Chargeback & Fraud Protection Team
It seems like combatting credit card fraud should be easy. After all, many e-commerce platforms come with simple fraud filters already built in. So, what’s wrong with using those solutions to quickly and automatically identify and decline potentially fraudulent transactions?
In fact, it often results in high false decline rates, lower approval rates, and a direct hit to your ROI.
While these automatic reviews may seem like they can save time, money and resources, they can actually be extremely damaging to the health of your e-commerce store for three important reasons.
Fraud Filters Misidentify Legitimate Orders
Many merchants use the basic fraud filters that come with their e-commerce platform, believing they’re enough to catch fraudulent orders. And if one filter is good, more must be better, right? So, merchants layer filter on top of filter, hoping to flag even more suspicious transactions.
But instead of catching more fraud, merchants often end up assuming more risk. Because if they aren’t careful about the order in which the filters are layered, some of these rules may cancel each other out, reducing the amount of protection they offer and resulting in automatic or false declines.
Automatic declines refer to e-commerce fraud detection systems that automatically reject transactions based on preset criteria — often without human oversight. While these systems promise efficiency, they can’t assess context or intent, which leaves many legitimate purchases unfairly rejected.
Another problem with this automated approach is that fraud filters can’t account for variable customer purchasing behavior. For example, customers may make purchases at odd hours, ship orders to multiple locations, or make purchases from high-risk locations — and these suspicious behaviors alone may be enough to cause automated solutions to decline the transactions. But rather than being fraudsters, these individuals are simply night owls, shipping gifts to family across the country or traveling overseas.
Imagine a college student placing a late-night order for sneakers from a shared Wi-Fi network on campus. The shipping address doesn’t match the billing address — and they’re using a newly issued card. While these signals may raise red flags in a rules-based fraud system, they’re perfectly legitimate behaviors for a young, mobile consumer. Without nuanced fraud detection, these kinds of legitimate behaviors are easily flagged as fraud, damaging both conversion rates and customer relationships.
Unfortunately, these solutions simply can’t differentiate between the two. This inability to adapt to customer behavior drives up false declines, negatively impacts approval rates, and risks long-term profitability.
False Declines Cost More Than Fraud
Many e-commerce merchants are fixated on the costs of approving fraudulent orders; however, statistics show the costs of declining good orders may actually be higher. False decline losses total an estimated $118 billion yearly, which is 13 times more than the losses to credit card fraud merchants are trying to prevent. False declines aren’t just about lost sales — they degrade your return on investment by denying good customers and wasting acquisition spend.
Let’s say a merchant operates with a 10% profit margin. A falsely declined $200 order equates to $20 in lost profit. But it also means spending additional ad dollars to re-acquire that customer — if they ever come back. Now multiply that by hundreds or thousands of false declines per year, and you can see how quickly ROI erodes from inefficiencies that don’t even block real fraud.
And depending on the e-commerce merchant’s profit margins and business model, one mistakenly approved fraudulent order could take a dozen or more good transactions to make up for it.
False Declines Drive Customers Away
Merchants who use strict fraud filters may not keep all the fraudsters away — but they probably will frustrate legitimate customers. In fact, customers who experience a false decline typically choose not to shop with that merchant again.
Being declined at checkout feels insulting — especially when a customer knows they’ve done nothing wrong. It introduces doubt: “Does this store even want my business?” With so many alternatives just a click away, customers often won’t give the merchant a second chance.
And unhappy customers are often vocal ones, sharing their displeasure with all of social media. American Express found that consumers tell an average of nine people about their good experiences, but they tell 16 people about the bad — a move that can quickly create lasting brand damage.
Even merchants who offer identity-proofing challenges based on personally identifiable information as a way to more confidently identify legitimate customers may be surprised to hear how ineffective this tactic is. Total Retail reports that about 25% of customer profiles are mismatched.
Even worse, merchants will never know whether they declined legitimate orders or orders from fraudsters — until customers take to social media or call customer service lines to complain. And by then, the damage has been done.
The Impact of False Declines on Customer Loyalty and ROI
False declines don’t just block purchases — they erode customer trust, reduce lifetime value, and severely undermine your ROI. Here's what the numbers say:
- 40% of Gen Z consumers won’t return after a false decline, and 35% will broadcast the experience on social media — quickly damaging a brand’s reputation and future revenue potential.
- 42% of shoppers will completely boycott a brand that falsely declines their transaction, and 34% will file public complaints online.
- In 2023, U.S. merchants lost $157 billion due to false declines — with $81 billion of those losses never recovered.
- False declines cost merchants 75 times more than confirmed fraud, making them one of the most expensive hidden threats to your eCommerce business.
- 47% of retailers agree that false declines have a significant negative effect on customer satisfaction — directly influencing conversion rates and long-term ROI.
- 56% of U.S. consumers have experienced a false decline within the past three months, reinforcing how widespread — and impactful — the issue has become.
- New customers are 5 to 7 times more likely to be incorrectly declined — putting customer acquisition investments at risk before relationships even begin.
How a Robust Fraud Detection Solution Can Help
The good news is that merchants don’t need to accept false declines as a cost of doing business. Instead of leaving their fraud prevention systems up to an inflexible algorithm, merchants can use a system that flags questionable transactions and gives merchants the opportunity to manually review these “gray area” orders.
A multilayered approach to fraud prevention incorporates machine learning and manual reviews to evaluate orders that fall into this grey area. This is the only way to be confident you’re declining as many fraudulent orders as possible, while simultaneously approving as many good orders as possible.
High false decline rates chip away at your approval rate and directly reduce your ROI — making a balanced fraud solution essential. Online retailers can’t afford to guess when it comes to fraud. A smarter approach can reduce false declines, improve approval rates and protect ROI.
Want to see how much these declines may be costing you? Try our ROI Calculator to get a clear picture.
