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Why false declines are a problem hiding in plain sight


Online merchants in the US, UK, Germany and France lose a staggering $20.3 billion at the checkout each year due to false declines. And our research finds that a large proportion – $12.7 billion to be precise – goes directly to their competitors.


These numbers also don’t consider the time, cost, and effort spent to get the customer through the sales funnel to the checkout. Nor do they consider the opportunity cost of lost sales or the possible harmful long-term impact on the brand.

In the third installment of our LinkedIn Live mini-series, exploring how to unlock the full value of payments within an organization, I spoke with Grégoire Delpit, our Head of Strategy, to find out why false declines exist and how to minimize their impact. 

Why do false declines happen?

Every payment flows through a value chain featuring several different participants, most of whom use a scoring system that asks two central questions: 

  1. Fraud scoring: is the person attempting to make the purchase a genuine cardholder or a fraudster? 
  2. Financial scoring: Are they able to pay for the goods or services? 

A false decline is when a transaction is rejected wrongly by one of the players in the payments value chain.

For Delpit, false declines are a problem hiding in plain sight. "As an industry, we’ve created a system that can scale and score transactions with a pretty high success rate," he says. “But if we want to be picky – and I think we have to be because there’s a lot at stake – anywhere between 3% and 20% of transactions are still rejected somewhere in the chain. 

"Depending on the merchants and their sales volumes, these payment failures could potentially cost them millions of dollars," add Delpit. "And the truth is many of these payments are rejected for the wrong reasons because there are often flaws with the scoring systems used."

A major cause of these payment failures is the scoring system merchants and others in the payments value deploy and the quality of data used to inform these systems. "Merchants need to consider whether they're using the right tools," says Delpit. "Question whether they're feeding it with the correct data. And, consequently, analyze whether they have the results they’re expecting."

How to balance risk and reward to maximize profitability

It’s a cruel irony that what merchants are doing to mitigate fraud may be costing their businesses more money than it saves. So, what’s the advice to merchants looking to reduce the impact of false declines but still keep fraudsters out?

Delpit acknowledges that this is a complex topic, but there are a few steps merchants can take. Firstly, understand the system you use and the players involved. And based on the parameters you’ve set, ask how they will score the transaction? 

You need to understand how each system will behave and how this will impact other systems in the chain. This information is not necessarily easy to ascertain in isolation. So lean on your PSP to provide support. 

The second consideration is to add insight by benchmarking your performance against your peer group, industry sector, geography or customer profile. Doing so will enable you to put your performance in context. It'll also allow you to ask what are those with solid performance doing that you're not.  

Thirdly, take action by analyzing failed transactions and bucket them based on the rejection reason. You can then explore each bucket to see whether or not the systems have correctly rejected the transactions. If they are, you can start to make the tweaks required to minimize false declines and A/B test repeatedly to drive continuous improvement. 

Again, working with a PSP that prioritizes data transparency is crucial for success. Our research finds that many merchants are working in the dark because they do not receive much information about failed transactions from their PSP.

Tacking false declines head on 

"False declines are a real area of hidden pain for many merchants," says Delpit. "I recommend that all merchants spend time uncovering how many of their transactions are failing for incorrect reasons and quantify the dollar value of those failures."