The Hidden Cost of Card Purchase Limits

4:00 p.m. - 4:30 p.m.
For nearly ten years, interchange fees have been the lifeblood of noninterest income for banks below the $10 billion Durbin threshold. At the same time, card fraud has been a stubborn threat that siphons off interchange income.

As one measure against card fraud, well-intentioned banks implement “industry-standard” purchase limits that cap the value of transactions and, therefore, fraud. Seacoast questioned this conventional wisdom. Purchase limits surely mitigated some fraud, but at what cost? How many legitimate transactions did we decline? And how much interchange income did we forego as a result?

To answer these questions, Seacoast applied analytics methods that empirically measured our risk-reward tradeoffs at all hypothetical purchase limits. The result was to best serve their customers and shareholders, they would have to balance fraud risk, not minimize it. Limits had to increase and, as a result, so too did fraud.

The benefits of this risk-aware decision have included:
· $32 in new incremental income for every $1 of incremental fraud loss
· 43 percent reduction in declined transactions, converting them instead into seamless payment experiences for thousands of cardholders
· Deeper customer engagement, as measured by per-customer propensity to perform large transactions
· Reduced call volumes due to fewer limit increase requests
· All achieved with zero implementation cost, no technology cost, and no ongoing maintenance cost