As an online merchant, you know that fraud prevention is a crucial aspect of your business. But what about false declines?

False declines occur when a legitimate transaction is mistakenly rejected due to suspected fraud. While fraud prevention is essential, false declines can have a significant impact on your business, leading to lost sales, unhappy customers, and damage to your reputation.

In this article, we’ll explore the impact of false declines on merchants and how you can combat them to improve your bottom line.

The Impact of False Declines on Merchants

False declines are a growing problem for merchants, with an estimated $443 billion in lost sales globally in 2020. This number is expected to rise to $630 billion by 2023.

Lost Sales

Lost salesby Paulius Dragunas (https://unsplash.com/@paulius005)

The most obvious impact of false declines is lost sales. When a legitimate transaction is declined, the customer is likely to abandon their purchase and take their business elsewhere. This not only results in an immediate loss of revenue but also potential future sales from that customer.

Damage to Reputation

In today’s digital age, word travels fast. If a customer has a negative experience with your business, they are likely to share it on social media or leave a negative review. This can damage your reputation and deter potential customers from doing business with you.

Increased Operational Costs

False declines also result in increased operational costs for merchants. When a transaction is declined, it requires manual review and investigation, which takes time and resources. This can add up quickly, especially for high-volume merchants.

Why Do False Declines Happen?

False declines can occur for a variety of reasons, including outdated fraud prevention systems, human error, and technical issues. Let’s take a closer look at some of the common causes of false declines.

Outdated Fraud Prevention Systems

Fraud prevention systemby Cristi Tohatan (https://unsplash.com/@cristi_tohatan)

Many merchants rely on outdated fraud prevention systems that use basic rules and algorithms to detect fraud. While these systems may have been effective in the past, they are no match for today’s sophisticated fraudsters.

These systems often flag legitimate transactions as fraudulent, resulting in false declines. This is especially true for international transactions, which may trigger red flags due to unfamiliar IP addresses or shipping addresses.

Human Error

Human error is another common cause of false declines. In some cases, a customer’s transaction may be declined due to a simple mistake, such as entering the wrong billing address or CVV code. This can be frustrating for customers and result in lost sales for merchants.

Technical Issues

Technical issues can also lead to false declines. For example, if a merchant’s payment processing system experiences a glitch, it may decline legitimate transactions. This can be especially problematic during peak sales periods, such as Black Friday or Cyber Monday.

How Can Merchants Combat False Declines?

Now that we understand the impact and causes of false declines, let’s explore some strategies that merchants can use to combat them.

Invest in Advanced Fraud Prevention Technology

Fraud prevention technologyby Ashkan Forouzani (https://unsplash.com/@ashkfor121)

One of the most effective ways to combat false declines is to invest in advanced fraud prevention technology. These systems use machine learning and artificial intelligence to analyze vast amounts of data and detect fraud in real-time.

Unlike traditional fraud prevention systems, advanced technology can accurately identify fraudulent transactions while reducing false declines. This not only improves the customer experience but also saves merchants time and resources.

Use a Multi-Layered Approach

Another effective strategy is to use a multi-layered approach to fraud prevention. This involves using a combination of tools and techniques to detect and prevent fraud, such as:

  • Address verification systems (AVS)
  • Card verification value (CVV) checks
  • Device fingerprinting
  • IP geolocation
  • 3D Secure authentication

By using multiple layers of protection, merchants can reduce the risk of false declines while still effectively preventing fraud.

Continuously Monitor and Update Fraud Prevention Systems

Fraud prevention monitoringby Penghao Xiong (https://unsplash.com/@felixxiong)

Fraudsters are constantly evolving their tactics, which means that fraud prevention systems must also evolve to keep up. Merchants should continuously monitor and update their fraud prevention systems to ensure they are using the latest technology and techniques.

This may involve working with a fraud prevention provider that offers ongoing support and updates to their systems. By staying ahead of fraudsters, merchants can reduce the risk of false declines and protect their business.

Train Staff on Fraud Prevention Best Practices

Human error is a common cause of false declines, which is why it’s essential to train staff on fraud prevention best practices. This includes educating them on how to identify potential fraud and how to handle suspicious transactions.

By providing staff with the knowledge and tools they need to prevent fraud, merchants can reduce the risk of false declines and improve the overall effectiveness of their fraud prevention efforts.

Conclusion

False declines can have a significant impact on merchants, resulting in lost sales, damage to reputation, and increased operational costs. By investing in advanced fraud prevention technology, using a multi-layered approach, and continuously monitoring and updating fraud prevention systems, merchants can combat false declines and protect their business from fraud.

By staying ahead of fraudsters and providing staff with the knowledge and tools they need to prevent fraud, merchants can reduce the risk of false declines and improve the overall effectiveness of their fraud prevention efforts.

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