Chris Ryan is a senior fraud solutions business consultant at the credit bureau Experian.
When online retailers review their sales figures for the 2022 holiday shopping season, one question will take center stage: How much revenue was lost because good shoppers were turned away?
When poor identification practices fail to verify shoppers’ identities adequately, retailers decline online purchases to reduce fraud exposure. However, a report last year from the consulting firm Aite-Novarica Group said the average false decline rate is 1.16%.
Meanwhile, the average annual retail industry growth rate is expected to be approximately 4.3% from 2020 to 2026, according to small business design and branding consultant Oberlo. Considering that false declines remove a full percentage point of valid sales, the potential for loss is significant.
False declines are especially problematic in an environment where demanding customers with high expectations are not afraid to take their business elsewhere. A high false decline rate puts customer sentiment and loyalty at risk. An Experian report in September found that four in 10 U.S. businesses lost more than 10% of their customers in 2021 due to unsatisfying customer experiences.
The solution to this problem requires a better approach to verifying shopper identities while increasing both conversion rates and revenue.
False declines are unique to the online environment where purchase approvals hover close to 81% compared to 96% for in-store approvals, according to the Aite-Novarica report. This gap exists because many of the security features that assure the legitimacy of a purchase are physically embedded in the payment card, most notably the small, square computer chip known as the EMV chip.
The EMV chip’s protections cannot be leveraged during an online transaction. Without the protections, merchants are forced to take on more of the fraud risks associated with the transaction. This is the challenge of online retail.
Online retailers face several challenges ahead: providing the hyper-personal, frictionless, easy-payment experience consumers demand, while mitigating as much risk as possible.
These challenges can be met by using data that raises confidence in a shopper’s identity. Retailers can more precisely and efficiently validate a shopper’s identity using a solution that combines identity verification technology with payment card information.
By incorporating additional data that can link names, addresses and other identity markers to a shopper’s credit card, retailers can increase approval rates and mitigate risk by obtaining a more complete view of a shopper’s identity.
Other benefits include the reduction of high-cost manual review processes that currently impact approximately 16% of online purchases, according to the Aite-Novarica report, as well as the long-term value of a shopper relationship.
As payment options continue to expand, solutions that can quickly and more thoroughly validate a customer’s use of different types of payment during online transactions will be invaluable.
Customers increasingly want fast, efficient, contactless ordering. Technology that maps to this demand, while mitigating fraud risk, will help drive current and future growth.