By Jeff Domansky, Jan 15, 2021
New research from Forter shows merchants losing billions of dollars in missed opportunities as they struggle to balance the growing incidence and cost of fraud with the impact of false declines of good customers, particularly for new online shoppers proliferating during the pandemic.
In analyzing more than 800 million unique users and $200 billion in e-commerce transactions in Forter’s Ninth Edition Fraud Attack Index, researchers found new online shoppers doubled in the first half of 2020 alone accelerated mostly by the impact of COVID-19.
False declines impact new online shoppers most
The problem is new online shoppers are five to seven times more likely to be declined by merchants using less than effective manual or automated fraud management tools. The cost of what Forter calls the New User Missed Opportunity (NUMO) is billions in lost revenue for online merchants.
In fact, Aite Group estimates as much as $430 billion will be lost globally to false declines for merchants in 2021, up from $331 billion in 2018.
Even more important, data shows 40% of new shoppers declined will not try another purchase on a merchant’s site. These lost customer relationships may never be recovered.
False declines cost 75x fraud
Another stunning fact: Merchants lose 75 times more potential revenue to false declines of customers than the cost of fraud, estimated at $4.4 billion in 2018 by Aite Group.
“There’s a current market shift in how merchants view fraud prevention. It’s not just keeping the bad guys out; it’s letting the good guys in. As the stats show, not letting the good guys in is extremely costly. Fraud prevention tools should be evaluated more as business enablement solutions,” said Forter CMO Angela Whiteford.
Forter’s NUMO report quantifies the potential lost annual revenue per customer in several popular product categories including:
- Apparel & Accessories: $930 per customer annually
- Home & Garden: $798 per customer annually
- Food & Beverage: $1,062 per customer annually
- Beauty & Health: $243 per customer annually.
If you’re a bricks-and-mortar merchant selling online or an e-commerce-only seller, it’s easy to do the math and calculate your potential NUMO losses. Assuming you have a fraud management system with reliable data and accurate tracking of false declines.
Why are e-tailers losing new customers?
Forter research uncovered several key reasons why online sellers are losing opportunities with new customers including:
- Not enough data: larger networks can help identify customer purchasing behavior and history; in-store interactions including returns or exchanges, coupon use, loyalty or reward point memberships, personalization of interactions, etc.
- Obstacles in the customer purchasing journey caused by friction, manual processes, and conflicting fraud management tools.
“The reason fraud monitoring tools reject new users at a much higher rate is a lack of data. They can’t accurately assess the trustworthiness of new digital identities because they have never seen them before. Forter has the largest data network of any fraud prevention solution, and it is drawn from the entire e-commerce ecosystem – merchants, banks, payment providers, etc.,” said Whiteford. “By leveraging such a robust data set, we’re able to accurately identify legitimate consumer behavior from fraudulent, even with users unfamiliar to merchant systems.”
Using fraud and risk management partners with global data can help merchants make better customer approval decisions, reduce shopper friction, and lower the impact of new user missed opportunities.
Machine learning can provide greater accuracy and offers merchants the chance to expand and improve customer offers to include competitive and seamless services such as BOPIS/BORIS, next-day shipping, and flexible returns policies resulting in better fraud management abuse.
As e-commerce grows, merchants need to take a closer, harder look at how they track, assess, and approve new customers to stem the potential losses from new user missed opportunities.
You can download a free copy of Forter’s New User Missed Opportunity (NUMO) report here.
Visuals courtesy Forter
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