Non-sufficient funds (NSF) declines remain a persistent issue for card issuers, despite better analytics, improved tools, and the growing use of shadow limits. Every NSF decline is a missed opportunity: for revenue and for cardholder satisfaction.
The Real Cost of NSF Declines
When a card is declined due to insufficient funds, the cost isn’t just a missed transaction.
- Interchange revenue is lost: Each declined transaction chips away at potential revenue. For example, an issuer typically earns 2–3% in interchange on an approved payment. Multiply that across thousands of declines each day, and the revenue loss becomes substantial.
- Customer experience suffers: NSF declines are among the most frustrating for cardholders. They’re often unexpected, embarrassing, and disruptive.
- Top-of-wallet status is at risk: A single failed payment, especially in a moment of need, can cause cardholders to lose confidence and turn to another issuer. Over time, these moments erode trust and drive customers to switch cards or stop using the card entirely.
According to The Nilson Report, card declines cost U.S. issuers billions annually in lost revenue. Yet many of these declines could be avoided with better tools and coordination (source).
Why Do NSF Declines Still Happen?
Even with internal controls in place, many NSF declines slip through. Here’s why:
- Lack of merchant context: Issuers don’t always know what the transaction is for or whether it’s recurring.
- Inability to weigh risk: Current systems don’t allow for external input or shared logic at the moment of authorization.
- Conservative rulesets: To stay safe, issuers default to decline, even when a small approval could preserve a relationship.
Issuers have shadow limits and overdraft settings, but these operate in isolation. What’s missing is a way to dynamically assess context from the merchant at the time of decision.
What Issuers Can Do Differently
NSF declines can’t be eliminated entirely, but their impact can be significantly reduced through smarter decisioning:
- Collaborating with merchants at the point of transaction
A shared decisioning layer between issuer and merchant helps identify high-value transactions worth approving, even with low available balance. - Using contextual approval signals
Considering the merchant category, transaction type, and the cardholder’s past behavior helps issuers make more informed decisions. - Prioritizing approval logic for loyal cardholders with small amounts
Some NSF transactions, especially low-value ones, are worth approving for engaged, long-term users. These approvals show reliability and goodwill, helping issuers preserve trust and cardholder loyalty. For example, letting a $2.5 transit pass or $5 app subscription go through can make a meaningful difference in how a customer perceives their card experience.
A Smarter Approach to Declines
The right approach to NSF declines balances approval logic with risk, data, and collaboration. Issuers that modernize their decline handling are positioned to win long-term loyalty, boost interchange revenue, and deliver better cardholder experiences.
Kipp provides the infrastructure to make that possible, linking issuers and merchants at the moment it matters most: during the transaction.
