In Part 1 of our Fraud Series, CMSPI reviews the different kinds of tools merchants can use to keep fraudsters at bay.
But are all transactions that are flagged as fraud… truly fraud? And for merchants, how do you prevent good customers from being turned away?
What are False Declines?
A merchant’s approval rate is an important metric that tells a merchant how often transactions are successfully passed through the authorisation process. Once a transaction is successful, the transfer of funds from the customer to the merchant is initiated and clicking ‘pay’ translates to a sale.
Transactions that are not successful have sometimes been identified as too risky for reasons such as the customer not having enough account funds for payment, or the supply chain flagging it as a potentially fraudulent transaction. To reduce fraudulent transactions, the supply chain uses a series of screenings and authenticity checks to detect risky behavior. But without access to the right data, these fraud detection tools can often make the wrong decisions and generate a high volume of false declines - transactions that have been incorrectly identified as high-risk within the transaction flow and declined as a result. These declines are estimated to have cost merchants $3.5 billion last year, and with inflation potentially forcing Average Transaction Values to hit pre-set fraud limits, the problem may only grow.
False Declines are legitimate customer transactions that have been erroneously flagged as fraudulent and declined.
How Do False Declines Impact My Business?
False declines can happen for a variety of reasons often related to miscommunication within the supply chain, insufficient data, and overreactive fraud rules. While the cost of these unresolved issues can be staggering for merchants, competitive dynamics between a merchants’ payments partners can limit providers’ ability to resolve errors as simple as having insufficient digits for the relevant currency. For many merchants, these realities are hidden behind a host of seemingly-uncoverable ‘generic’ transaction decline codes. But that’s not all. False declines can also create unnecessary friction at the point of sale and can impact a business’s customer loyalty. More than 52% of shoppers that abandoned a purchase end up looking elsewhere to complete the purchase² – meaning that behind each false decline, there may be a lost sale, an unhappy customer, and future spending with a competitor.
Separating the Good Transactions From the Bad
All declined transactions are rejected for a reason, but it is not always guaranteed that insight will be passed on to the merchant, nor that merchants will be equipped with the right tools to resolve these issues once identified. Through its work with Australia’s leading merchants, CMSPI helps businesses sort through the complex areas of fraud analysis and address false declines, creating significant uplift for a merchant’s top line and maintaining customer loyalty in the long run.
- CMSPI Estimates and Analysis.