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Why should merchants worry about declining legitimate transactions?

With fraud protection, it’s easy to fall into the trap of “turning on” every fraud prevention feature to ensure that nothing accidentally slips through the cracks. However, it’s possible to be too aggressive with fraud management.

Stopping fraud is good, but if you’re declining every transaction that might possibly be fraudulent without investigating these orders, you may be turning away perfectly good customers and increasing your false decline rate. Viewed from this perspective, a 0.0% chargeback rate isn’t a desired outcome if you’re actually declining 10% of your legitimate orders to get to that number.

In reality, as scary as fraud can be, it’s relatively rare. For every fraud attempt blocked, fraud programs can produce as many as 40 false positives (a 40:1 ratio), meaning that up to 97% of transactions flagged as high-risk are in fact legitimate transactions.

Retailers lose more money on false declines (predicted to grow to $443 billion by 2021) per year than they do to actual credit card fraud ($6.4 billion). Plus, 19% of cardholders will refuse to shop with a merchant after a false decline, while 24% decrease their purchase levels with the merchant.

These false positives result in card declines, lost sales, blocked accounts and an overall poor customer experience. Worse, it’s not uncommon for falsely declined customers to take their complaints to social media and negative online reviews.

For all these reasons, you must strike a balance between the number of fraudsters you’re stopping and the number of good customers you’re turning away.