Every online merchant understands the financial harm that fraud can do, including chargeback fees, higher payment processing rates, lost product, and other costs like shipping, marketing and fraud prevention spend that were wasted on scammers. But not every ecommerce seller realizes that false declines—good orders rejected on suspicion of fraud — can cost merchants over the long term.
How false declines cause long-term losses
In addition to the immediate loss of profit on rejected good orders, false declines create losses over the long term—starting with the large number of customers who will never come back to your store.
A March 2020 Sapio survey for ClearSale of shoppers in the U.S., U.K., Australia, Mexico, and Canada found that many online shoppers said they’d never place another order with a merchant who declined their payment. Americans were the most forgiving—only 33% would never come back. Mexican shoppers were most likely to take their business elsewhere, with 51% saying they’d never return.
On average across all five countries, 39% of online consumers would ditch a merchant after a rejection. Interestingly, that’s nearly three times higher than the number of customers who would never return after having a fraud experience in an online store. On average, only 13.6% would stay away after fraud.
Losing so much customer lifetime value to false declines is costly. But false declines can do even more financial damage. On average, 28% of shoppers say they’d likely post on social media about their bad experience. At 22%, Australian shoppers were the least likely to publicly complain, while 39% of Mexican consumers said they’d mention it.
If your brand starts getting an online reputation for spurning good orders, new customers will be less likely to engage with your campaigns or visit your store. That increases your marketing challenges and costs.
How can you know if your store has a false decline problem?
Because false declines are often lumped in with fraud attempts, it can be difficult to know whether your store is turning away good orders and how much business you’re losing.
Some false decline indicators are:
• Automatic order rejections. If your fraud controls auto-reject suspect orders, you’re almost certainly generating false declines, because customer behavior and fraud behavior can sometimes overlap—something that manual review can detect.
• No expert review. Manual review is most effective when it’s done by experienced fraud analysts who can identify good orders to approve—and avoid letting fraud get through.
• No fraud at all, ever. This seems like the ideal, but months or years without even an occasional chargeback can indicate that your system is kicking out many good orders, too, “to be on the safe side.”
• Customers complain directly to you or on social media about their orders getting rejected.
• Your fraud protection provider tells you that you have a false decline problem. If your provider analyzes your rejected orders and finds good orders among them, it’s a clear sign that you need to change your screening practices.
If you don’t have confirmation from your fraud service but you suspect a problem, you can estimate the scope. Multiply your total decline rate by a figure from the industry range for false declines, which is anywhere from 30% to 65% of all declined orders. So, if you decline 5% of all orders each month, and you use the estimate that 65% were good, 3.25% of your total orders each month are declined by mistake.
How to decrease your store’s false decline rate
Fixing a false decline problem starts with changing the way you screen orders for fraud. Instead of relying on a completely automated system that rejects any order with even a small data mismatch, switch to a two-tiered system that automatically screens all orders and then manually reviews all flagged orders.
Your manual review can be in-house, outsourced, or a combination of the two if you need extra help during sales peaks. The key is that your reviewers should have fraud analysis training and experience.
Benefits of reducing false declines in your store
Implementing a two-stage fraud screening process delivers short- and long-term benefits to your budget.
In the near term, you should see more orders being approved, which means more revenue and profit, without a concurrent increase in chargebacks. Over the longer term, you should also see more customers who come back and buy from you again—remember, 39% of shoppers will ditch a store that rejects their order. More return visits can increase your average customer lifetime value (CLV).
With fewer false declines, there will be fewer reasons for customers to complain about your brand on social media. That will improve your brand image, which can reduce your average cost to acquire new customers and help you earn a better return on your marketing investments.
There’s one more long-term benefit to using a two-tier fraud screening system. When your manual review team approves flagged orders, they can feed that data back into the automated system’s machine-learning algorithms. Over time, this data feedback helps your fraud prevention system get better at telling the difference between good orders and fraud, so you can spend less time on manual reviews and still fight fraud effectively.
It’s time to start fighting false declines
The holiday season and post-holiday sales are when many customers try new merchants for the first time, which gives you an opportunity to establish profitable new relationships. To convert those first-time visitors to loyal customers—and to avoid insulting already loyal customers with a decline—take steps now to reduce false declines, increase CLV and profits, and get the most from your marketing spend in 2021.
Original article at: https://www.securitymagazine.com/blogs/14-security-blog/post/94272-a-two-tiered-approach-to-fraud-prevention-can-help-online-businesses-boost-sales