False CNP Declines Dog Issuers Too

The continued rise in online transactions globally along with fraudsters becoming increasingly sophisticated resulted in financial institutions losing $40 billion to card fraud in 2015, a 29 percent increase from the year before, according to a new report. Of that total, London-based data analysis firm Oakhall and antifraud technology provider Featurespace attributed 45 percent ($18 billion) to losses associated with false declines.

While false declines are especially problematic for e-commerce merchants, issuing banks also are affected by this increasingly pernicious effect of efforts to curtail legitimate card-not-present fraud. According to historical data examined by Featurespace, the fraud systems being used by banks are preventing 10 legitimate transactions for every actual fraudulent purchase. When card-not-present transactions alone are considered, the number of declines to legitimate customers rises to more than 20 for every one fraudster stopped.

Of the $18 billion lost globally by banks to false declines, Featurespace estimates a third goes to competitors in lost market share when a declined customer simply pulls out another card. The other $12 billion is accounted for by additional costs associated with customer service calls and resolving customer complaints.