False declines, not fraud, are the bigger financial risk for online merchants, costing far more in lost revenue. As merchants become more conservative in fraud prevention, false decline rates rise, projected to reach hundreds of billions of dollars. Merchants can reduce them by monitoring second attempts, using control groups, contacting customers, and combining skilled analysts with deep-learning algorithms.
Despite all the attention that online fraud gets in the news, merchants might be surprised to learn that fraud isn’t their biggest risk when it comes to doing business online. Instead, it’s false declines. Retailers lost more money to false declines ($118 billion) than they lost to actual credit card fraud ($9 billion) in 2016
As fraud levels continue to rise, it’s no wonder that false declines do, too. The reason? When e-commerce merchants become more active in fraud prevention, they often become more conservative in their decision-making, which can lead to increased false declines. In fact, a report commissioned by ClearSale and conducted by the Aite Group projects false declines will grow to $443 billion by 2021.
So how do these rising false decline rates affect an online merchant’s business, and why should merchants be concerned?
In “The e-Commerce Conundrum: Balancing False Declines and Fraud Prevention,” a new report commissioned by ClearSale, Aite Group illustrates the impact false declines can have on e-commerce merchants.
With false declines having such a significant impact on merchants — from decreasing revenue to increasing lost sales and customer dissatisfaction — it’s no wonder nearly 80% of merchants currently track them as one of their key metrics.
One of the core challenges of managing false declines is that it can be tricky to know when a false decline has happened. Smart merchants are using three key tactics to accurately measure their false declines:
Even as merchants monitor their false decline rates, we see that merchants’ estimates of those rates vary significantly among businesses and verticals — ranging from more than 10% to less than 0.5%.
Merchants may want to believe their fraud prevention solution is working well. But when fraud solutions rely on automatically declining all suspicious transactions, some good transactions will inevitably be lumped in with the bad transactions and incorrectly declined.
Aite Group reports that most e-commerce merchants surveyed automatically decline between 3.1% and 7.5% of all transactions — not an insignificant number.
Here’s another problem with isolating false declines: Because different parties can be the source of false declines, merchants don’t always know exactly who might be declining a transaction during the authorization process.
Unfortunately, even those merchants that are vigilantly tracking false declines are seeing levels rise, not fall.
Even with fraud escalating rapidly, merchants don’t have to be burdened with the revenue loss caused by false declines. One way merchants can improve their ability to identify and prevent false declines is by implementing a fraud prevention strategy that uses a combination of highly skilled analysts and deep-learning algorithms. The result? Merchants can build their client base and keep more of their hard-earned revenue without losing sales and customer loyalty to fraud and false declines.
To learn more about reducing false declines as part of a robust fraud prevention program, contact one of the experts at ClearSale.
Merchants lose far more to false declines. The article cites that retailers lost $118 billion to false declines versus $9 billion to actual credit card fraud in 2016, making false declines the bigger business risk online.
As fraud levels rise, merchants become more active in fraud prevention and often more conservative in their decision-making, which leads to more legitimate orders being declined. A report commissioned by ClearSale and conducted by Aite Group projected false declines would grow to $443 billion by 2021.
Smart merchants use three tactics: monitoring second attempts to buy that do not result in a chargeback, using control groups where they deliberately approve suspicious transactions, and making contact with customers through phone calls, emails, and chats to understand decline levels.
Nearly 80% of merchants currently track false declines as one of their key metrics, reflecting the significant impact false declines have on revenue, lost sales, and customer satisfaction.
According to Aite Group, most surveyed ecommerce merchants automatically decline between 3.1% and 7.5% of all transactions. When solutions automatically decline all suspicious orders, some good transactions are inevitably caught and declined in error.
Merchants can implement a fraud prevention strategy that combines highly skilled analysts with deep-learning algorithms. This approach helps identify and prevent false declines so merchants keep more revenue without losing sales or customer loyalty.