Even with all the innovation seen lately in the banking, payments and digital economy sectors, new business models are hard to come by. Features and slight tweaks? The industry builds on them every day. That’s why when real-time data and cloud analytics are giving merchants and card issuers new ways to say “yes” at the checkout, a straight line from innovation to sales is clearly drawn. Turning what were once declined transactions into completed sales and stronger customer relationships — now that’s a new business model.
“Historically, all of the decisioning around transaction authorization sat in the risk department of issuers,” Jim Johnson, co-president of FIS’s Banking Solutions division, said in a recent interview with Karen Webster. “The model now is being tested to be more of a risk negotiation at the point of sale.”
Johnson’s comments come as FIS unveils a partnership with Kipp, a collaboration platform that lets card issuers and merchants agree in real time to authorize debit transactions even when an account lacks sufficient funds. Instead of charging consumers an overdraft fee, the merchant pays a small premium to “save” the sale, turning what is usually a lost transaction into a completed purchase and a better customer experience for all parties.
“We’re trying to really address debit card declines here,” Johnson told Webster. “When an NSF occurs … the merchant’s going to pay a premium for that transaction to be approved with the issuer, really reversing what’s been done with NSF fees at the bank.” That premium, he added, “is a model that really protects the consumer [and] drives the loyalty of their consumer, and the merchant benefits too.”
The capability is not yet live. FIS is completing a one-time integration on its processing platform and expects to pilot the service with select issuers and merchants in the third quarter, Johnson said. If successful, the project could chip away at a stubborn industry problem: FIS says insufficient funds are consistently the number one reason debit transactions are declined, costing issuers interchange revenue, merchants’ sales and consumers’ goodwill.
The Bigger Debit Vision
The Kipp tie-up is the latest piece of a multipronged effort to modernize FIS’s issuing franchise, where Johnson said the company is making “a very big investment.” FIS remains one of the largest debit processors in the country and, after agreeing to acquire rival TSYS’s credit card portfolio, is doubling down on features that keep debit cards “top of wallet,” particularly in an economy where many consumers favor debit over credit.
“We want all the features and functionality available out there to be interactive with our debit product,” he said. The strategy hinges on adding new funding sources, loyalty currencies and installment options to a payment instrument long viewed as a utilitarian workhorse.
One pillar of that strategy is an alliance with Affirm that embeds BNPL capability directly into an issuer’s debit card, regardless of whether the merchant has integrated Affirm at checkout.
“I want my issuers to have that buy now, pay later capability, but I don’t want it to be dependent on whether the merchant … has decided they’re going to utilize that capability or not,” Johnson said. Affirm CEO Max Levchin, he added, “would rather it be tied to all the cards you process for and the brands of the financial institutions you serve” than limited to Affirm’s own debit card.
FIS is layering additional funding pools on top of debit as well. A recent pact with Bilt Rewards, a platform that lets renters earn points on monthly housing payments, funnels those points into FIS’s real-time loyalty network so cardholders can redeem them instantly at the point of sale. “Just creating new sources of funding, tying them to the debit card, as well as all of the experiences merchants are trying to build, is another strategy we’re doing,” Johnson said.
Early Demand Sources
Although the NSF solution could theoretically apply to any merchant, FIS and Kipp are initially targeting sectors that generate the highest concentration of overdraft-related declines. Streaming-video providers and online-gaming companies that rely on recurring subscription payments are at the top of that list, Johnson noted. “It really becomes a new network … related to activating those merchants,” he said, adding that Kipp has already signed several well-known brands.
Issuers, for their part, retain tight control over risk. Through a portal, a bank can specify, for example, that it will authorize NSF transactions up to a certain dollar amount, for cardholders who have been customers for a minimum length of time, or within specific merchant-category codes. Merchants then see those guardrails and set the premiums they are willing to pay. “Those two are a dynamic relationship that happens every day,” Johnson said.
Johnson believes the merchant-funded model is just the first step toward real-time, data-driven “risk negotiation” that could extend to other payment types and use cases. “You can just imagine — with AI and data — you can make those discussions happen in real time as if the store owner was talking to the bank … at that transaction,” he said. By shifting the conversation from post-transaction fees to pre-transaction collaboration, he argues, issuers can lift authorization rates, merchants can rescue sales and consumers can avoid embarrassing declines — all while keeping regulators at bay.
What matters most, Johnson insisted, is closing the gap between expectations and reality at checkout. “It’s more of a discussion around what are the headwinds or opportunities to wow customers — and then we go look to find ways to fill those gaps,” he said. “When we get it right, it feels really good.”
At a time when consumers carry more intentions than cards, that kind of innovation may be precisely what keeps a debit credential top-of-wallet.
