Merchants lost $20.3B to false credit card declines in 2019: Study
Merchants in the United States, United Kingdom, France and Germany lost $20.3 billion to false credit and debit card declines in 2019 alone, a new study has found.
Of that $20.3 billion, $12.7 billion went to competitor merchants and $7.6 billion was lost as a result of customer frustration, the study, conducted by payment solution website Checkout.com and business analysis company Oxford Economics, found.
"For the merchant, this is a catastrophic situation," Igal Rotem, CEO of Fintech bank and smart payments partner Credorax, told FOX Business. "The merchant has spent a huge amount of money to bring the consumer to the website to make purchases. The consumers has already decided they want to make a purchase from that website, and when they try to pay, they can't."
Closeup of woman doing online shopping on digital tablet at home / iStock
As a result of frustration stemming from these instances, customers will often turn to other stores or e-commerce platforms to buy what they need or simply abandon the items in their virtual shopping cart instead of contacting customer service, leading to lost sales worth billions of dollars, according to the study.
Other funds were lost to efforts from merchants to try and fix broken payments, the study noted.
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Rotem explained how the merchant loses in three ways: First, they lose the initial transaction. Then, they lose the customer's loyalty. Finally, they are at risk of losing the loyalty of that customer's network if they post about the experience on social media or tell their contacts.
False card declines are the result of a system processing error in which legitimate transactions are flagged as fraudulent by either the consumer's bank or the merchant's bank because they suspect suspicious activity.
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"By trying to prevent or lower the risk of fraud, many times, you're blocking real transaction," Rotem said.
Declining legitimate transactions is an issue throughout different kinds of businesses that sell online, although such an error can happen offline, too. The error often happens in connection with a business trying to manage and prevent fraud, but that anti-fraud technology can be faulty, especially on e-commerce platforms and with international purchases.
Amy Witt, owner of the Velvet Window, wipes a credit card reader after completing a sale with a customer at her store. (AP Photo/LM Otero)
Researchers also found that 65 percent of merchants "do not receive detailed raw response codes on failed payments," and 67 percent "do not receive fraud and chargeback analysis data," meaning companies may not be putting enough effort into looking for solutions to ease these transaction issues.
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Rotem said there are three ways merchants can mitigate false declines:
- By looking into the issue themselves and fixing any website or payment issues on their end.
- Fixing the technical issues between payment platforms and the merchant's network
- And by trying to explain to the credit card companies and customers that none of the parties are trying to commit fraud.
Merchants can also hire experts who analyze technical transaction issues and fix them so there are less false declines, although there will still be some, and save as much as 10 to 20 or even 50 percent of their "bottom line," Rotem said.
"Focus on your acceptance rate. It will impact your bottom line, and in some cases, significantly," he said. "As the CEO of a company, you need to put your energy and focus on things that truly move the needle."