False declines are one the most detrimental consequences of a poor fraud prevention solution. This article explains the unexpected cost of false declines for your business.
False declines are a problem that just about every online retailer has to learn to deal with. They pose a serious dilemma for businesses because it’s important to prevent fraudulent orders from getting approved, but the cost of false declines is high in terms of both reputation and revenue.
It’s estimated that businesses lose 3% of their revenue due to false declines every year. In 2020, the ecommerce industry generated $4.29 trillion. If this revenue level stays the same until 2023, this would sum up to $12.87 trillion. At 3% leakage rate, false declines could potentially cost businesses up to $386 billion.
In this guide, we’ll take a look at how false declines occur, as well as the unexpected damage that false declines can inflict.
What Is a False Decline?
A false decline is where a legitimate transaction is flagged as fraudulent and rejected— this is also often referred to as a false positive.
There are a few different reasons that false declines happen. For instance, they can occur if a user’s IP address is in a different country than their billing address, which is a common scenario for business users.
A false decline can also fall afoul of other filters, including:
- Daily velocity filters, which limit the number of transactions one IP address can make per day.
- Shipping and billing address mismatch filters.
- High ticket purchase filters, which are triggered by transactions that are over a certain value threshold.
Now that we know the causes of false declines, let’s look at the damage they can do.
1. They Damage Your Brand’s Reputation
Picture this: your customers have repeatedly tried to buy something from you, yet their cards keep getting declined. They’re going to be frustrated, and that frustration can seriously damage your brand.
They may turn to online forums or review sites and complaining about your business, and who can blame them? Other users may well read these reviews and decide to buy from another business.
This reputation damage is a serious concern: brand reputation means a lot in today’s competitive market. If your attempts at combating fraud are hurting your reputation, they could be doing more harm than good.
2. They Drive Away Loyal Customers
False declines don’t only drive away potential new customers, they can also hurt customers that are currently loyal. You may have customers who have been with you since the beginning, but if they start encountering false declines, they could start shopping elsewhere.
False declines can cause embarrassment, as well as inconvenience. Even the most loyal customer may want to find somewhere else to shop if they find themselves encountering these issues.
3. False Declines Cost You Revenue
We’ve mostly talked about how inconvenient false declines are for customers, but it’s important to remember that they can hurt your bottom line, too. A customer who encounters a false decline may abandon their cart, which is a lost sale. If they abandon your company, you lose many sales, all of which cut down your revenue.
4. False Declines Damage Your Fraud Detection Abilities
Fraud detection needs data to work well. If you block all transactions from Nigeria, for instance, then you are not only driving away legitimate customers, you’re giving your fraud detection less data to work with, which means that your fraud detection will be less accurate.
This can lead to widespread inaccuracy, which may allow real fraudulent transactions to slip through the net.
First appeared on Vesta’s Blog on eCommerce Fraud.
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