Banks Find Debit’s Real Cost in False Declines and Manual Fixes

For many financial institutions, the biggest opportunity in debit is hiding in plain sight.

“The Hidden P&L of Legacy Debit,” the latest edition of PYMNTS Intelligence and Galileo’s Hidden Finance Tracker series, shows that the true cost of running a debit program extends well beyond processor invoices. Banks and credit unions have traditionally evaluated debit programs through visible expenses such as processing fees, but this overlooks a broader set of operational costs that accumulate over time. False declines, manual intervention, fraud management, compliance work and delayed product launches all affect profitability, even though they rarely appear on a monthly invoice.

However, all of these costs can be identified, measured and reduced through better technology and operational planning.

Key findings:

50 percentage points of false declines can translate into 50,000 lost transactions per month for a debit portfolio handling 10 million purchase attempts, reducing interchange revenue while creating avoidable customer friction.

These lost transactions can cost financial institutions (FIs) $12,000 per month when considering the Federal Reserve’s average debit interchange of 24 cents per regulation-covered transaction.

25,000 debit-related exceptions per month can cost $2.4 million per year when considering staff hours and labor costs, as staff spend time and effort resolving disputes, reconciling mismatched holds and other tedious, non-value-add tasks.

These hidden costs can become more significant as debit usage continues to grow. Every declined purchase creates a customer experience that may encourage a consumer to reach for another payment method or even another financial institution the next time they shop.

Small operational issues like these can accumulate much like tiny leaks in a water pipe. One leak may seem insignificant, but enough of them eventually send your bill into the stratosphere. Debit programs operate in much the same way: A series of seemingly minor inefficiencies can gradually erode revenue while increasing operating costs.

The report encourages FIs to track these hidden costs, including authorization rates, false declines, fraud losses and operational exceptions. Together, those metrics offer a more complete picture of how well a debit program supports both customers and long-term business performance.

Modern processing platforms can automate routine tasks, improve authorization performance and give institutions greater flexibility to introduce new card features. That can shorten product development timelines while reducing the amount of manual work required from operations and technology teams. Instead of spending resources maintaining aging infrastructure, institutions can devote more attention to improving digital experiences and responding to changing customer expectations.

Ultimately, banks should view their legacy debit systems as an opportunity rather than simply a technology upgrade. Institutions that understand where revenue slips away and where manual work creates unnecessary expense are in a stronger position to prioritize investments with measurable returns. As consumers continue to rely on debit for everyday purchases, improving the systems behind those transactions can strengthen customer relationships, improve operational efficiency and create a healthier foundation for future growth.