False declines explained

As an ecommerce merchant, false declines, where a legitimate transaction is mistakenly identified as fraud and rejected, are such a nightmare precisely because they are a product of your essential fraud prevention measures.

Unfortunately, a growing number of customers (19% in the US in 2022) won’t bother attempting to make the same purchase again if they experience even one false decline. If that customer chooses to buy elsewhere, not only have you lost a sale, you could have permanently lost a customer.

That’s why it’s essential for merchants to understand why their customer’s payments are failing and to take measures to reduce false declines.

Here, we explain why false declines happen, why they’re so damaging for your business, and how you can use Checkout.com to fight false declines.

What are false declines?

False declines are legitimate transactions that are mistakenly blocked by the merchant or bank as a suspected fraud attempt. They commonly happen during ecommerce transactions, where the card and cardholder are not physically present, which makes it harder for the merchant to verify their identity.

For example, a customer visits your website and adds an expensive item to their basket. When they attempt payment, the unusually high cost of the item triggers the automated filters of your fraud detection system to identify it as fraud and the transaction is declined.

Merchants are right to be vigilant, and to decline transactions they suspect of being fraudulent, but falsely declining legitimate payments is costly and can damage your relationships with customers, who you are essentially accusing of being criminals.

Why do false declines happen?

Fraud prevention systems use complex algorithms and filters to identify and block criminal activity. However, they are imperfect and can be overzealous when they encounter a transaction with even vaguely unusual or suspicious characteristics. What makes things difficult is that, while they could signal fraud, these circumstances often have an entirely legitimate explanation.

Characteristics that might cause a false decline include:

• Customer location - the customer is familiar but they are shopping from an unfamiliar location.
• Shipping address - the customer is familiar but their shipping address is different from usual or not the same as the country or region they live in.
• Incorrect cardholder information - the shopper has provided incorrect or incomplete information.
• Order value - the value of the transaction is unusually high considering the customer or the products they’re buying .
• Shipping requests - the buyer is requesting the quickest shipping option, which could mean they want the goods delivered before the fraud can be detected.
• Multiple addresses - multiple items have been ordered under one billing address but are being sent to multiple delivery addresses.
• Multiple orders - multiple orders have been made by the same customer on a number of different credit cards.
• Inconsistent address information - the buyer’s delivery address does not match their billing address.
• Suspicious location - the customer’s address is in a region of the world that has a reputation for fraudulent activity.

Why false declines are damaging your business

False declines might be the product of a completely necessary process, but they still have a number of negative consequences for your business, including:

• Sales loss - when you decline a transaction, you decline a sale. The customer may choose to attempt payment again, in which case you have a chance to recoup lost revenue. But it’s also possible that they’ll be put off by the false decline and won’t try again.
• Customer loss - at its worst, a false decline might not just put your customer off trying the purchase again, but could encourage them to take their business elsewhere. They might assume that there’s a fault with your system or upset that they’ve been accused of fraud. Either way, you’ve lost a customer and their money.
• Reputational damage - consistent false declines might incentivize a customer to speak about their bad experiences to friends and family or even to post about them on social media, dissuading potential customers from shopping with you in future.
• Extra work for customer service - customers who experience false declines might call your customer service line to express their frustrations. If this becomes a major problem, customer service staff could become overwhelmed and unable to devote time to more pressing customer concerns. At worst, they could become burnt out and leave your organization.

How to eliminate false declines

With the above in mind, it’s clear that you should take steps to reduce the number of false declines your customers experience.

The challenge merchant’s face is that fraud detection systems assess hundreds of different factors when determining the legitimacy of a transaction and are a vital tool in the fight against criminality. So how can you ensure the integrity of your fraud prevention strategy, while eliminating false declines?

• Improve your filters - one simple solution is to create smarter filters that have a keener understanding of the context of a transaction. To do this, you’ll need to analyze your false declines and look for any correlations between falsely flagged legitimate transactions. You, or the third party behind your fraud detection system, can use this information to design more accurate fraud filters.
• Incorporate manual reviews - this is, of course, a more time-consuming option, but you don’t have to do it for every transaction. Instead, you can create rules in your system that result in only medium risk transactions being flagged for manual review and high risk ones being automatically declined.
• Use machine learning - machine learning is a powerful tool in fraud prevention. It can learn from historic data and suggest improvements, learn to re-attempt declined but legitimate transactions, and even work out the best schedule for retrying failed subscription payments.

Reduce false declines with Checkout.com

As your payments partner, Checkout.com’s powerful optimization tools and data capabilities empower you to understand why payment errors are happening and to avoid false declines.

Our fraud prevention solution combines merchant-created rules and machine learning to block fraudulent transactions while accepting payments from legitimate customers accurately. What’s more, it’s highly customizable to your needs and circumstances. Eliminate false declines and boost customer loyalty with Checkout.com.