Today’s college students are increasingly going online to spend their money, and retailers go to great lengths to attract this consumer segment. In fact, US college students have an estimated buying power of $545 billion, making them a very lucrative segment for online retailers to target. Many retailers offer deep student discounts and run high-profile ‘back to school’ campaigns in an attempt to capture some of the market.
However, many retailers fail to realize that fraud prevention measures are holding them back from maximizing online revenue from students. In this post we share key stats about the fraud patterns and online shopping behavior of US students, which we hope will allow merchants to capture more revenue from this consumer segment.
College orders shouldn’t keep you up at night
Riskified’s data shows that over 97% of online orders placed for shipment to a US college or university address can be safely approved. That’s why it is so troubling that the rate of false declines among these purchases is so high – 82% of orders shipping to a university address that merchants currently reject due to suspected fraud are completely valid. In other words, four out of every five online college-related purchases declined by merchants are actually valid. That’s a lot of revenue retailers are leaving on the table.
This problem largely stems from reliance on static fraud prevention rules and filters, that do not take into account the nuances of the college student consumer segment. For example, since US academic institutions cater to students from all over the world, their online purchases are bound to included mismatched billing-shipping addresses, may feature international cards, and will often be placed from mobile devices.
AVS mismatches get a failing grade
AVS filters are commonly used by online retailers as a fraud prevention measure. An AVS mismatch occurs when the billing address provided on the order does not match the address on file with the credit card company. But the unique circumstances of university life mean that AVS mismatches being are 2x more likely to occur in online purchases placed by college students than in other US domestic purchases.
AVS mismatches are common in college orders because students often fail to update their billing address with the credit card company every time they move to a new apartment or dorm, or when attending an out of state college or university. As most banks outside of the US, UK, and Canada don’t support AVS, purchases placed by students from any other country will be missing AVS data. Given the various legitimate reasons for AVS mismatches in US college purchases, it should come as no surprise that 88% of these orders can and should be approved despite a full AVS mismatch.
Over 97% of orders with AVS mismatches that ship to a college can and should be approved. Bottom line, merchants should not base reject orders in this segment due to AVS mismatches.
College students move frequently
Another fraud prevention rule that leads to false declines is rejecting or flagging purchases due to a mismatch between the billing and shipping addresses. Students change residences frequently, and often will not bother to update their bank with the details of a move. This behavior is so prevalent that more than half of online purchases shipping to a college-related address have a billing-shipping mismatch.
Also in this case, the presence of the mismatch does not indicate any additional risk. Merchants should be approving 97% of college-related online purchases where the item is being shipped to a location different to the billing address.
Don’t miss out on foreign exchange students
Merchants who are looking to maximize their revenues from college and university students must also keep foreign exchange students in mind. Often, these students have great buying power but are falsely declined by US retailers because they are using an international credit card.
For example, a student from an affluent Chinese family attending a university in New York City, who uses a credit card issued in Beijing to make an online purchase from a US retailer, while visiting her family is very likely to experience a false decline. Whether it’s simply a matter of failure to accept non-US cards, or the perceived risk of a Chinese IP address and credit card shipping to the US, retailers often fail to adjust fraud prevention systems based on the shopping patterns of foreign students. This problem is so acute that Riskified is able to safely approve 98% of purchases with a Chinese credit card shipping to a college-related address that merchants had planned to otherwise decline.
Make sure to study up on effective fraud prevention
Unfortunately, false declines are a silent revenue killer for eCommerce merchants across verticals. In fact, research by Javelin Strategy showed that merchants lose $118 billion to false positive declines every year, versus only $9 billion lost to fraud. To learn more about the impact of false declines and get tips for how to eliminate them, check out our guide to reducing false declines.
The bottom line is that just like university students getting ready to pass a big exam, merchants should always be studying up on how to most effectively prevent fraud. Dynamic solutions that are able to tell the “good story” behind an order despite the presence of geo-location mismatches are a must have for getting an A+ in fraud prevention class. If you are interested in learning more about how to maximize your sales to this important consumer segment, contact us: firstname.lastname@example.org.