There’s a fine line between writing fraud prevention rules so tight that they catch all fraud, and ensuring that legitimate customers have a good experience. False positives, (aka “false declines” or “sales insults”) are when either a merchant or a financial institution declines a legitimate transaction. And they can be a big problem for online retailers.
Financial industry advisory firm Javelin Strategy & Research estimates that 15% of all cardholders have had at least one transaction declined without cause, resulting in what they estimate to be almost $118 billion in lost sales. Worse, false positives leave future revenue on the table for both retailers and credit card merchants. According to Javelin, nearly 4 in 10 (39%) of those declined cardholders abandoned the merchant—or even their lending institution—after being falsely declined.
In the world of online commerce, emphasis tends to be put on preventing fraud. Yet customers are increasingly expecting a smooth, accommodating experience when they shop online too. When it comes to false positives, your company may not just be losing the potential value of the sale—you may be losing a customer for good.
To make things even trickier, fraudsters know this is a problem for merchants, and they see it as an opportunity. This leaves merchants walking a tightrope – the need to prevent fraud, while also clearing good orders faster and avoiding false positives.
Here are three ways to help you find your balance:
1. Understand your fraudsters and customers
Having a firm grasp on your business data is the first step. Data analytics can help you understand your own customers’ activity, compare it to the broader industry, and help identify patterns for both fraudulent and legitimate orders.
Each business has unique purchasing and fraud patterns, which is why it’s so important to understand your organization’s data specifically. A discrepancy in ship-to-bill-to addresses may pull up a red flag for one company, for example, but if your main product is gift baskets that sort of mismatch would be commonplace.
2. Layer on fraud prevention
Preventing fraud and speeding through legitimate orders isn’t a matter of applying one solution and hoping it works. In fact, Gartner describes four layers of fraud prevention:
- Layer 1: Endpoint detection
- Layer 2: Behavioral analytics
- Layer 3: User centric data
- Layer 4: Link analysis
Make sure you’re covered by each of these layers—ideally deployed in one hub so you can see how the data links together and helps identify patterns.
3. Invest in your fraud team
The fraud team is not just a cost center! In fact, they are often one of the first impressions a customer has of your business. When a customer has a smooth checkout experience he or she may not realize your fraud team is behind making that happen—ensuring the good order gets through quickly and the fraud gets stopped.
Arm your fraud team with the tools and data they need to proactively push through legitimate orders and filter out fraudulent ones. That way, your team can actively help drive sales.
Don’t run the risk of losing customers and degrading brand image because of false positives.