ECommerce merchants are very aware of the impact of chargebacks on their bottom line.
However, the cost of false declines— incorrectly declining good customers on fraud suspicion—is usually underestimated. In fact, Aite Group estimates that the eCommerce industry will experience false-positive losses of $443 billion in 2021, which is about 70 times higher than predicted losses due to actual fraud.
A common mistake that businesses make when reacting to fraud attacks is to overreact. In response to an increase in fraud, it’s easy to fall into the trap of throwing everything at the wall just to stop the bleeding.
If you start by using a gateway filter or other rules-based fraud filter, there’s a good chance that your approach is over-simplistic and overly conservative. Many business owners think that the best way to prevent fraudsters is to put strict rules in place, for
instance requiring a billing/shipping match or an AVS match. The problem is that about 90% of orders with an AVS mismatch are good orders.
The hard truth is that losses from false positives often far exceed losses from chargebacks. When a good customer gets declined, not only are you missing out on the revenue from that sale, but you also risk losing a potential lifetime customer. They
may even write poor reviews that turn away other good customers.
If you are already receiving calls from legitimate customers complaining about canceled orders, likely, you’re already experiencing losses from false positives that you may not even be aware of. In that case, you require a more intelligent fraud solution beyond a simple fraud filter.