eCommerce Merchants Fail to Connect Failed Payments and Fraud

woman in warehouse with laptop

Despite the many fraudsters on the prowl seeking to exploit any vulnerabilities they can find in the payments ecosystem, only about one-third of eCommerce merchants connect the dots between failed payments and potential fraud.

Even more troubling: more than 40% of merchants will simply ask customers to “try again” should a payment fail rather than question if the unsuccessful transaction could actually be attempted fraud.

These are just two of the findings in “The Role of Fraud Screening in Minimizing Failed Payments,” a new collaborative report from PYMNTS Intelligence and Nuvei that draws on insights from 300 executives who were asked about the efficacy of current eCommerce screening mechanisms.

graphic: responses to potentially fraudulent transactions

One key theme that emerges in the new study is how important it is that eCommerce merchants distinguish between payments that fail due for mundane reasons like typos and those that are shut down due to potential fraud. Merchants who can make that distinction are able to more accurately and confidently target recovery methods, understand process-related issues and improve customer satisfaction. As any entrepreneur knows, incorrectly turning away a customer or declining a transaction not only undermines customer loyalty but hurts the bottom line.

Which is why the report also delves into the effectiveness that comes when eCommerce merchants collaborate with payment service providers (PSPs) to better more accurately identify the reasons they get declined.

Data shows that those merchants who most frequently collaborate with PSPs have higher success rates in identifying — and preventing — potential fraud as the reason for failed payments versus those who engage in minimal or no PSP collaboration.

Nearly 85% of those merchants who actively collaborate with PSPs can confidently encourage customers to try completing their transaction a second time using the same payment method, presumably because they have a better sense about the origins of the first declined payment.

Meanwhile, eCommerce merchants who make little or no effort to collaborate are less confident when suggesting customers repeat their purchase using the same payment method. And, among those who do not collaborate at all, 1 in 5 actively discourage customers from trying the transaction again. Highly collaborative firms are less than one-quarter as likely to discourage their customers in this way.

The report also determined that highly collaborative merchants are also less likely to enforce increased security checks on these customers — much lower than the 70% of merchants that have no collaborative relationship with their PSPs, indicating that PSP collaboration can help merchants strike the proper balance between preventing fraud and providing top-notch customer service.