Published: December 12, 2023
Reading time: 3 minute read
Written by: Forter Team

Well into the 2023 holiday shopping season, the general consumer sentiment about the U.S. economy is still uncertain. With high inflation and an economic downturn, there is no guarantee of how much consumers will be willing to spend on gifts for their loved ones. 

For retailers, the question of how much consumers will spend is not trivial, as the holiday season can represent up to 40% of sales. This testament is particularly true this year due to the modest sales growth retailers have seen thus far in 2023.  

Therefore, merchants are increasingly focused on delivering seamless holiday shopping experiences to capture the largest share of consumer online dollars. The merchants who are going to win this holiday season will be the ones that deliver the best experience. To do so, merchants must focus on removing friction for the next generation of holiday shoppers by minimizing false declines. 

The Problem of False Declines

To capture the next generation, retailers must evaluate their problems with false declines. False declines are when a legitimate transaction is blocked by the systems designed to catch fraud. They create massive friction for good consumers, preventing them from completing legitimate purchases. 

False declines are not a small problem for merchants. Forter’s first-party data reveals that false declines are typically 5 to 10 times higher than actual fraud. In fact, the recent Trust Premium Report found that 56% of U.S. consumers were falsely declined in the last year. These declines directly impact revenue; Forter estimates that for every $1 retailers lose to fraud, merchants forfeit $30 by declining legitimate consumers.

And even if a merchant approves a transaction, most banks lack the data to make sound risk decisions. Our primary research shows that roughly 1 in 5 bank declines occur because of suspected fraud, and 2 in 5 bank fraud declines happen to legitimate customers. 

Who is Impacted the Most? 

The problems with false declines are the most pronounced with new online shoppers and younger generations — the very audiences that merchants must win this holiday season. 

With many new shoppers venturing into digital commerce, Forter has found that retailers often turn away new — but trustworthy — customers simply because they’ve never encountered them. This decision has repercussions on the customer lifetime value, as 40% of shoppers falsely declined on the first visit won’t try to buy from that site again.

In addition, the Trust Premium Report found that younger shoppers face the most friction with online shopping. Millennials and Gen Z are up to four times more likely to be falsely declined at checkout than Gen X and Baby Boomers. 

The bottom line is that merchants are leaving revenue on the table from legitimate customers. To win this holiday season, merchants must reduce false declines to provide a seamless checkout experience. 

How to Reduce False Declines this Holiday Season

Many merchants fear fraud increases when trying to decrease false declines, but this trade-off is not needed. Merchants can decrease their false declines while still protecting their business from fraud by: 

  • Sharing Risk Data with Banks: Today, many banks have the capability and willingness to leverage risk data in their decisioning. By sending additional context to banks, merchants are enabling banks to make smarter risk decisions that allow them to approve more genuine customers and drive an increase in conversions. 
  • Using an Identity-Based Fraud Solution: With traditional rules-based fraud approaches, it can be difficult to implement the right restrictions that stop fraud but don’t block legitimate customers. Instead, consider an identity solution that pairs machine learning and A.I. with expert fraud researchers to ensure your business can accurately detect fraudsters without relying on rules that may prevent legitimate customers from purchasing. 

Forter leverages a global network of behavioral data to accurately distinguish legitimate customers’ identities from fraudsters to reduce false declines by 46% on average. Forter has also partnered with banks, including Capital One, to enhance authorization decisions by securely sending risk context alongside the standard authorization data. This ultimately translates into a 1-3% increase in overall authorizations — benefiting both merchants and issuers and improving the customer’s overall experience.

3 minute read