Avoiding false declines

Merchants, what worries you more, getting ripped off by fraud or offending your customers? If you said fraud, that’s reasonable. Organized criminals using stolen carddata and hijacked customer accounts can steal your merchandise and cost you charge backs and extraprocessing fees. But too often, good customers get caught in the anti-fraud net and end up seeing their orders rejected, i.e.false declines.

That unintended consequence of fraud control costs merchants much more than fraud.It may seem like false declines are the cost of doing business without being swarmed by fraudsters. Butthat’s not necessarily true. It’s possible to maintain strong fraud prevention without losing revenue from good orders. To do so, merchants need to understand the scope of the false decline problem and the stepsneeded to solve it.

Comparing losses

Card-not-present (CNP) fraud will cost North American merchants US$5.5 billion in 2019. That figure comes from an Aite Group report sponsored by ClearSale.

But to put that in perspective, although it’s a largenumber, it’s not as big as the losses from false declines.Lost revenue from false declines is projected to reach US$370 billion this year. That’s roughly 67 times more money lost to false declines than to completed fraud.

And 62% of the merchants surveyed for the report saidtheir false decline rates have increased during the past two years.False declines can cause problems for any merchant, but they’re a bigger problem for CNP transactions than point of sale (POS) purchases.

The authorization ratefor POS purchases averages 97%, while approval ratesfor CNP orders range from 80 to 85%.Besides missed sales, false declines can create otherlong-term losses that are hard to estimate. Accordingto a Motley Fool article 63% of consumers say one bad experience is enough to make them quit shopping witha brand1.

That reduces the customer’s lifetime valueand drives up the merchant’s customer acquisitioncosts.

Three steps to takeClearly, reducing false declines is good for merchantsand their customers. However, doing so is a challenge. Make the checkout process too onerous for customer sand you’ll lose them before they place orders.

Loosen your fraud controls and you’ll end up trading falsedeclines for more fraud.There is a path to fewer false declines without morefraud or undue customer friction. It starts with data,moves to analysis and develops into a plan that fitsyour store’s situation.

1. Gather dataMost merchants (79%) track their false declines, whichis important. If your business doesn’t do this, it’s timeto start. How can you tell which declines are false?

Merchants typically use three methods. The mostcommon is to track orders that are successful on the second try and don’t result in chargebacks.

Another option is to track which declined orders are followed upby inbound contact from customers.

Some merchants pursue a third approach—setting up control groups that approve some orders with fraud flags—and then tracking how many if those result in chargebacks.

It’s a good idea to track your false declines by channel as well as your overall rate. That’s because each channel has its own fraud risk profile and authentication options.

For example, it’s one thing for a merchant toknow that their overall false decline rate is 4%. Butknowing that 80% of those false declines happen in themobile channel makes it easier to decide where to startmaking changes

2. Find your problem areasOnce you have data on your false decline rate, lookat your order approval process. At what stages dotransactions get declined in error and why?
3. ❯Is your automatic fraud screening program set toautomatically reject orders that are suspected offraud?
4. ❯Have you set overly broad fraud-screening parameters, such as automatically rejecting all cross-border orders? and
5. ❯Is it possible that other parties to your transactions, like acquirers and gateways, are declining goodorders.
6. Correct the problems.
7. When you know your false decline rate, and where the problems are, you can improve the situation.
8. You might consider adding security steps that put the burden ofproof on customers, like two-factor authentication (2FA).
9. However, keep in mind that the more steps the customer must take to make a purchase, the more likely they are to aband on their cart.Other options to reduce false declines require more resources on the merchant side.
10. The benefit ofthese approaches is that they don’t add friction to thecustomer’s experience.
11. ❯Adding behavioural biometrics, fraud scores andmachine learning models to your fraud screening program can make your fraud screening more accurate;
12. ❯Manually reviewing suspect orders, instead of automatically rejecting them, can reduce false declines and customer churn;
13. ❯Feeding the manual review results into your machine learning model will make it even more accurate over time; and
14. ❯Sharing your false decline data with other transaction parties may help you collaborate to reduce false declines.

Keep monitoring your order metrics after you implement changes to see if they’re having the intended effect.

This is especially important if youadd 2FA to ensure you’re not losing orders to cart abandonment.

Figuring out your false decline rate and solving it takes an investment of time. Done right, itcan yield more revenue and better customer service while protecting your store from fraud.

Original article at: https://issuu.com/dmn.ca/docs/dm_nov2019_w?fr=sNDJkNTE1NTI5MA