Reduce False Positives: Convert More Good Customers

Glen Goldstein
Blog Post07/11/2017
Fraud

You’re letting good money go to waste. And may not even know you’re doing it. Ask yourself, “How often are we rejecting good, online customer orders due to fraud prevention system false positives?”

Chances are, you’re rejecting a lot of good customers, and walking them to your competitors, because you’ve been led to believe they’re fraudsters. The result is lost revenue; but also angry customers, wasted marketing spend and a damaged brand reputation.

Not only that, but growth in ecommerce provides a rich environment for CNP fraud. In fact, online transaction fraud will more than double in the next five years to $25.6 billion by 2020, according to Juniper Research.

Online fraud tactics are becoming more sophisticated. Fraudsters are moving from using stolen credit cards at a transaction level, to account takeover with real consumer identities, to creating completely synthetic identities.

Most legacy fraud prevention systems are simply not up to the task of dealing with the scope, scale and speed of today’s fraudsters. At the same time, merchants can’t become more risk-averse with online customers or they’ll risk insulting them and losing their business.

What we know today is that too many customer orders are being rejected due to false positives and it’s costing merchants millions.

The true cost of false positives
About 2.9% of online orders are rejected due to suspicion of fraud, according to CyberSource’s 2017 Global Fraud Survey. That’s probably in line with your business give or take. But, 68% of survey respondents who track false positives believe that up to 10% of their rejected orders are actually genuine.

We refer to these false positives as the customer insult rate. In our experience, a 10% customer insult rate is conservative – it’s probably around 30% but varies depending on your business.

We used these benchmarks to create a true cost of false positives equation, demonstrating an impact of up to 3% of annual profit lost due to the customer insult rate. That’s a huge number for any business. It represents the loss of the immediate sale, but also includes cost of wasted acquisition and lost customer lifetime value.

An opportunity to be the hero
How many times in your career have you had the opportunity to send your CEO an email with a subject line like, “I can give you an extra $1 million this year!”? Sounds crazy, right? But this is your chance to be the hero. Simply reduce the number of rejected customer orders by lowering your customer insult rate.

Not only that, you’ll reduce wasted customer acquisition cost and build more customer loyalty. By letting more good orders flow, you’ll eliminate friction in your ecommerce shopping experience, increase conversions and create brand advocates.

Balancing a good customer experience and fraud prevention
Ok, you may not want to send that email just yet. But let’s talk about a few things that will give you the confidence to do so soon.

The following tips will help you understand your current situation and decide what’s best for your organization moving forward.

  • Determine your opportunity – Calculate your true cost of false positives to determine the value of reducing your customer insult rate. If you don’t know your customer insult rate, just use 2.9% as a benchmark.
  • Recognize your limitations – Assess your current fraud prevention and identity management systems to understand what’s behind your customer insult rate. Is it driven by your risk tolerance? Is your system incapable of recognizing more good customers while also reducing real fraud? Or, is it too inflexible to allow for adjustments?
  • Find the right balance – Implement an integrated identity decisioning system designed to set the right balance between risk and reward. One that will convert more good customers and improve the customer experience while also protecting profitability.

Revenue growth for the taking
Now’s the time to act – so why wouldn’t you? Every day that passes, more good orders are rejected due to false positives. Every day that passes, more customers are being inconvenienced, angered and insulted.

You’ve got the opportunity to be the hero by increasing conversions and revenue. Go ahead, capture more sales and put your business on the path of reducing unnecessary friction in your online shopping experience.

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