice and retain customer loyalty, the issuer needed a more effective, risk-sharing approach.
The bank’s Head of Cards knew reducing declines was key to staying top-of-wallet, but convincing the Credit Risk team was a challenge. They worried about financial exposure and whether the model could scale. The approach they took was conservative, only allowing certain cardholder segments to go very slightly over the limit. Over time, as the Cards team was able to show no rise in defaults, did they start to open up to more segments.
Pain Points
- Maintaining top-of-wallet position: Customers have multiple payment options, and every declined transaction increases the likelihood of them switching to a competitor’s card.
- Customer satisfaction and retention: Declined transactions frustrate customers, leading to negative experiences that erode trust and long-term loyalty.
- Revenue loss from unnecessary declines: Each declined transaction represents lost interchange revenue and reduces the issuer’s ability to maximize card usage.
Results
With Kipp, the issuer avoided 17% of transactions that would have otherwise been declined, independent of its existing shadow limit rules.
By integrating directly with card issuers, Kipp prevents NSF-related declines in real time. When a transaction is flagged for decline, the issuer sends an API call to Kipp, which checks whether the merchant is willing to pay a predefined % premium. If approved, the issuer authorizes the transaction, turning a potential decline into a completed sale.
This seamless process not only reduced unnecessary declines but also reinforced the issuer’s position as the preferred top-of-wallet card. Higher authorization rates translated into increased revenue, stronger customer satisfaction, and improved retention.
Number of declined transactions saved by Kipp (%)
Retail
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%
Entertainment
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%
Digital Goods
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%
Benefits
- Safely approve over-the-limit transactions: Leverage a predefined setup where merchants cover a premium, allowing issuers to approve more transactions with confidence.
- Stay top-of-wallet: Higher authorization rates ensure cardholders can complete their purchases, enhancing loyalty and preference for the issuer’s card.
- Generate a new revenue stream: Earn additional revenue from merchants willing to pay a premium to ensure their transactions are approved.
- Meet authorization rate KPIs with card networks: Reduce declines and maintain strong relationships with card networks by increasing approval rates.
Bottom Line
By integrating Kipp’s real-time solution, the card issuer maximized its existing shadow limit strategy, further reducing declines and improving the overall transaction approval experience.
