By Stephen Fidgeon
[Editor's note: April is Revenue Recovery Month at Card Not Present. As companies get better at identifying fraud in e-commerce transactions, a growing danger is that they, their acquirers or the cardholder’s issuing bank will decline more legitimate transactions they suspect are fraudulent. Check back here throughout the month for updated content detailing how to minimize declines and maximize sales revenue.]
In December of 2018, Riskifed commissioned a survey of 5,000 individuals, 18 years and older, across all 50 states, Puerto Rico, and Washington, D.C. They were chosen at random, and all published results of the survey are statistically significant. We asked more than 30 questions, covering everything from how online purchases are made and on what devices, to consumer experiences with fraud and declines, to cart abandonment and merchant loyalty. We then analyzed the results across age, gender, and household income brackets. While the survey had some far-reaching implications (which can be read here), the results also tell a serious story about the costs of false declines.
In total, the survey results highlight why it’s so important for merchants to be aggressive in approving good orders and avoiding fraud. Incorrectly declined shoppers are quick to move to a competitor and hesitant to return to the declining merchant. While it’s understandable that merchants are cautious about approvals for fear of fraud, the flip side—turning away hard-won customers—is at least as damaging.
That double-edged sword means merchants need to be as accurate as possible in their decisions. Failing to do so usually means declining good customers, which has long-term implications for e-commerce merchants.
How Merchants Are Affected
Perhaps the biggest conclusion from all this data is that while it’s never been easier to be a consumer, it’s never been harder to be a merchant. As shoppers take advantage of seemingly endless purchase and fulfillment options, the divergence from the traditional route imposes enormous new pressures on merchants—in staffing, logistics, internal systems and, of course, fraud.
Yet, before we can talk too much about false declines, we have to acknowledge fraud. It’s out there, and it isn’t going away. Forty-nine percent of respondents reported being a victim of fraud, and the number increases with age, suggesting that it’s nearly an inevitability. It’s a huge cost, and merchants are right to be cautious. But over-declining orders is the wrong approach. False declines are estimated to cost merchants 5.5 percent of their annual revenue. That’s an enormous number, but even that understates the problem. Looking at the results of Riskified’s survey paints a fuller picture.
Quantifying the Impact
The survey found that 30 percent of all shoppers reported having a purchase declined. Nearly a third of the customers merchants bring to their stores with intent to make a purchase have experienced a decline when trying to check out. These numbers are even higher for high-net-worth shoppers. The Riskified survey took household income into account, and the two highest-earning brackets also suffered the highest rates of decline. 73 percent of shoppers in the $800,000-$999,999 bracket reported being declined, and 60 percent of shoppers report ingincome in excess of $1 million had experienced a decline (compared to the 30-percent average overall, mentioned above).
Astoundingly, of those who reported having been declined, a staggering 57 percent were repeat customers. These are situations where the merchant clearly had done everything right. They offered a compelling product, had a navigable e-commerce site, and did well enough on the first purchase to bring that customer back—all the ingredients for a profitable long-term relationship.
But, because of a false decline, that customer may never return. That’s disheartening, but what happens next?
Your Pain, a Competitor’s Gain
The news doesn’t get better. Upon being declined, 42 prcent of customers abandon their cart. What merchants may think is a small frustration clearly has a huge impact, as more than 4 out of 10 customers would rather move on than try their purchase again with the same merchant, squandering revenue. Unfortunately, some customers are willing to try again—elsewhere. Fourteen percent of declined customers take their wallets to a competitor to complete the purchase. Those numbers increase with income, as 19 percent and 32 percent of shoppers in the $800,000-$999,999 and $1 million-plus brackets, respectively, moved on to competitors.
False Declines Cause Colossal Long-Term Damage
Revenue potentially lost to a competitor is the immediate impact of a decline. But what happens in the longer term? A shrinking lifetime value. Twenty-one percent of declined customers reported no intention of returning to the declining merchant in the future, and 16 percent of declined customers blame the merchant for the decline, which may impact that merchant’s reputation. Old-school word of mouth is bad enough, but in the social media age, upset customers can make their upset voices heard far and wide.
The long-term damage can be especially severe when you consider who gets declined the most. According to our survey, shoppers aged 30 and under reported the highest rates of declines. Although that’s not surprising, it likely will have a significant impact on lifetime value. These same age brackets (18-21, 22-26, 27-30) also all reported lower-than-average intent to return to the declining merchant. The shoppers of the future are a fickle lot.
How Can Merchants Respond?
In a marketplace increasingly built for nimble players and online upstarts, businesses can’t afford to say “no” to legitimate customers. Merchants need to use fraud solutions that prioritize accuracy to minimize false declines and maximize approvals. Making the right decisions will mean not only more revenue now, but a lifetime of happier, returning customers. To learn more, visit Riskified.
