Snippet: There have been at least three occasions in the last couple of years when I have been anxiously trying to connect through to a bank’s fraud team contact center after having a payment declined.

There have been at least three occasions in the last couple of years when I have been anxiously trying to connect through to a bank’s fraud team contact center after having a payment declined.

The most recent was at a security event in the US whilst attempting to book into my paid-for room. After nearly a day’s worth of travel and two plane changes, I was certainly not in the mood to deal with a transaction decline on a valid card with enough funds to cover the incidentals on a two-night stay. As a good customer, I was exasperated as to why I was being punished.

This incident typifies a conundrum for financial services providers, in particular payment card issuers: erroneously declining legitimate customers versus effectively managing fraud. Yes, it was my card that was attempting to charge a room, but it was in a city that was thousands of miles away from my home in the UK. The bank’s systems had flagged this as potentially fraudulent behaviour, and the only way of informing them that the card was in fact in the hands of its authorized user was for me to call them.

Card-not-present fraud involves the unauthorized use of credit or debit data (the card number, security code and expiry date) to purchase products and services online

If we move this scenario online, we replicate it thousands, probably millions, of times per day. This is a result of card issuers attempting to keep a lid on financial fraud, especially the rising levels of card-not-present (CNP) fraud. Losses to this type of fraud reached a total of £432.3 million in 2016 (a 9% increase since 2015) for the UK. Annual increases in CNP fraud, especially online fraud, have risen each year since 2012 for the UK – a trend that is being repeated around the world.

In this atmosphere of increasing financial losses due to card payment fraud, and increasing attacks against the popular online and mobile retail channels, it is not surprising that card issuers are taking preventive measures by implementing anti-fraud solutions that draw on user behaviour; even though in many cases it means punishing good customers.

Fraud management and risk-based authentication solutions do a pretty good job of restricting fraud, but their accompanying high false decline rates can sometimes punish authentic users and push them away to competitors. Figures from MasterCard show that 39% of cardholders abandon a card after a false decline, while a quarter decrease usage. Added to this, 32% of online shoppers say they’ll avoid merchants that have declined their legitimate transactions before.

It’s certainly a balancing act for card issuers and their retail clients in how to balance fraud management and customer retention whilst increasing customer acquisition. The aim is to limit and reduce fraud in the digital channels, whilst adopting efficient user authentication mechanisms that do not unduly interfere with the overall user experience (e.g. by requesting additional user verification through inconvenient methods). Additionally, consumers tend to want to know that they are being protected, and they want to be involved in the authentication process. American Express found in a survey that, in 2016, 37% of US online shoppers abandoned a shopping cart because they felt security was inadequate.

The crucial fact is that to limit fraud and enable e-commerce, card issuers need a reliable method that identifies their customers whilst also ensuring that they feel protected. The only way to achieve this is through establishing trust between the card issuer and the consumer, ideally leveraging something ubiquitous to them, such as their mobile device. This will enable financial service providers to reduce fraud without the risks associated with “frictionless” authentication mechanisms.

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Alan Goode


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Entersekt is an innovator of customer-centric fintech solutions. Financial services providers and other enterprises rely on our patented mobile identity system to provide both security and the best in convenient new digital experiences to their customers, irrespective of the service channel. With us, they can concentrate on their innovation roadmap, while delivering intuitive, low-friction digital experiences to their customers.