False positive declines are more damaging than chargebacks

False positive declines are more damaging than chargebacks

For all of our e-commerce merchant partners, we’re posing a question: What is worse, suffering chargebacks or false positive declines? According to a recent study by the Vesta Corporation and Javelin Strategy & Research, the answer might surprise you: It’s the latter.

The fear of suffering fraud is higher than ever. Online merchants have set such high restrictions on their anti-fraud programs, that it is believed to be 30 percent of declined transactions are actually legitimate.

Direct and indirect impact of fraud

More than ever, the impact of fraud runs deep into a business, impacting businesses directly and indirectly. Chargebacks and false positive declines fall under the indirect category. For example:

  • A merchant receives a purchase, but the buyer claims it was made with stolen credit card information, thus files a chargeback with his/her credit card issuer.
  • A merchant notices an order come through his/her website overnight for a high ticket item. The order is from a country known for organized fraud. Considering all three factors – high ticket, overnight, high-fraud country – s/he declines the order.

The merchant understandably aired on the side of caution. There is always that possibility, however, that the order was legitimate – a false positive decline – and the merchant lost the sale of a high-end item.

False positive declines are occurring more than ever – The Javelin/Vesta study says it’s costing merchants five times as much as chargebacks – because merchants are being extremely cautious of fraudulent sales.

More merchants are fighting back, and it’s a good thing!

First, for those e-commerce merchants who take the time to examine their orders, we offer an emphatic ‘well done!’ We hope you keep it up. According to the Javelin/Vesta study, more than ever, merchants are dedicating a significant amount of time and resources to fighting fraud, chargebacks and examining suspect orders.

And, for the record, therein lies another indirect impact of fraud: Time spent defending your business instead of marketing and promoting.

5 clues to overcome false positive declines

Mitigating fraud is truly a game of one-upmanship. We offer five strategies merchants can take to identify genuine orders and avoid false positive declines.

  1. IP Geolocation & Google: We know many merchants who use IP geolocation, Google Maps and Google Earth to identify legitimate addresses, therefore confirming authentic sales.
  2. Addresses don’t match: There is a delicate balance here: While different shipping and billing addresses can indicate a bogus order, it can also mean an honest consumer is sending a gift. Contacting the shipper is recommended.
  3. No signature needed on receipt: A merchant friend of ours who sells and ships live and frozen seafood exclusively in North America sees red flags when a customer requests no signature upon receipt of goods. Not only does this indicate a fraudulent order, it leaves the product wide open for package theft if it is indeed legitimate.
  4. International orders: Fraudsters are everywhere, but there are certain countries and regions where it is rampant – Eastern Europe, Africa, Asia. Using the aforementioned strategies – IP address checks and Google maps/Earth – will help you identify the criminals.
  5. Fraudulent U.S. states: In November 2016, WalletHub.com released a report entitled 2016’s States Most Vulnerable to Identity Theft and Fraud. It is a fascinating read, listing District of Columbia, California, Florida, Massachusetts and Nevada as its top five (in order). We’re not saying that orders and IP addresses from said states indicates fraud; just that they might warrant a closer look.

One simple 60-second step

Back to our seafood merchant colleague: When he encounters any of the above instances, which, he says, are very common, he resorts to one simple tactic. “The best thing to do is to call the contact,” he says. “If the addresses don’t match, if it’s a really big order, a strange-looking e-mail address, I’ll call the person.

“The merchant has little or no recourse,” he added. “You have to be vigilant.”

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