{"url":"https://www.clear.sale/blog/how-fraud-prevention-can-reduce-customer-acquisition-costs","title":"As Customer Acquisition Costs Rise, Anti-Fraud Strategies Can Help","tldr":"With customer acquisition costs near $29, learn how fraud and false decline prevention protect ad spend, retain good buyers, and boost lifetime value.","markdown":"TL;DR\n\nAs customer acquisition costs climb, fraud and false decline prevention protect the investment merchants make to win each customer. In ClearSale's March 2021 survey of online shoppers in five countries, 84% said they would never shop again on a site that allowed fraud with their card, and 40% said the same after a false decline. Pairing AI-driven detection with expert review of high-risk orders keeps good customers, protects lifetime value, and reduces costly negative word of mouth.\n\nConnecting with and keeping customers is more challenging than ever. Ecommerce competition is up, and so are rates for digital ads, while ROI on ad spending is down, according to a [recent Shopify report](https://enterprise.plus.shopify.com/rs/932-KRM-548/images/FOC_PDF_FA.pdf?mkt_tok=OTMyLUtSTS01NDgAAAGIu5QrKg8aa0IvkL4lTJNRbum2GAbz8I2RQPHtLqb1iOcST7lVHHg9AAZ60ikC5LnYq7xaU7A4w2430ouZ5JSlhURW6TvSYuR7UECLUgjBOp1ArA). As a result, the report recommends that brands “prioritize customer lifetime value and promote brand loyalty.”\n\nBetter fraud prevention won’t reduce the rates you pay for ads or eliminate the need to create compelling messaging, of course. However, fraud and false decline prevention can preserve your investment in customer acquisition. Prevention also protects your brand from negative word-of-mouth that can make customer acquisition more difficult and more expensive.\n\n## Why the ecommerce landscape is so challenging now\n\nThe ecommerce market will grow by [more than 14% year over year](https://www.grandviewresearch.com/industry-analysis/e-commerce-market) through 2027, with new stores going online all the time. As competition increases, it can be harder to connect with customers through digital messaging. Search ad [costs per click increased by an average of 19%](https://searchengineland.com/new-report-shows-google-cost-per-lead-has-increased-for-91-of-industries-389593) last year for most industries, raising the stakes for return on ad investment. Third-party data is harder to access, requiring businesses to collect and analyze more first-party data in order to personalize the customer experience.\n\nConsidering all these factors, it’s no surprise that the average cost to acquire a new customer [reached $29 in 2022](https://www.simplicitydx.com/blog-posts/press-release-brands-losing-a-record-29-for-each-new-customer-acquired). In order to make those acquisitions profitable, businesses need to derive the highest possible lifetime value from each customer.\n\n## Most customers who experience fraud will churn\n\nCustomers quickly lose trust in online stores if their card is used to commit fraud there. In ClearSale’s March 2021 survey of online shoppers in five countries, 84% said they’d never shop again on a site that allowed that kind of fraud with their card. Among that same group of consumers, 15% said they’d experienced online payment fraud within the past year. Nearly ⅓ of those fraud victims said they’d had more than one fraud experience during that time.\n\nCard not present (CNP) fraud isn’t going away or even slowing down. By 2024, analysts expect CNP fraud losses in the U.S. to [exceed $10 billion](https://www.insiderintelligence.com/newsroom/index.php/total-card-fraud-losses-to-surpass-12-billion-in-2022-as-fraud-continues-to-shift-online/), up from $8.75 billion in 2022. Rising fraud rates expand the number of potential victims and increase the potential number of customers who will abandon an online store because of their bad experience.\n\n## Many customers will boycott after a false decline\n\nMistaking good orders for fraud also drives customers away, and it’s a more common problem than many retailers realize. That’s because some fraud solutions don’t review decisions to determine which were actual fraud and which were false positives. Instead, they define all rejected orders as fraud. The five-country consumer survey found that a quarter of shoppers had experienced a false decline online in the past 12 months. Among those customers, 38% had more than one order declined in error.\n\nAlthough customers want to avoid being victims of fraud, many are understandably offended when they’re mistaken for perpetrators of fraud. Forty percent of shoppers in the five-country survey said they’d never shop again with a site that declined their order.\n\n## The losses go beyond churn\n\nCustomers lost to fraud and false declines represent a significant amount of potential lifetime value. However, these customers are also likely to share their negative experiences in a way that influences other consumers to avoid the site where they had their bad experience. For example, 34% of the five-country survey’s respondents said they would post something negative about the site or store online after a false decline.\n\nThat negative word-of-mouth requires the retailer or brand to respond and attempt to resolve the issue. That’s because while 94% of shoppers say bad reviews have “[convinced them to avoid a business](https://www.reviewtrackers.com/guides/examples-responding-reviews/),” 45% say they’re more likely to engage with a business if it responds to its negative reviews. However, this kind of review management can drive up customer acquisition and retention costs, especially if there are a lot of negative comments and reviews to address.\n\n## Reducing fraud and false declines\n\nTo address fraud and false declines, it’s helpful for companies to benchmark the existing rates of each issue. Then it’s time to see why fraud is getting past existing barriers. For example, the fraud control program may lack AI that can learn to identify fraud attempts that are more sophisticated than simply using a stolen credit card. Or the fraud control program may have AI capabilities, but the system is automatically set to reject all flagged orders without further investigation–a typical scenario for generating excessive false declines.\n\nIdeally, the fraud prevention process will include an AI-driven automated fraud detection component, with the parameters customized to accommodate the store’s specific customer personas and markets. For example, if the store has many cross-border and new customers, the parameters should not be so strict that they automatically flag customers with overseas addresses, or customers without an online shopping history. The program should be capable of weighing additional factors in scoring these orders.\n\nThe fraud prevention program should also allow for expert review of orders that score high for fraud risk. This step can identify flagged orders that are legitimate, so the retailer can avoid false declines, approve the orders, and keep those customers’ lifetime value. Expert review can also confirm fraud findings and feed all of the review results back into the AI system so it can refine its ability to separate fraud from good orders over time.\n\n## Stronger loyalty and brand reputation\n\nWhen customers can shop without fraud and false declines, they’re more likely to remain loyal, even if the stores they’re shopping with don’t offer the lowest prices or fastest shipping. Eighty-five percent of consumers in the five-country survey said they’re more likely to shop with stores they trust, even if they have to pay slightly more or wait slightly longer for deliveries. By providing safe, positive shopping experiences, retailers and brands can enjoy a higher average customer lifetime value, better word-of-mouth online, and lower costs to win over new customers.\n\nOriginal article at: [https://retail-today.com/as-customer-acquisition-costs-rise-anti-fraud-strategies-can-help/](https://retail-today.com/as-customer-acquisition-costs-rise-anti-fraud-strategies-can-help/)\n\n## Frequently Asked Questions\n\n### How does fraud prevention lower customer acquisition costs?\n\nFraud and false decline prevention preserve the investment a merchant already made to acquire each customer by keeping good shoppers from churning. It also prevents the negative word of mouth that makes future acquisition harder and more expensive.\n\n### How many customers stop shopping after experiencing fraud on a site?\n\nIn ClearSale's March 2021 survey of online shoppers in five countries, 84% said they would never shop again on a site that allowed that kind of fraud with their card. In that same group, 15% said they had experienced online payment fraud in the past year.\n\n### What is a false decline and why does it cost merchants?\n\nA false decline is when a legitimate order is mistaken for fraud and rejected. In the five-country survey, 40% of shoppers said they would never shop again with a site that declined their order, so false declines drive away good customers and waste acquisition spend.\n\n### How does a false decline spread beyond the lost sale?\n\nCustomers often share bad experiences. In the survey, 34% of respondents said they would post something negative online after a false decline, and bad reviews convince 94% of shoppers to avoid a business, which raises the cost of acquiring and retaining customers.\n\n### What kind of fraud prevention reduces both fraud and false declines?\n\nThe strongest approach pairs AI-driven automated detection, tuned to the store's customer personas and markets, with expert human review of orders that score high for fraud risk. Expert review approves legitimate flagged orders and feeds results back to refine the AI over time.\n\n### Does fraud prevention help build loyalty?\n\nYes. When customers can shop without fraud and false declines, they are more likely to stay loyal even when prices are not the lowest. In the survey, 85% said they are more likely to shop with stores they trust, even if they pay slightly more or wait slightly longer."}