Preventing fraud is a good thing, but if you’re declining every transaction that looks suspicious without additional analysis , you could be turning away perfectly good customers and increasing your false decline rate.
It’s easy to fall into the logic of preventing anything that looks like fraud by turning on every fraud filter, using deny lists, and/or relying on a purely automated system.
However, it’s possible to be too aggressive with fraud management.
Preventing fraud is a good thing, but if you’re declining every transaction that looks suspicious without additional analysis , you could be turning away perfectly good customers and increasing your false decline rate.
Sure, you have no chargebacks, but how much money are you leaving on the table to get that low chargeback rate?
Do you even know?
The reality is that about 97% of transactions flagged as high-risk are actually legitimate transactions.
What happens from there? That depends on how your business currently handles flagged transactions. Without a comprehensive fraud prevention strategy that includes artificial intelligence, machine learning, and expert analysis, the odds are slim that all those legitimate transactions will be automatically approved.
That brings us to a more concerning statistic: The number of false declines your company is experiencing without you knowing.
In some parts of the world, such as Latin America, false decline rates can be as high as 50%. The cost of false declines to companies is particularly high. For every transaction dollar declined, businesses lose about $13. Here’s why:
Today’s customers assume they will be approved when making purchases so the embarrassment and annoyance of being declined doesn’t sit well with them. In our original research, we found that about 40% of those customers won’t shop with you again and about 34% of them will take their displeasure to social media.
Not only do businesses lose the revenue associated with that one order – let’s say it’s for $100. If the customer decides to never shop with you again, you lose every order they might have made with your company for as long as they shop online. That’s $100 times potentially hundreds of purchases.
And when those customers tell their friends on social media not to shop with you, your business loses the lifetime value of those customers as well.
This is why it’s important to strike a balance between preventing fraud and maintaining a high approval rate.
Related Topics
Why is it important to fight fraud?
What should merchants know about preventing ecommerce fraud?
Do “low-risk” merchants still need fraud management?
When is fraud most likely to happen?
False Declines & Approval Rates
Related Resources
State of Consumer Attitudes on Ecommerce, Fraud & CX 2021
Everything You Need to Know About False Declines
Understanding the True Cost of False Declines
The State of False Declines in E-Commerce [Infographic]
How to Stop Leaving Money on the Table: An Enterprise Ecommerce Fraud Discussion [PODCAST}
Are Your Chargeback Rates Too High?
ClearSale Offers End-to-End Chargeback Services With ChargebackOps Acquisition
Why Fraud Can Categorize You as High Risk and How to Avoid it