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 that 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. As a percentage of total revenue, issuer false positives are fairly consistent across channels representing 2.7 percent of in-store transaction volume, 2.4 percent of PC-based eCommerce transactions and 3.0 percent of mobile-based eCommerce transactions (including mobile apps and web browsers). However, because the majority of card processing volume occurs in the Card Present channel, 58 percent of all issuer false positives occur at the physical point-of-sale. By comparison, 32 percent of false positives are with PC eCommerce transactions and 5 percent are from mobile eCommerce.
While merchants can be the cause of customer insults by deciding not to accept a transaction even if the issuer returned a valid authorization response, when an issuer declines a transaction the merchant really has no opportunity to convert the sale. Processing a transaction without an authorization approval will result in a chargeback, so the idea of issuer false positives can be frustrating for merchants as this represents lost sales due to no fault of the merchant’s own. This is especially troublesome for merchants selling high dollar goods and services as 40 percent of issuer false positives involved transactions totaling $250 or more and 66 percent involved transactions of at least $100.
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