An estimated 1.9 billion e-commerce purchases worth nearly $146 billion in sales are declined globally each year, according to a new report from antifraud technology provider Ethoca. While not all those declined transactions are false declines due to overly stringent fraud systems—not even the majority—false declines are part of a complex system of declines that affects both merchants and card issuers. For merchants, declines can send offended customers immediately to a competitor, perhaps never to return. For issuers, a declined card often goes to the back of the wallet, resulting in lost transactions.
In Solving the CNP False Decline Puzzle: Collaboration is Key, Ethoca examined the data behind issuer declines, which are often opaque to merchants. While merchants often assume that issuers decline mostly because of suspicion of fraud, Ethoca found only 9.4 percent of declines by issuers were for fraud. Most (44.4 percent) were due to insufficient funds or credit on the card. Merchants, of course, perform their own fraud checks—using very different systems and information that is just as invisible to issuers—and decline another chunk of good orders. What it adds up to, Ethoca found, is that 52 percent of orders merchants thought were fraudulent could have been successfully fulfilled. Communication between the two groups, Keith Briscoe, Ethoca’s chief product and marketing officer told CardNotPresent.com, is scarce, but could mitigate the problem.
“I think the results of our survey can allay some merchant concerns that the issuer fraud models are over-screening and eliminating too many good transactions,” Briscoe said. “But, considering the sheer cost of recovering fraudulent transactions, issuers do have to take measures to limit their exposure and some of those declines will be [legitimate customers], of course. What merchants might realize when they see the more granular distribution of some of the reason code is, there might be other steps they consider taking potentially to win a transaction back or work with a cardholder. In the case of insufficient funds, is there an opportunity down the line once the cardholder has paid their bill to potentially try that transaction again? Ethoca believes that the only way to effectively solve this problem is through industry collaboration at the transaction level.”
The report also looks at the decline problem for digital goods sellers and how friendly fraud complicates things for merchants and issuers.