We’ve written extensively in this blog about the scope and cost of false declines. Riskified estimates fear of fraud leads merchants to decline good orders at a total value equivalent to 5.5% of their annual online revenue. But false declines are only one leak in the payment funnel – most merchants don’t realize that around 10% of orders placed at their online store are declined even before they have a chance to capture funds.

In 2018, the $42B paid in chargebacks, and the roughly $165B that will be lost to orders falsely declined at checkout, will be dwarfed by the $300B of potential revenue that fails payment authorization.


Riskified’s research into the authorization process uncovered that, for the average merchant, 1 in every 10 eCommerce dollars is declined during payment authorization – most frequently by the card issuer or payment gateway. And the really upsetting part? We’ve found that up to 70% of these declined orders are from good customers, who can afford to make the purchase. Adding insult to injury, shoppers don’t understand what’s going on behind the scenes and tend to blame the retailer for the payment decline – merchants are held responsible for rejecting orders they never even had the opportunity to accept.

Why do payment declines happen?

Between the time the customer hits “buy”, and the merchant has the opportunity to capture the funds, an online purchase must be authorized by several financial entities. The important ones to be familiar with are the payment gateway, the payment processor/acquirer, and the card issuer. Any of them can decide to decline the transaction.
Since all authorization declines are aggregated by the payment gateway, and accompanied by intentionally vague decline reasons, merchants have limited visibility into the process that’s preempting 10% of their potential revenue. And unlike with chargebacks, where a merchant can dispute and possibly overturn a decision, merchants have no recourse following a payment decline.

Were these financial entities efficient and accurate, this would all be less of a big deal. But the technical infrastructure and decisioning tools used by banks and processors during the authorization process are clunky and outdated. And these systems–built in the 90’s or even earlier–are unable to keep up with surging transaction volume and adapt to new spending trends. This results in lost potential for merchants, and frustrating declines for good customers –  in fact, 39% of the time customers ends up abandoning their carts after the first authorization decline.

Good customers are having their payments declined

Riskified’s solution to false declines at checkout was to build algorithms that could see the legitimate story behind a seemingly risky order, and approve it. To combat the revenue lost to payment declines, we used similar models to look at the orders being rejected during authorization. We uncovered that, primarily because of overly-aggressive fraud rules, up to 70% of payment declines happen to good customers.

While anyone’s legitimate order can end up as a payment decline, we identified some types of good customers who are particularly vulnerable to having their online order turned away:

‘Life events’ shoppers

It’s a cruel twist of fate that an order is particularly likely to get payment declined when the shopper has the least time to deal with the hassle. Big life changes like moving to a new home, having a baby or preparing a wedding often lead to a spike in big ticket purchases  – behavior that the outdated authorization systems often mistake for fraud. Furthermore, in the case of moving homes, people often forget to update the billing address associated with their credit cards. This can result in a billing/ shipping mismatch, which also makes the order likely to be declined by the issuer’s fraud rules.

Travelers

Being on the road drastically increases the risk of a shopper’s online orders being declined during the authorization process. A few reasons for this:

  • Shopping from a different geographic location than usual looks risky to banks. And you don’t have to be in a different country to raise red flags – even just being in a different city may be risky enough to trigger a payment decline.
  • When you book a hotel or rent a car, the merchant usually places a hold on your card as a deposit. It’s very easy for travelers to forget about that hold, and surpass their credit limit.
  • Travelers tend to shop on their phones, and it’s far more likely they’ll make a mistake entering information like CVV or billing address. These mistakes often lead to orders being declined by the gateway and issuer, respectively.

Teens & 20-somethings

Everyone remembers getting their first credit card. It’s thrilling to finally be able to pay for things like an adult. A bit too thrilling, in fact, considering that credit limits for first time card holders can be as low as $100. With such a low monthly cap, it’s easy to accidentally order too much online and surpass your spending limit, resulting in an issuer decline. But these young shoppers aren’t fraudsters, and many have more than enough in their checking accounts to cover the purchase.

The fallout from these payment declines is more than just lost orders. First, you effectively waste the marketing spend you used to bring these customers to your store, and hurt the ROI of your marketing efforts. And again, since customers don’t realize the subtleties of this process, your brand will suffer.

What if you could capture 10% more orders?

In 2018, payment declines will result in approximately $300 billion worth of potential eCommerce revenue going unrealized. The figure is staggering, and because issuing banks don’t provide insight into their decisioning, merchants are largely powerless to change the status-quo.

To learn more about recovering revenue lost to payment declines, feel free to reach out to our sales team. And click the button below to subscribe to our blog, and stay up to date with the latest eCommerce fraud trends.