Online payments have been on a steady rise for some time now, enabling businesses to extend their reach and grow their customer base. Having a web store and accepting payments online means merchants have more potential than ever to connect with customers around the world, increasing their revenues significantly.
However, with the advent of online business came inherent risk: fraud. In the early eCommerce days, many online retailers did not have fraud management practices in place, leading to headaches and loss of time and money.
These days it’s common practice to have fraud management tools in place, and has drastically reduced the burden of recovering from fraudulent payments. This heightened security has, however, lead to false declines.
What are False Declines?
False declines – also known as false positives – are transactions which are entirely valid, but incorrectly rejected. These rejections are typically a consequence of fraud protection strategies not being finely-tuned and cost ecommerce companies around $8.6bn in 2016.
It is important to remember that accepting online payments leads to significant business growth, compared with accepting other methods such as in-person and over the phone payments. It avails merchant goods and services to a broader audience, and reduces operational costs by automating processing. This growth in revenue is further supported by reducing false declines.
False declines are caused by a number of potential factors, including conflicting billing data and shipping addresses, outdated card information, or other means of suspicion of fraud. All of these checks are in place with the best intentions for both merchant and consumer, of course, but it has become the dark side of consumer protection.
Global Outlook and Revenue Impact
According to The Merchant Risk Council’s 2017 Global Fraud Survey, the average online store declined 2.6% of all orders due to suspected fraud, which includes 3.1% of orders over $100. For a business worth $1M, that’s $260,000 of lost revenue that could have been prevented.
But the immediate revenue loss on the declined order is only the tip of the iceberg. Merchants should also consider the cost of bringing in that customer (marketing and acquisition), as well as the lifetime monetary value of their business – many customers abandon their cart due to decline and don’t return to give that merchant a second chance.
Common Reasons for False Declines
As mentioned above, cards can be falsely declined for a number of reasons and can impact a large variety of customers. Oftentimes fraud tools are set – with good reason – to block transactions due to reasons such as:
- Mismatched billing and shipping addresses
- Missing card information
- Overseas transactions
- Not requesting a signature upon delivery can also appear risky to some systems
Travelers can also end up with headaches, as systems can be triggered by:
- Hotel or car agency holds leading to running over credit limits
- Purchases made from an uncommon location
- Shopping via mobile devices
DPO Has You Covered
Several high volume merchants have reported that before onboarding DPO’s payment processing platform their online conversion rates were around 13%. Meaning 87% of online payment attempts by their customers were declined. Some for legit reasons and others due to false declines.
DPO managed to pull up their conversion rates up to 80%, drastically reducing both chargebacks and false declines. This resulted in much higher revenue from online payments, happier customers and happier merchants.