Despite growing awareness about the issue of false declines among eCommerce merchants, it is inherently an “invisible” problem. How can retailers measure or know how many of the orders they declined due to fear of fraud were actually valid and should have been approved? Only a small percent of customers’ whose orders are declined will reach out to the merchant, and in many cases fraudsters will also file a complaint over having their order “wrongly” declined. In short, it’s difficult to know which declined transactions should have been approved.
To better understand the true scale of the false declines problem, Riskified commissioned a white paper from strategy & research company Javelin. Javelin surveyed 3,200 consumers about their experiences with credit card declines in 2014. In this post, we share some key findings from this research into the impact false declines have on consumers in the US.
False Declines Affect 15% of US Consumers
Correctly estimating the true scope of false declines is no easy task. According to the Merchant Risk Council’s 2015 Global Fraud Survey, 65% of merchants believe that less than 5% of orders they rejected due to suspicion of fraud were false positives. At the same time, Riskified data shows that on average, 66% of orders declined by merchants due to fear of fraud are in fact legitimate and should not have been declined, leaving a big gap to explain.
Since merchants cannot accurately quantify the scope of the false declines issue, we tried asking those impacted the most – the consumers. It transpired that 1 in every 6 US consumers (equivalent to 15%), had a transaction falsely declined due to fear of fraud in the past year, resulting in a total of $118 billion declined in 2014 alone.
When considering online retail sales, the research showed that 5.5% of all US cardholders faced falsely declined CNP purchases in 2014. False positive declines were equivalent to 2.4% of retail sales via computers in 2014, and to 3% of online mobile transaction volume. On average, each of these falsely declined consumers was attempting to purchase a total annual amount of $726 on eCommerce sites.
Consumers Don’t Forgive – Merchants Pay The Price
When merchants falsely decline a legitimate transaction, they lose far more than the sales revenue from that order. We previously laid out the various aspects that should be taken into consideration when calculating the true cost of declines. The new research from Javelin provides more concrete data about how consumers react when their card is wrongly declined. Their survey of US consumers found that 66% of cardholders who were declined via a digital channel (either computer or mobile) limited or entirely stopped their patronage of the merchant following the decline.
Through the research, two consumer segments were identified as being disproportionately affected by false declines. Gen Y consumers are both more likely to be wrongly declined by merchants and respond more strongly to false declines. Nearly 25% of Gen Y cardholders experienced a false decline last year. Following a wrong decline, a whopping 75% of these younger cardholders limited their shopping at a merchant, with 42% reporting that they stopped their patronage of the retailer entirely. Younger adults (those ages 18-24 years old) are especially likely to abandon a merchant, with over half (52%) of young adult declined cardholders indicating that they switched merchants after a false positive decline.
Another demographic at high-risk of having their orders falsely declined are high-income consumers, with 22% of this segment reporting being falsely declined in the past year. This is especially unfortunate for merchants due to these consumers’ potential for a high lifetime value.
Nearly 30% of high-income consumers indicated that they stopped shopping with the retailer or merchant who falsely declined their card, and nearly 60% of these consumers reported that they reduced their patronage of a merchant or retailer following a false positive decline. Losing the loyalty of a high-income consumer can result in serious future revenue loss and is not something that today’s merchants can afford.
Learn More About False Declines & How to Avoid Them
Working to ensure you do not wrongly reject legitimate customers is especially important over the holiday season – when the volume of incoming orders surges. To download a free copy of the Javelin white paper ‘Overcoming False Declines’, click here.
If you’d like to learn more about consumer reactions to false declines and better understand the true price merchants pay, check out this infographic. For actionable tips on reducing false declines, download our guide.