A report from Aite Group, sponsored by ClearSale, found that false declines cause far larger losses than fraud itself, with projected false-decline losses of $443 billion by 2021 against $6.4 billion in fraud losses. Based on 100 US e-commerce executives, the study found 62 percent saw false decline rates rise over two years, often because suspicious transactions were automatically declined. Many of those declined orders are legitimate, costing merchants the sale plus the customer's lifetime value.
Losses due to e-commerce fraud are projected to reach $6.4 billion by 2021, according to a new report from Aite Group and sponsored by ClearSale. But losses due to false declines are projected to reach $443 billion by 2021—nearly 70 times more than losses from fraud itself.
The report, titled The Ecommerce Conundrum: Balancing False Declines and Fraud Prevention, reveals the scope of the CNP fraud and false decline problem and what merchants need to know to take proper precautions, said ClearSale in a statement on the findings.
The report is based on a study of 100 US-based e-commerce executives whose companies earn annual revenues between $100 million and just under $1 billion. The research also found 62 percent of online merchants have seen false decline rates increase over the past two years and points to automatically declining suspicious transactions as the potential the reason behind high false decline rates.
The report notes 66 percent of merchants manually review at least 50 percent of all sales transactions. Half of those merchants say they decline up to 30 percent of manually reviewed transactions. In an effort to stem the need for manual review, 72 percent of merchants said they plan to add at least one automated fraud screening tool in the upcoming 18 months.
“Most e-commerce merchants are aware of the potential impact that fraud has on a business, it's why they invest in fraud tools and solutions,” said Rafael Lourenco, executive vice president and partner at ClearSale. “But what they may not realize is that those same solutions may actually be creating a bigger problem than fraud itself. Studies have shown that of the suspicious transactions that are automatically declined, at least 58% of those orders are legitimate. Which leaves merchants with more than just the loss of a customer, but the loss of the Customer Lifetime Value (CLVT), and the potential loss of customers in that declined shopper’s network.”
Original article at: https://news.cardnotpresent.com/news/report-false-declines-lead-to-more-losses-than-fraud
Frequently Asked Questions
Do false declines cost merchants more than fraud?
According to the Aite Group report sponsored by ClearSale, yes. Losses from false declines were projected to reach $443 billion by 2021, nearly 70 times the $6.4 billion projected from e-commerce fraud itself.
What is a false decline?
A false decline is when a merchant rejects a legitimate transaction because it looks suspicious. The report notes that of suspicious transactions automatically declined, at least 58 percent are actually legitimate orders.
Why are false decline rates rising?
The report points to automatically declining suspicious transactions as a likely driver. Among the executives surveyed, 62 percent saw false decline rates increase over the past two years.
How much does a false decline really cost a merchant?
Beyond the lost sale, the merchant loses that customer's Customer Lifetime Value and risks losing other customers in the declined shopper's network. The damage extends well past a single transaction.
How common is manual review among merchants?
The report found 66 percent of merchants manually review at least 50 percent of all sales transactions, and half of those merchants decline up to 30 percent of the orders they review manually.
Are merchants planning to add automated fraud screening?
Yes. To reduce the need for manual review, 72 percent of merchants said they planned to add at least one automated fraud screening tool within the following 18 months.
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