False positives were already a pain point for merchants but exacerbated by the pandemic. It is estimated that $146 billion worth of CNP purchase attempts are declined each year and more than half are falsely declined.
When a legitimate customer has their order declined because of fraud concerns they may purchase from a competitor and may never return to the merchant who turned them away. This is not only painful in terms of losing the sale and potentially the lifetime value of that customer, but this makes measuring false positives difficult. Even if an organization identifies customers who reattempt their transaction or call-in to customer service to complete their order, this is not a complete representation of the volume of sales insults; it may only be the tip of the iceberg.
The first step to effectively measuring false positives is understanding that it is not an exact science, that the metrics we can use are proxies, and the more methods we have for deriving and measuring these proxies the closer we can come to understanding the whole picture.
A recent study from PPRO and Edgar, Dunn & Co. found that while about 40 percent of online sales in European countries are made to customers abroad, just 11 percent of U.S. eCommerce sales are purchases made from foreign countries. This lopsided figure underscores the difficulty of facilitating cross-border transactions, but there are many factors likely contributing to this large discrepancy.
Cross-border eCommerce is a two-way street, but traffic doesn’t flow evenly across the two directions. While just 11 percent of U.S. eCommerce sales originate outside of the United States, more than one-third of U.S. consumers shop online from brands and websites outside of the U.S. This is comparable to the share of consumers participating in cross-border eCommerce from Germany (32 percent) and the United Kingdom (38 percent).
According to a recent study by Javelin Strategy & Research, issuers left $118 billion on the table last year by wrongly declining payment card transactions for suspicion of fraud, known as an ‘insult’ or false positive. Nearly 60 percent of these issuer false positives occurred at the physical point-of-sale and about two-thirds were for transactions total $100 or more.
Javelin’s study found that 15 percent of U.S. cardholders had at least one legitimate transaction declined at authorization by the card issuing bank in the past year, impacting about 33 million consumers attempting eCommerce, mobile or brick-and-mortar transactions.