For more than a decade, the majority of merchants classified chargebacks as just the cost of doing business. It’s no longer the case anymore as merchants who hover around the 1 percent of sales/100 chargebacks-per-month threshold risk losing their merchant account services.
We have a question, however. Are false declines the new ‘cost of doing business’?
Some merchants will argue that false declines are a bigger problem than chargebacks. We’re not sure — they’re both malignant problems that can cause a business to fail:
- Too many chargebacks can result in a revoked merchant account and placement on the MATCH list.
- Excessive false positives results in lost revenue. Too much lost revenue causes a business to go under.
How did we get here?
Since US merchants began converting their point-of-sale hardware to accept chip-enabled credit cards, fraudsters have shifted their collective attention to e-commerce businesses. The chip offers no protection for online transactions.
It happened in Europe and the U.K. 15 years ago, as well as Canada in 2008 when it converted to the credit card chip: online crime rates soared.
Here in the states, fear of getting hacked hasn’t reached hysteria heights yet, but we’re getting there. Between hackers, friendly fraud and chargebacks, merchants nowadays have no choice but to invest in safeguards to protect their e-commerce websites, consumer data and transactions.
The (scary) figures on false declines
We recently watched a terrific webinar on the damage of false declines, and the consumer types who are the most common victims. It opened with some alarming figures:
- The year 2019 is expected to see $2.8 trillion in online shopping transactions.
- 2.6 percent of online orders will be declined.
- Anywhere between 30-70 percent of those declines are legitimate, resulting in $48.5 billion in lost sales.
That’s a great deal of revenue lost, not just for merchants, but payment processors, acquiring banks and everyone in the ecosystem. When merchants are fluidly processing transactions, everybody wins.
How false declines are more than damaging than merchants think
Back to that line, ‘The cost of doing business.’ We hear it too often in merchant account services, and it is most commonly used as an excuse to not fight chargebacks, to not improve something.
A false decline goes much farther than a merchant shrugging their shoulders and moving on. Let’s dig deeper:
- Damages the customer experience: Recently we blogged about a situation in which we were denied from making a purchase of a soccer jersey. We tried three times to complete the transaction — most consumers aren’t that patient — until we moved on to a competitor. If we ever return to that website to make a purchase, we’ll remember the original experience we had.
- Tarnished brand reputation: Consumers have more of a voice than ever and often take to reviews sites to share their experiences — some good, but mostly bad. Even one bad review has long lasting effects.
- Wasted traffic costs/strategy: Think of the strategies and expenses for which a merchant pays to draw traffic to their website such as Google Adwords, third party leads providers and social media promotions. With every legitimate sale that is falsely declined, a portion of traffic cost and strategy is wasted, however small.
- Manual review time: A merchant’s time is valuable. Conducting manual reviews of transactions, so we’re told, is among the least favorite tasks of owning an online business. Merchants need to consider the time used in examining the transactions that are wrongly deemed fraudulent.
- It’s not just one transaction: Echoing on points 1 and 2 above, who is to say that however many customers a merchant has falsely declined that one or more of them, had they had a successful checkout experience, would’ve been longtime customers? It is a degree of loss that a merchant must consider.
The reasons false declines happen
When examining flagged transactions, merchants are often pressed for time and need to decide whether to decline or approve quickly. In most cases, merchants will play it safe, declining the transaction rather than suffering a chargeback or lost revenue to fraud.
Having been in merchant account services industry for so long, it is an understandable reaction. But a little refining of a merchant’s handling and review process can recognize more legitimate sales.
More than merchant account services
With merchant account services from Instabill, our merchant partners should think of our account managers as consultants for the life of the account relationship. Instabill merchant account managers are on hand at 800-530-2444 Monday through Friday, 8 a.m.-6 p.m., U.S. eastern time.