Global merchant-issuer collaboration network Ethoca is asking for the industry’s help in addressing the growing issue of false declines, after issuing a major study on the problem.
The numbers are significant. Almost 1.9 billion purchases worth $145.9 billion are declined globally every year. More each year are false declines, Ethoca reports.
At 9.4 percent, fraud actually makes up a small percentage of declines, the report discovered. A more likely reason, at 44.4 percent was insufficient funds.
Merchants should think twice when they suspect fraud. More than half the time (52 percent), orders they suspected were fraudulent could have been successfully filled.
Decline rates are higher for virtual goods than they are for physical ones, the researchers discovered. digital good decline rates can top 15 percent while physical goods are declined three to four percent of the time.
False declines impact the consumer, retailer and financing agent. The consumer may abandon the purchase entirely, which impacts all parties. They may switch to another card, which can rob that provider of interest income, or try with another retailer, thereby denying the initial one a sale.
Poor card issuer communication with retailers contributes to the confusion. When declining a transaction, many issuers simply state “do not honor” without giving a reason. That causes increased friction and the perception of fraudulent activity.
Many are false declines, which can be triggered at any point in the transaction channel due to the suspicion of fraud. As legitimate fraud and recovery costs both rise, fraud detection systems err on the side of caution but in doing so turn away good customers.
“There is little doubt the payments industry is looking at card-not-present fraud through a different lens, and what we’re seeing is alarming,” Ethoca chief product and marketing officer Keith Briscoe said. “Our research bears out much of the recent findings around the false declines problem, but reveals new insights that are key for understanding – and combatting – this increasingly costly problem.
“Ethoca believes the only way to effectively solve this problem is through industry collaboration at the transaction level. We invite card issuers and merchants around the world to join us in our active work to eradicate it and help increase acceptance for every participant in the commerce ecosystem.