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A False Positive Walks Up to the Register

posted on: Fri Sep 01 2017

Though this may open like a joke, the ending is less than hilarious. Let’s talk about false positives, and the negatives they create for your business. 

Just having a fraud prevention strategy to begin with is such a step in the right direction that merchants may be reluctant to examine a widespread dirty little secret— false positives that turn customers away and hurt merchants’ bottom lines by automatically rejecting legitimate transactions.False Positive

According to a report by Javelin Strategy and Research, 1 in 6 cardholders have had a legitimate transaction declined in the past year. Of this, nearly 4 in 10 report abandoning their cart after a false positive. In case you think that doesn’t seem too bad, it is. 15 percent represents almost $118 billion in lost transactions!

eCommerce transitions are naturally digital which makes the abstract nature of this threat harder to illustrate. For the sake of examples, let’s pretend that eCommerce decline rates happened as frequently in-person. This is what it would look like at the current rate—where nearly a third of legitimate transitions are declined because they are incorrectly flagged as fraudulent. 

Imagine walking into your favorite electronics store because you plan to purchase a new TV and you’d like to compare all of the UHD and 4K options up close.

You make your choice and walk up to the register with your shiny new TV and hand over your credit card.

“I’m sorry sir; you are very suspicious,” the cashier says. “You can’t buy this TV.”

“I’m not suspicious; this is my card!” you exclaim, “run it again.” 

The clerk runs your card again. “Nope. You aren’t a real person and we can’t allow you to buy this TV.” 

You walk away in a huff. Adding insult to injury, your credit card company calls to inform you that they’ve put a hold on your card due to suspected fraud. Six people in line later, the debacle happens all over again to a nice lady just trying to buy a computer.

The consequences of this exchange are far-ranging. You, the disgruntled patron, would likely abandon your intention of buying a TV from this establishment and you would likely not want to come back to said establishment. In other words, the merchant has lost your business not only today, but forever. At some point, customers will just stop shopping at this specific electronics store all together, and take their dollars somewhere where ease-of-purchase is better.

This is happening across the eCommerce sector, when merchants throw out good orders with bad ones under the “guise of protecting the merchant.” Merchants are losing customers and leaving money on the table. In a world where retail shopping is increasingly moving online, (we’re looking at you, Amazon), the losses due to revenue and customer loyalty may only get worse.

But there is good news! Dramatic improvements in fraud prevention and declining costs for enterprise-class anti-fraud solutions make it possible for online businesses to overcome the issue of false positives, while boosting sales in the process. Merchants should look for a comprehensive fraud prevention solution for the most effective results against fraud.

For a deep dive on how to upgrade your fraud prevention capabilities, including how to minimize false positives and boost sales, check out our eBook: CFO Perspective: The Impact of Fraud.

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