5th April, 2019
You could be wrongfully turning away legitimate sales. Known as false positives, overzealous online retailers are losing money in their bid to reduce the risk of fraudulent transactions.
Online fraud, or card-not-present fraud, is one of the most frustrating ways for online retailers to lose revenue.
More frustrating still are the smaller percentage of legitimate sales mistakenly identified as fraudulent.
Known as false positive fraudulent transactions, this phenomenon doesn’t just result in reducing revenue in the short term, it also represents a significant threat to customer loyalty.
READ: ‘False positive’ fraud detection is costing online retailers
Want to figure out if you’re losing customers to false positives? A good way to do this is to first calculate your decline rate. How? Simply divide the number of sales declined and/or cancelled after manual review by the total number of sales processed.
The next step is to calculate what that may be costing you. Subtract one percent from your decline rate percentage and multiply that by the number of sales you process each year.
This will give you a rough estimate of how many false positive sales you are likely incurring. Next, multiply those foregone sales by your average ticket total. This dollar amount will be the revenue impact of those false positives.
Here’s an example of how that might look:
Decline rate: 9% = 9,000 sales declined and/or cancelled-after-review divided by 100,000 sales.
False positives: 8,000 = 9% (your decline rate) minus 1% (average AU fraud rate) equals 8% multiplied by 100,000 sales processed.
Revenue impact: $440,000 = 8,000 false positives x $55 average ticket total.
This dollar amount won’t be perfectly accurate, but it will give you a reasonable idea of how big (or small) your problem with false positives is.
You want to make sure that only genuine sales make it through your transaction processing platform. But at the same time, you don’t want to make it so strict that even legitimate sales are tough to get approved.
Your good customers shouldn’t be punished because of fraudsters. You need to find a good balance – set your filters too low, and you expose yourself to a higher risk of fraudulent transactions being passed through. Set them too high and you could lose real sales from legitimate, paying customers.
Having a fraud prevention plan will help you mitigate the risk of fraudulent transactions and be better prepared for sticky situations, such as holiday and seasonal sales spikes like the Christmas trading period. It will also provide a clear guide on how to manage different types of transactions – for instance, transactions with foreign languages, currencies, or values.
The Australian Payment Card Fraud Report, 2018 outlined card-not-present fraud now accounts for 84.8 percent of all fraud on Australian cards.
Most credit card thefts take up to a day to be reported. Make it a policy to hold large sales for a certain time, such as 48 hours following a purchase, so you can be sure a scam hasn’t occurred.
And make sure to email those customers who make larger purchases to inform them of your policy. This will avoid customer cancellations due to delayed shipping sales.
The Australian Payment Card Fraud Report, 2018 also outlined only one percent never received their goods, so you could try shipping orders with tracking numbers and require signatures.
Accurate tracking records protect you from customers who say they never received their order, and it adds a paper trail if a fraudulent transaction slips through the cracks. Also, providing a tracking number will allow you to provide a better customer experience.
MYOB PayBy’s specialised team of experts provides support for data analysis, rules-building, and recommended best practices customised to your business. We’re ahead of the latest attack methods and evolving fraud patterns so we can deal with the latest types of fraud before you’re even aware of them.
For more information, visit MYOB PayBy Fraud Management Services.