Rules are meant to be broken, and fraud rules are no exception. Merchants put them in place to try to deter pesky cybercriminals from defrauding their business, but fraudsters usually just find a way around them.
Worse, the same fraud rules that were designed to make it easier to let legitimate customers make their purchases end up adding friction and causing good transactions to be rejected.
If merchants choose to add fraud filters as part of their fraud prevention solution, they should do so knowing how it can negatively impact customers. Here are a few ways these filters negatively affect the online customer experience.
Address verification services (AVS) automatically compare the numerical portion of a billing address a customer enters in a credit card transaction against the address the bank has on file. If they match, the merchant can be more confident their customer is who they say they are — or that they’re at least an authorized user of the credit card. If they don’t match, the merchant might consider declining the transaction.
AVS can automatically reject potentially fraudulent transactions — which is great news for e-commerce merchants looking to reduce their fraud and chargeback ratios. Unfortunately, automatically declining transactions is likely to result in an increased number of false declines, which means the merchant is rejecting legitimate orders.
Customers mistakenly entering a 10-digit ZIP code instead of a 5-digit one, forgetting a suite or an apartment number, or making a simple typo are enough for the AVS to flag the address as a mismatch and potentially cancel the transaction.
Even customers who are shipping a gift may find their legitimate transactions declined thanks to an AVS mismatch.
Merchants know that when fraudsters buy credit card data off the dark net, they’ll test the card details with a small purchase. If the transaction goes through, they’ll often use that card several times in rapid succession — often with the same merchant — to get as much value as they can before they’re shut down.
To prevent this, merchants use velocity filters. These filters are designed to catch scenarios where a “customer” is trying to place multiple orders within a very short period of time. Unfortunately, these filters sometimes also catch legitimate customers who want to make additional, legitimate purchases. Perhaps a customer completed an order for a $5,000 luxury handbag. After a few moments of thought, the customer decides to buy the matching $1,500 wallet. The customer goes back to the website to make this additional purchase – but the velocity filter flags the second purchase as fraudulent, and blocks the transaction. This creates an unhappy customer who now might decide to shop elsewhere, and causes the merchant to lose a lucrative sale and potentially a valuable customer relationship.
The volume of fraudulent transactions often peaks in the middle of the night and then tapers off during the day. Merchants often therefore set up time-of-purchase filters to flag suspicious transactions during the overnight hours or to even block transactions completely during certain timeframes.
This means shift workers trying to get their shopping done on a break, or night owls finally pulling the trigger on making a large purchase, may find their transactions rejected. The merchant loses out on the sale, and the customer turns to a competitor for the purchase — but maybe not before leaving a negative review as a result of the negative online customer experience.
Some merchants mistakenly believe a customer's IP address and shipping address will match if the transaction is legitimate, causing them to decline any mismatched transactions. But filters like these are unable to see the whole story, and their inflexibility often results in a negative shopping experience for customers.
For example, international business travelers may place orders for delivery to their hotel, which could be in a country different from their usual billing and shipping address. Merchants who set up inflexible rules may find these transactions being rejected without any human intervention and research.
When set up correctly, fraud filters can be effective at reducing a merchant’s fraud risk while offering customers a seamless experience. But if they’re not implemented the right way, they can severely limit a merchant’s earning potential while also impacting the customer experience.
Some merchants may turn to layering fraud filter rules to catch more — and more sophisticated — transactions. This may cause some rules to override others and results in even more customers having their transactions falsely declined.
But a third-party vendor can help you set up and layer filters properly to ensure you’re not creating a negative online customer experience by turning down legitimate transactions. Third-party vendors like ClearSale can even help you set up a fraud score system to better detect fraudulent transactions.
Interested in learning more about credit card fraud and how you can prevent it while keeping customers happy? Download our free e-book, “Online Credit Card Fraud Risk: The Ultimate Guide to Growing E-Commerce Sales Safely.”