Snippet: A recent report by BI Intelligence found that, unsurprisingly, card-not-present fraud is rising in the US, now costing merchants 1.47 percent of their annual revenue (up from 0.51 percent in 2013).

A recent report by BI Intelligence found that, unsurprisingly, card-not-present fraud is rising in the US, now costing merchants 1.47 percent of their annual revenue (up from 0.51 percent in 2013). Card issuers, processors, and acquirers alike are enforcing increasingly strict rules for blocking suspicious transactions (for example, refusing transactions that have conflicting billing and shipping addresses or out-of-date card information).

Unfortunately, an unintended consequence of these prevention strategies is so-called false declines: valid transactions that are incorrectly rejected. This may be for a variety of reasons, such as that the shopper is a first-time customer, or the purchase is a departure from their normal pattern of transaction activity, writes Mike Gross from Experian.

These declines cost e-merchants not only money but customers too: last year, research by MasterCard and Javelin revealed that 32 percent of cardholders decide to stop shopping with a specific retailer if they are declined there. According to Gross, false declines “provoke an onslaught of consumer emotions ranging from shock and dismay to frustration and anger”.

E-merchants are also less likely to move into new regions if these regions present fraud concerns. “The overcorrection on fraud from a retailer’s perspective, especially for midsized and small businesses, means they’re leaving huge market expansion opportunities on the table. They’re told a certain foreign market is risky, so they shut down the borders,” says Andy Freedman, chief marketing officer at Riskified.

According to the BI report, false declines will cost e-commerce companies an estimated $8.6 billion in 2016 – more than the projected $6.5 billion that will be spent on preventing fraud. In an attempt to reduce false declines, MasterCard launched real-time intelligence solution MasterCard IQ in February of this year. The idea behind this software is to analyze the historical behavior on a card in order to better predict the risk of a particular transaction.

Another fraud prevention measure that should also help to combat false declines is to require customers to authenticate themselves through more accurate means, such as 3-D Secure. If implemented correctly, 3-D Secure can reduce fraud and operational costs for online merchants and even increase card usage. But if not, customers will be put off by the additional friction this security layer adds to their shopping experience, abandoning transactions and even entire stores. Entersekt’s card-not-present solution combines the strong authentication of 3-D Secure with the convenience of the customer’s own mobile device. Instead of waiting for an OTP – and then switching between apps to get it entered – the shopper simply responds to a pop-up summary of the purchase details by tapping Accept.


Visit our 3-D Secure webpage.

Subscribe to our blog.


Jolette Roodt

WRITER/ANALYST

Entersekt Logo

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.