Report: False Declines Lead to More Losses than Fraud

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.”  

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