False Declines Cost U.S. Merchants Billions Over Holidays
As consumers recuperate from an indulgent holiday period, in which $142.5bn was spent online, ecommerce merchants must take the time to examine the period’s lost sales.
Customers being unable to complete transactions – despite having adequate funds – is costing ecommerce merchants billions of dollars during vital periods in which profits are generally expected to be high.
During November and December 2019, CMSPI estimates that false declines cost U.S. merchants around $3bn, with only $285m of the total being the merchants’ fault – meaning around 90% of those transactions were out of merchants’ hands.
This contradicts the common supplier message that declines are caused by merchants’ internal set up. In addition to this, the processes resulting in these declines have failed to minimize fraud – with expected fraud losses exceeding $70m.
With many U.S. retailers operating on fine profit margins of around 2%, false declines can be extremely damaging to merchants who rely on peak period sales. A merchant’s efforts to convert an online customer can be entirely wasted when the customer tries to pay, only for the transaction to unnecessarily fail.
A false decline is not just about one transaction either: a poor online payments experience can deter repeat business from a customer, damaging revenue in the long- and short-term. It’s estimated that around one-third of cardholders will stop shopping with a merchant after a single decline. Research also suggests more than half of consumers will go to a competitor if their payment is declined.
A transaction decline comes at another cost for merchants, who are charged a transaction fee by their gateway and processor for losing customers. Therefore, optimizing approval rates, without increasing fraud, is essential to remain competitive online.
For the most part, false declines are to do with issues in the payments supply chain, including:
- Shifting fraud rules
- Ineffective transaction routing
- A lack of communication between all transaction parties
Despite this, many merchants believe false declines are their own fault and are unaware of what they can do to combat them. Consequently, while scrutinizing sales from the holiday period, many merchants will find their revenues were damaged significantly by their payments arrangements.