Card declines are known to blast off during peak shopping seasons, the winter gifting holidays topping the list, and the pernicious problem of false declines is a fixable part of this problem that cost merchants and issuers an estimated $440 billion in 2021.
PYMNTS spoke with Jaime Howard, vice president of global product and marketing, head of agile at CardinalCommerce, a Visa solution, on how her company is one of several trying to negotiate a treaty between merchants and issuers over competing rules that cause these costly mistakes.
Calling false declines “the problem that we all love to hate, or hate to love,” depending on which point of the triangle you occupy — cardholder, merchant or issuer — Howard took it from the perspective of a legitimate customer trying to use their card for a legit purchase.
“I find that site, I find the good or service that I want to obtain, I go through the checkout, and then I get stopped,” she said. “I get blocked, I get declined. That’s a really poor experience for a number of reasons. One, I spent my time to find something. I went to your site, I wanted to buy it. So, I’m insulted by the merchant experience.”
And that wrongly rejected customer has a few targets at which to direct their displeasure. Not only might the merchant lose a customer, but that card can too, which leads to a loss of hard-won wallet share at a time when no business can afford that hit to customer lifetime value.
Fear of fraud is what motivates these declines, which makes sense. What doesn’t make sense to Howard is merchants and issuers working at cross-purposes from not wanting to share customer data. So, while actual fraud may take a hit, false declines more than make up for that.
Howard said she sees herself as a kind of peacemaker, asking: “How do we work together as an ecosystem to make sure that fraud is mitigated, but that we’re also paying close attention to false declines and the consumer experience?”
Whose Customer Is It?
The problem is multifaceted, as both merchants and issuers invest money, time and effort into acquiring those customers, and both lay claim, creating disharmony behind the scenes.
“They both feel that they have ownership over the consumer who’s also the cardholder,” Howard said. “What’s happened is they both have their own ways that they want to manage risk for that cardmember or that shopper. A lot of times they can contradict each other.”
Then the merchant says it’s the issuer’s fault, and vice versa. That’s where CardinalCommerce is stepping in to referee these situations and bring unity where it’s badly needed.
She said that over the past 18 to 24 months the company has been “working and engaging deeply with both sides of the ecosystem, the merchants and the issuers,” educating both, analyzing data and “trying to bring the two together and broker conversations where we can problem solve together and create this environment where everybody wins.”
At the start of those conversations, she said, “everybody’s a little poker-faced” still thinking in terms of who “owns” the customer. The paradoxical answer is both and neither.
“It’s not rocket science; it’s brokering a conversation,” Howard said. “However, you have to be a trusted advisor to be able to get into that situation.”
When the players eventually show their cards, she said “the first question our merchant partners ask of the issuers is what type of data do you need? What level of data quality do you need to make a better decision in your authorization or your authentication flows?”
That lets trust in, as Cardinal and sometimes its Visa colleagues lead sessions in “basic 101 relationship building. Then the conversation just naturally kind of flows from there.”
EMV 3DS as Equalizer
Ironically, this all began with a well-intended drive to reduce fraud in the early aughts. That saw the introduction of 3DS 1.0.2, which was sunset in late 2021 to make room for EMV 3-D Secure.
“It started with saying, ‘Hey, ecosystem, merchants, issuers, we have heard you over the last decade of what’s not working in 1.0. We have seen consumer shopping and spending change.’”
In the connected economy of 2022, the online fraud problems of 2001 seem almost Jurassic by comparison — and they are.
“As we were trending towards the sunset of 1.0, what we started realizing is the data that is now available in the new EMV 3DS protocol is the exact data that the merchants and issuers need to collaborate on in order to make better decisions.”
Open dialogue between merchants and issuers is leading to deep data analysis and process refinement. Because of early adoptions in markets where 3DS is not yet mandated — specifically the United States — she said that today “we are starting to see the benefits” of collaborative data exchange “to the tune of a reduction of 35% in fraud … and over 1% lift in authorizations.”
Transparency into who’s making that card transaction is provided by the 3DS protocol, which eases the concerns of issuers, leading to less friction and fewer false declines.
“That’s the goal,” she said. “The reverse of that is — let’s say it is a bad guy — because they still exist. It’s not like we’re getting rid of the bad guys; we’re just catching them.”