What Happens to Ecommerce Transactions That Are Not Approved?
At ClearSale, we offer one of the highest approval rates in the industry. But not every transaction should be approved. Some are quite clearly the work of fraudsters, and others are potentially fraudulent. The real work is in determining whether or not a potentially fraudulent transaction is valid. In other words, what happens to orders that aren’t automatically approved?
There’s a process that every ecommerce business should follow to determine how to handle those transactions.
At ClearSale, our hybrid approach leverages both AI-enabled technology that uses an auto-approval algorithm that clears 97% of orders and a secondary review process for the remaining 3% of orders (at a maximum). That review is performed by our team of experienced fraud analysts, whose global fraud experience includes identifying fraud patterns in the world’s most high-risk regions.
“Secondary reviews turn false declines into approvals. If you want to increase your company’s acceptance rate and lower false declines, you have to include secondary review in your fraud prevention methodology. The impact could be as much as 20% to 25% of orders.”
Salvador Tello, ClearSale Global Enterprise Presales
Let’s take a closer look at that review process, starting with the reasons for flagging transactions.
Why Orders Are Flagged for Review
Companies create rules that determine what is within the acceptable parameters for a “good” transaction. Anything outside of this should be flagged for review. Additionally, when companies work with fraud prevention partners, transactions that are in line with known fraud patterns should also be flagged.
For example, orders that have mismatched shipping and billing addresses may be flagged because they could be a sign of card-not-present (CNP) or account takeover (ATO) fraud, where criminals use stolen customer credentials to make purchases and ship them to their address instead of the card owner’s address.
During secondary review, fraud analysts look at specific metrics to determine if an order is fraudulent or valid.
Metrics Analyzed During Secondary Review
When fraud analysts review transactions, they look at a series of metrics, including:
- Type of item: Certain industries are more susceptible to fraud. They include consumer electronics, fashion and luxury goods, airline and travel purchases, and others.
- Order value: Most companies have an average order amount. When a purchase that’s significantly lower or higher than that amount is attempted, it could be a sign of fraud.
- Payment type: As highlighted earlier, CNP transactions are subject to fraud thanks to a very active dark web.
- Geography: Cross-border ecommerce transactions are scrutinized more closely, especially when goods are being shipped into regions known for rampant fraud.
- Card bin: This is mostly prevalent in Latin America, where fraudsters are known for targeting specific credit card bin numbers.
- Transaction time: Purchases made in the wee hours of the night are usually questioned to ensure they aren’t fraudulent.
- Social media relationships: A criminal may make a purchase using the credit card owned by a friend or relative.
- Email creation date: If the email used for the transaction is brand new, analysts will look deeper to make sure the customer is who they say they are.
Another important factor that analysts consider is velocity.
Why velocity is important
Velocity refers to multiple transactions made in a short period of time, and it can be a significant red flag. It can signal card testing.
Fraudsters perform card testing on stolen payment credentials with several low transactions to ensure the card is valid. And they know that once one transaction is approved, the rest are usually automatically approved. Many times after that first order is approved, the fraudster will change the billing address and still ship to the same person. Again, those are situations where a fraud analyst will look deeper.
Higher velocity could be a sign that a criminal is using bots to perpetrate fraud. For example, when we see five transactions in a five-second interval, it’s almost always a bot.
In some cases, the issue is suspected to be friendly fraud, which is tough to discern and creates the gray areas that can lead to false declines. In fact, secondary review on these types of transactions can improve approval rates.
Secondary reviews help reduce false declines and increase approval rates
False declines can be more expensive than fraud. The reason?
The cost of a fraudulent transaction is the loss of that product and shipping costs. But 40% of customers will never again shop with a company that declined their order, and 34% will take their displeasure on social media. The cost of a false decline involves losing the lifetime value of a customer and anyone else they tell about their experience.
By conducting secondary reviews, companies can more accurately determine which transactions should be declined and which should ultimately be approved.
Customer contact should be handled with a “white glove” approach
If a customer has to be contacted, they should be treated like a VIP, ensuring a superior customer experience.
Remember that the customer may have made the purchase in good faith and has no idea that there is any question about their purchase. They may also be unaware that a fraudster has taken over their account or is using their credit card information.
It’s critical in either case to make the customer feel as though you’re providing a higher level of service by calling them. We know from our original research that customers tend to avoid shopping with retailers that allow fraudsters to use their credentials. This is a way to ensure your customers that won’t happen.
Plus, contacting your customer helps your fraud analysts glean information they can utilize for future orders to determine if transactions are valid. The more you know about your customer and understand their behaviors, the better prepared you will be to determine if it’s really them making the purchase.
ClearSale Takes a Positive Approach to Analyzing Orders
Unlike other fraud prevention vendors that default to declining suspicious transactions, ClearSale fraud analysts focus their efforts on approving as many orders as possible.
This “innocent until proven guilty” approach means that our fraud analysts will look into every possible way to approve a transaction, unless it’s fraud.
When we reach out to customers, the goal is not to make it feel like an interrogation. We use phrases like “for your safety, we want to verify this transaction.” And once the call is made, we’ll communicate with our clients to help them better protect themselves from fraud.
How we help clients protect themselves from further attacks
If we determine there is fraud, we let companies know they’ve become a target and suggest measures to better prevent future attacks. This includes presenting data analytics, conducting audits and suggesting systematic rules.
We conduct ongoing studies with clients to help them anticipate where fraud attempts will come from next and provide a holistic feedback loop pertaining to other industries and regions. In-house and other fraud prevention solutions are limited as to how much data and sources they can access, giving them tunnel vision versus a global perspective.
How we “teach” our system to better detect fraud
Finally, our fraud analysts compile the data insights about reviewed transactions and translate them into codes that describe how good the transaction is for future auditing. We feed those data insights and new fraud indicators into the algorithm, helping it “learn” how to identify those fraud patterns as they come up. The result is more accepted orders, more accurate declines and higher approval rates.
At ClearSale, our experienced fraud analysts can assist any team, increase your staff’s existing knowledge and keep your organization updated on the latest fraud trends. Our fraud solution easily integrates with virtually any ecommerce platform and can be introduced at any point in the customer journey. Regardless of your business size, we work with ecommerce businesses to recover lost revenue and reduce false declines while improving fraud prevention.
To learn more about how ClearSale has helped other companies fight fraud and maximize revenue, our team is available.