Every Order Is Precious: Avoid Alienating Customers
The actual rate of online fraud in the USA is less than 1%. Meanwhile, the decline rate is about 2.8% of domestic orders and 7.6% of international orders (the decline rate involves orders that are turned down due to suspicion of fraud).
The delta between the actual fraud rate and decline rate means that for every fraudulent order, merchants are turning away approximately 2x as many US orders as they should (out of fear of getting scammed) and more than 7x as many foreign orders as they should.
When you do the math on the opportunity cost associated with this delta, there is a glaring shortfall:
To view this at an individual merchant level, an online retailer averaging 300 daily transactions will (wrongly) decline nearly 2,000 orders every year that are likely valid. Assuming an average transaction value of $55, that’s more than $100,000 in lost potential revenue.
To add insult to injury, cancelling valid orders from perfectly good customers due to (incorrect) suspicion of fraud has a further cost: the loss of the lifetime value of that customer. If just half the people you wrongly decline decide to never return to your eCommerce site, the total lost potential revenue increases to over a half a million dollars using the example above (conservative lifetime customer value of 10x average individual ticket total).
Unfortunately, there is still one more cost to consider. Think of the marketing dollars spent to get those nearly 2,000 people to buy…only to (wrongly) turn them away. Industry numbers vary, but if you use the median $25/customer acquisition cost, that’s another $50,000 added to your costs/losses.
Want to avoid alienating customers? The answer lies in knowing more about them—both good and bad. But how?
Due to advances in data and mobile screening technologies, Big Data, Artificial Intelligence (AI), and Machine Learning, fraud prevention providers like Kount are now able to analyze more data points than ever.
Because fraud prevention has been our core business for more than a decade, we know how to gather, assess and correlate data leveraging the millions of transactions we process daily in order to deliver a composite buyer profile that weeds out fraudulent orders. And more importantly, one that identifies customers who only look suspicious, but are actually legitimate. This can help give you the confidence to approve an order from the woman who lives in Solon, Ohio but is on vacation at her brother’s house in Anchorage, Alaska using his iPad (not her laptop) to order a “thank you” gift delivered to his home overnight.
Don’t let the fear of fraud keep you from maximizing sales and profits. The more you know, the more you can land good customers and keep them coming back for repeat sales.