False declines are a significant yet often overlooked issue that impacts both businesses and consumers. Picture this: You attempt to make a purchase, only to face rejection, not because of insufficient funds or fraudulent activity, but due to a false decline. These instances, where legitimate transactions are incorrectly flagged as fraudulent, not only disrupt the smooth flow of commerce but also dissuade frustrated customers from making return visits.
According to a recent report by PYMNTS Intelligence titled “Fraud Management, False Declines and Improved Profitability,” nearly $160 billion is at risk due to false declines in the United States in 2023, and despite recovery efforts, more than $80 billion is expected to be irretrievably lost.
Yet, striking a balance between reducing false declines and implementing robust fraud screening measures proves to be a challenging task. Consequently, there is an urgent need for payment service providers (PSPs) to play a critical role in strengthening online retailers’ bottom lines through a holistic approach to fraud management and false declines.
The report, published in collaboration with Nuvei, reveals that strong, ongoing collaboration with PSPs has a significant positive impact on eCommerce players’ profitability. In fact, 86% of firms credit their improved profitability in the last 12 months to proactive support from PSPs.
However, despite the progress made, there is a persistent uncertainty faced by online retailers regarding failed payments due to potential fraud and false declines. Surprisingly, 11% of all eCommerce transactions in the past year failed, yet very few merchants have a clear understanding of the reasons behind these failures.
To address this challenge, the report recommends optimizing fraud screening mechanisms to identify the root causes of failed payments accurately.
Additionally, prioritizing the innovation of anti-fraud tools and technologies is essential, the report noted. Upgraded payment technologies that strike a balance between minimizing fraud and false declines not only safeguard against illicit payments but also enhance the customer payment experience.
Against that backdrop, 95% of these firms are either enhancing their anti-fraud tools or have plans to do so within the upcoming year. Companies operating in retail trade take the lead, with 45% actively elevating their anti-fraud strategies compared to 37% in the digital services sector.
Variations based on company size are evident, with 31% of smaller retailers — those generating annual revenues between $100 million to $250 million — actively innovating compared to larger companies.
Surprisingly, online retailers widely fail to recognize the direct correlation between refining anti-fraud measures and bolstering their financial standings. Only 16% acknowledged increased profitability as a benefit of innovation in this domain, while a mere 8% recognized the potential for revenue acceleration.
These gaps in perception underscore the necessity for PSPs to heighten awareness among their eCommerce clientele regarding the advantages of collaboration in this space. Instead, 82% of merchants identified enhanced customer satisfaction as a benefit of enhancing their anti-fraud toolkit, while 75% noted data breach prevention, and 68% highlighted the elimination of data privacy concerns as the primary benefits.
The report also emphasizes the importance of outsourcing failed payment recovery solutions. Currently, 94% of eCommerce firms outsource some or all their recovery solutions. The most common approach is a combination of in-house and third-party solutions, with 80% of merchants adopting this strategy.
In conclusion, the report highlights the need for eCommerce firms to actively innovate their anti-fraud tools and collaborate with PSPs to minimize false declines and screen out potential fraud. Beyond the benefits at stake, this approach safeguards billions of dollars and fosters the sustainable growth of the digital marketplace.