False Declines: The $8.6 Billion Problem That’s Undermining E-Commerce Merchants’ Fraud Prevention
- Fraud is rising in the US, costing merchants 1.47% of annual revenue in 2016, up from 0.51% in 2013. As fraud eats into revenue, merchant processors and acquirers are seeking to blunt its impact by enforcing strict rules to block suspicious transactions.
- False declines — valid transactions that are incorrectly rejected — are unintended consequences of e-commerce merchants’ fraud prevention strategies. False declines, also called “false positives,” will cost e-commerce companies $8.6 billion in 2016, according to our estimates. This eclipses the $6.5 billion in prevented fraud, meaning false declines must be reduced in order for merchants’ fraud prevention strategies to be cost effective.
- Causes of false declines fall into three buckets. False declines can be caused by identity-related, technical, or structural issues. Examples of causes include conflicting shipping and billing information, outdated card information, and differing risk appetites among issuers and merchant acquirers/processors.
- There are solutions for two of the types of causes. E-commerce merchants can solve identity-related problems by requiring their customers to authenticate themselves through more accurate means, such as 3D Secure and biometrics. Merchants can solve for technical issues associated with false declines by using smart routing, card updaters, and local domains.
- But structural problems are limiting the effectiveness of these solutions. Each issuer, acquirer, and processor makes decisions on fraud using their own set of standards. This makes it difficult to contain the problem of false declines because stakeholders can’t control each other’s criteria.
Make prevention a priority with proper gateways and virtual terminals at eComTechology.
- Estimates the cost of false declines compared to fraud losses and prevented fraud.
- Determines the effectiveness of e-commerce merchants’ current fraud prevention strategies.
- Categorizes and explains the various causes of false declines.
- Uncovers the potential solutions to solving false declines.
- Provides guidance on how merchants can minimize the issue of false declines going forward.
- And much more with our preventative modules.