SAN FRANCISCO—Fraud remains a serious danger in the U.S., but transactions wrongly declined due to suspected fraud — known as a “false positive” — may represent just as big a threat, according to one new analysis.
“Unfortunately for issuers, a false-positive decline can seriously erode customer loyalty and pushes many consumers to abandon the issuer or merchant connected with the erroneous decline,” said Javelin Strategy & Research in releasing a new report, “Future-Proofing Card Authorization,” which analyzes the prevalence of false-positives in the U.S and explores technological solutions — particularly EMV and mobile — that can help improve the relationship between consumers and the issuer or merchant.
“Today’s card authorization rules and strategies cast a wide net to stop fraudsters, but false-positive declines are detrimental and costly in their own right,” said Javelin, noting that it estimates that 15% of all cardholders have had at least one transaction incorrectly declined in the past year, representing an annual decline amount of almost $118 billion. Nearly four in 10 (39%) declined cardholders report that they abandoned their card after being falsely declined, Javelin said.
“Issuers must invest in high-quality authorization solutions and strategies to improve card authorization practices. Failing to live up to cardholder standards may encourage customers to, at best, decrease their card usage or, at worst, to stop their use of the card entirely,” said Al Pascual, director of fraud and security at Javelin. “Cardholders expect authorization perfection from their issuers and will not stand for fraud or false positives.”
Card issuers face a sticky situation: Employ lax card authorization strategies and risk losing revenue to fraud, or use strict authorization rules and risk losing legitimate revenue. Both options have the potential to alienate their customer base, as no consumer wants to deal with either fraud or falsely denied transactions. Fortunately, new technology such as EMV and mobile can help improve card authorization practices and reduce false-positive rates.”
The report includes a survey of 3,200 U.S. adults.