Why false rejections, data silos are the next big payments challenge

The payments industry is locked in a race for speed. Faster rail, instant settlement, one-click checkout, invisible authentication and many more innovations all point to one assumption: friction is the enemy, and technology’s job is to eliminate it.

But as the payments ecosystem matures, the next frontier is understanding that speed is no longer a differentiator.

“If you think about the payments industry and what we’ve been building over the last decade, it’s faster tracks, smarter algorithms,” Entersekt chief strategist and co-founder Dewald Nolte told PYMNTS in a conversation for the February edition of the “Word of the Year” series on “What’s Next in Payments.”

That wall is becoming increasingly apparent for banks, merchants and fintech platforms who are grappling with a paradox: They have more data than ever before, but are often less sure what it means. Fraudsters exploit this ambiguity, while legitimate customers are caught in the crossfire of overly cautious risk models.

“We are drowning in data, but we are hungry for wisdom,” said Nolte, noting that for 2026, his word of the year is “context.”

When fraud prevention becomes a customer experience issue

Historically, fraud prevention has been measured by how much bad activity is prevented. But this metric masks the troubling fact that the same systems designed to deter criminals often alienate loyal users.

“It's almost insulting,” Nolte said of repeat customers who are forced to undergo unnecessary verification. “Like, you should know me.”

Consider high-value transactions flagged by traditional controls. For example, paying $5,000 to an online casino may automatically trigger an alert. However, without historical insights into user behavior, the system cannot distinguish between fraudulent behavior and known wealthy customers who behave consistently.

“If you have the complete background information of this user, say 10 transactions in the past six months without any issues, then suddenly the situation changes from fraud to ‘This is a VIP customer, how can we make this happen?’” Nolte said.

This is where the situation shifts from analytics enhancement to competitive necessity. Payments leaders realize that false declines (i.e., legitimate transactions rejected by risk engines) can have hidden costs such as lost revenue, damaged trust, and reduced brand loyalty.

Nolte predicts that one of the most visible results of context-driven payments may be the reduction of blanket authentication challenges such as one-time passwords and the indiscriminate application of step-by-step verification prompts.

“This will be the death of automatic upgrades,” he explained.

Rather than treating every transaction as suspicious unless proven otherwise, contextual systems can continuously interpret behavioral signals, device intelligence, and historical patterns to determine when security should be visible and when it should disappear entirely.

The real obstacle is not technology. This is fragmentation.

Despite advances in machine learning, cloud infrastructure, and instant processing, the payments industry’s biggest limitation isn’t computing power. This is fragmentation.

Data remains trapped in institutional silos: issuing banks protect transaction histories, merchants gain behavioral insights, and identity signals are dispersed among third-party providers. Each participant can only see part of the customer journey.

“If you just focus on your little silo, that’s no longer enough,” said Nolte, who describes emerging baseline capabilities as “orchestrated ingestion,” or the ability to collect signals from multiple sources in real time and synthesize them into unified risk decisions.

“Sometimes the biggest challenge is that we want to build our little kingdom,” he added. “But someone has a perspective that you don’t have, and you need it.”

The increasing sophistication of financial crime reinforces the need for cooperation. Fraud networks already operate as highly coordinated ecosystems of information sharing, instant transaction technology and data.

“Criminals do one thing better than we do,” Nolte said. “They actually share data.”

To counter this threat, agencies should consider adopting what Nolte calls “collective defense,” pooling intelligence across organizational boundaries.

“Regulators have recognized that guardrails and mechanisms to ensure that data is shared responsibly are addressed,” he said.

Evolving trust from transactions to relationships

If the payments industry's first digital era was defined by speed, its next phase may be defined by explanation. Context transforms isolated transactions into continuous relationships, enabling systems to recognize intent rather than just process input.

“You want to go from the fraud rate of how much fraud I've stopped to the trust rate,” Nolte said.

This shift redefines security as a customer experience discipline and risk function, and means quantifying the effectiveness of agencies in approving legitimate activity while still maintaining a high level of protection.

The real benchmark, Nolte said, is reducing false rejections without sacrificing fraud prevention.

“If I can maintain 99.9 percent fraud prevention by reducing false rejections by 50 percent, that's my approach,” he said. “How much can I reduce these false rejections if I make my most loyal customers feel like strangers?”

Ultimately, by 2026, the winners in payments may not be those who move money fastest, but those who understand the moment best.