• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
  • Submissions
  • About Us
  • Contact Us
  • Feb 3, 2023
  • Startup
    • Creating a Plan
    • Funding a Startup
    • Franchise Center
    • Getting Your Office Ready
    • Making Your Business Official
    • Marketing Your New Business
    • Personal Readiness
  • Run & Grow
    • Customer Service
    • Human Resources
    • Innovation
    • Legal
    • Operations
    • Risk Management
  • Leadership
    • Best Practices
    • Communication
    • Green Initiatives
    • Open Culture
    • Strategic Planning
    • People Skills
  • Sales & Marketing
    • Advertising and Lead Generation
    • Marketing Innovations
    • Marketing Plans
    • Online Marketing
    • Relationships
    • Sales Activities
  • Finance
    • Budgeting and Personal Finance
    • Payments and Collections
    • Tax and Accounting
    • Pricing Strategy
    • Working with Investors
    • Working with Lenders
  • Tech
    • eCommerce
    • Hardware
    • Software
    • Security
    • Tech Reviews
    • Telecom
  • Shop

SmallBizClub

Helping You Succeed

taxbandits banner
Home / Technology / eCommerce / Avoiding Unnecessary False Declines: A New Year’s Resolution You Can Keep
Avoiding Unnecessary False Declines: A New Year’s Resolution You Can Keep

Avoiding Unnecessary False Declines: A New Year’s Resolution You Can Keep

2941 Views

Feb 5, 2018 By Debbie Fletcher

Losing weight is a great New Year’s resolution. Losing revenue? Not so much. The beginning of the new year is a great time to set a new business goal. For eCommerce companies, a good suggestion is reducing the number of orders which are falsely declined by your existing fraud prevention process or solution.

What happens when you reject good orders

Falsely declined orders can bring three levels of pain to your profits: the immediate loss of the rejected shopping cart’s value, the long-term loss of that customer’s lifetime value (shoppers mistaken for fraudsters by a brand rarely return to it), and the wasted cost of acquisition (think of false declines as a leak you’re poking into your own funnel).

But wait, it gets worse. Like an iceberg, the bulk of the problem of false declines is invisible to many online merchants. One reason is the lack of any obvious indication that a certain declined order was in fact legitimate. This is in stark contrast to the notifications, process, and fees associated with chargebacks.

Another reason is the fact that there’s no threshold penalty like there is chargebacks. With chargebacks, many payment processors will stop doing business with a merchant if the chargeback percentage of their total transactions exceeds a defined limit (usually 1%).

As we’ll see below, when there’s no clear penalty for falsely declining an order, inadequate and outdated ecommerce fraud prevention tools end up becoming widely adopted.

Lastly, since an e-tailer’s total rate of declined orders is usually in the low single digits, even if all of those were false declines, the short-term impact of the problem is incremental when compared a brand’s bottom line. Thus, there is little immediate incentive to expend resources towards recouping that lost revenue.

The “invisibility problem” of false declines naturally causes merchants to feel that far more of their declines are fraudulent orders than actually are, due to the fact they are ignorant of the true magnitude of this problem. It’s eCommerce meets the Dunning-Kruger effect.

All this leads merchants to focus on more visible metrics like turnaround time, chargeback rates, and chargeback losses. With so much emphasis put on avoiding chargebacks, overly risk-averse fraud prevention “solutions” become the norm, in-house fraud prevention teams stay understaffed, under-equipped, and overworked. In such an environment, little to no effort is put into looking beneath the surface of a borderline or “risky” order.

Blacklists are Ineffective

One tool in particular contributes to many false declines: e-commerce fraud prevention blacklists. These are essentially lists of names, shipping addresses, and other order details which have been associated with a chargeback. When new orders come in, the order details are checked against this blacklist, and if one or more of the order’s details match the list, that order can be automatically declined.

Although they seem like a quick, efficient, and accurate solution, there are many reasons why blacklists can block good orders and end up doing more harm than good. One of them is the fact that a single shipping address can be legitimately used by many people (think re-shippers and university dorms). If one person at such an address, at one point in the past, initiated a chargeback, all future orders could get needlessly rejected.

Another drawback to blacklists is their tendency to include entire countries. Think about that: an entire nation could be cut off from a merchant because a single order resulted in a chargeback.

Not only are blacklists too blunt of a tool, they’re also ineffective—fraudsters just adapt their tactics or buy new stolen card info on the black market which doesn’t match anything on the blacklist. Blacklists only deliver false declines and a false sense of security.

Why merchants are turning to models

But there’s a better way: adaptive fraud prevention tools based on data modeling. By linking the details on the order to data from social media, public listings and other sources and employing machine learning algorithms, the current best-of-breed solutions on the market today work by reconstructing the likely story behind the order instead of basing the entire accept/decline decision on a few data points. There is a paradigm shift in the industry towards connecting the dots and away from finding a “smoking gun.”

A new year calls for new thinking about combating eCommerce fraud. Make it your resolution to stop leaving money on the table.

Filed Under: eCommerce Tagged With: ECommerce, Fraud, Payments

Debbie Fletcher

Debbie Fletcher

Debbie Fletcher is an enthusiastic, experienced writer who has written for a range of different magazines and news publications over the years. Graduating from City University London specializing in English Literature, Debbie's passion for writing has since grown. She loves anything and everything technology, and exploring different cultures across the world. She's currently looking towards starting her Masters in Comparative Literature in the next few years.

Related Posts

  • The Long-Lasting Impact of eCommerce On Rural Business
  • 3 Tactics to Boost Your Online Sales
  • 7 Common Types of Checks: What They Are and How to Spot Them

Primary Sidebar

Random

10-entrepreneur-milestones-that-make-funding-easy

How Funding Data Can Improve Investor Outcomes

Feb 2, 2023 By SmallBizClub

two-key-digital-innovations-for-small-business

What Can You Do to Give Your Business a Boost?

Feb 2, 2023 By Charlotte Sylvester

5 Tips for Self-Financing Your Startup

Feb 1, 2023 By Lending Tree

Best Places to Buy Property in Portugal: Quick Overview

Feb 1, 2023 By SmallBizClub

4-services-you-need-when-moving-into-a-new-office

Key Factors in Choosing a Real Estate Agent to Sell Your Property

Jan 31, 2023 By SmallBizClub

Footer

About Us

Small Biz Club is the premier destination for small business owners and entrepreneurs. To succeed in business, you have to constantly learn about new things, evaluate what you’re doing, and look for ways to improve—that’s what we’re here to help you do.

  • Facebook
  • LinkedIn
  • RSS
  • Twitter

Copyright © 2023 by Tarkenton Institute, Inc. All Rights Reserved | Terms | Privacy