There is no denying that e-commerce fraud is a real and present threat. While this fraud risk is not slowing CNP sales, it is forcing many merchants to become overly stringent in how they detect and prevent fraud.
The unfortunate trickle-down effect of these strict fraud detection rules is an increase in false declines. It’s critical that merchants have solutions in place to prevent false declines and to implement a method of revenue recovery in the event of such errors.
Unfortunately, many merchants are oblivious to these false declines, and as a result do not understand the need to be proactive with changing how they detect and prevent fraud. Having a rules engine that detects fraud is important; however, these traditionally overly strict rules engines contributed to an estimated $8.6 billion in lost sales in 2016 due to false declines.
Because merchants are so focused on preventing fraud and chargebacks, they lose sight of the lost revenue that results from these high false decline numbers. To get ahead and stay ahead, savvy merchants should learn how to prevent false declines to maintain a consistent and valuable revenue stream.
False Declines Are Costly
Unfortunately, the reality of false declines is overshadowed by the cost and danger of fraud. There is no denying that fraud costs merchants; however, it’s important to keep in perspective how fraud compares to the cost of false declines. The same technology that contributed to an estimated $8.6 billion in false declines prevented an estimated $6.5 billion in fraud loss. In other words, the cost of false declines is approximately $2 billion more than that of fraud.
The cost of false declines is not a one-off; it is the cumulative impact of these false declines that can really hurt merchants.
- Lost revenue. Both initial lost revenue and future losses, due to rejected customers not returning for subsequent purchases.
- Long-term customer loss. Once incorrectly rejected, customers may not return for future purchases. There can be an extended impact with negative customer reviews and social media exposure.
- Marketing costs. The cost to market to and connect with customers is high, this expense is lost when target customers are rejected due to invalid assumptions.
Typically, a false decline is triggered when the rules engine of the merchant’s payment solution identifies anomalies in customer behavior or sees a mismatch in identifying data. While this customer monitoring is key in detecting fraud, it’s important to understand that these rules engines cannot rationalize the reasons for the anomaly.
This speaks to the need for merchants to use a multi-layered approach to fraud detection that involves both technological and human interaction. Your customer service team is critical in detecting fraud and preventing false declines.
Customer Service to Prevent False Declines
Along with using a proven third-party solution to mitigate false declines, merchants can do a lot with their customer service team to prevent false declines. While merchants might balk at the perceived cost of using customer service team members to prevent false declines, this proactive communication goes a long way in saving lost sales and in building customer relationships.
Many of these common reasons for false declines can be alleviated with a proactive customer service team:
- Unusually high order. Typically, unusually high-price orders are automatically rejected by rules engines. Instead, merchants should flag these orders and contact the customer to confirm it. There could be a valid reason for the large order; with a quick email exchange or phone call, the merchant can keep the sale and the revenue.
- Expired credit card. Payment solutions are programmed to react to invalid credit card information, causing a false decline. Instead, when an expired credit card number is detected, trigger an email to the customer alerting them to the problem. Often, customers are not aware that they’re using an expired card.
- Address mismatch. Orders are rejected when the provided address does not match that on file. Contact the customer to find out if they have moved, made an entry error (common with mobile devices), or may be an unknown victim of identity theft.
These examples highlight why it’s important for merchants to look beyond the obvious and take a closer look at what the data is showing them. While a strict rules engine is key in detecting fraud, it cannot interpret address mismatches or unusually high orders or an unexpected customer order. These examples can be indicators of friendly fraud – emphasizing why merchants must do more than the standard accepted practices to protect their revenue stream.
Review Proven Technologies
Just as there is not one ideal solution for detecting and preventing fraud, the same holds true for limiting your losses to false declines. It takes a customized approach with intelligent technology and a skilled customer service team to prevent the hidden cost of false declines from hurting your business.
Contact us to learn more about how our Decline Salvage solution can provide you the support you need to realize revenue recovery and prevent the trickle-down effects of false declines.