False Positives – What It Means And Why It Could Be A Problem For Your Business

False positives are slowly becoming a more significant problem than actual fraud because they can harm the bottom line of your business.

It’s a complex issue that affects many online businesses.

With the increase in data breaches and the increase in fraudulent activities, many online businesses are investing in tougher fraud protection tools. One in six legitimate cardholders has experienced at least one decline due to suspected fraud. Research by the Merchant Risk Council estimates that 10% – 15% of revenue is lost due to blocking good customers.

False-positives are a significant issue when it comes to loss of potential sales. Unlike chargeback claims, false positives don’t show up on your business balance sheet. This means that most merchants are not even aware of the potential damage caused in the back of their payment strategy.

What Are False Positives?

False positives, also referred to as false declines, are legit credit card transactions that are declined because they look suspicious. 

Research by Lexis Nexis in 2016 shows that 85% of decline transactions were false positives, while BI intelligence states that false positives cost US companies around $8.6B in 2016 alone.

Various reasons could cause false positives, but the most common is if the transaction was declined because the fraud system flagged it as a risky transaction. Also, a human agent can review the transaction and reject it as suspicious if the shipping address is not the same as the billing address. 

Other reasons that can cause a credit card to be rejected are if a customer fills in outdated information and strict fraud rules. Some merchants block cards from countries known to generate fraudulent transactions. However, some orders may be genuine even with such issues, and a merchant loses sales by declining them.

To ensure the transactions are legit, you can track IP addresses via Google Maps and contact the customer or their issuing banks.

Fraud During the Pandemic

Ecommerce businesses and online activities significantly increased during the Covid era. With the increase of eCommerce shopping, so did fraud attempts. According to the financial report crime report 2021 by Feedzai, 2020 saw a massive rise in stolen credentials sold on the dark web. The increase in stolen credentials and online transactions provided ideal conditions for criminals to blend in with legit consumer traffic undetected.

In 2018 banks stopped fraud worth $22.3billion. With a lot at stake in preventing online fraud, genuine customers get caught in the crossfire. While financial institutions work diligently to stop fraudsters in their tracks, the collateral damage from these efforts decreases actual customer conversions.

False positives can happen even with the best user design. A genuine customer can be marked as a bad actor and blocked from further interaction with your website. Not only do businesses with a high false-positive rate lose revenue, but they also lose the good faith of customers.

 The effects of driving people away and blocking some from your website, which could have turned out to be loyal customers, may be worse than fraud itself, not to mention the money spent in marketing that generated those leads is going to waste.

The Actual Cost of False Positives to your Business

False positives are an issue that just about every online seller has to learn to deal with. It can pose a severe dilemma for your business because it’s essential to counteract fraudulent activities.

It’s estimated that businesses lose about 3% of revenue due to false positives every year. And this can add up and affect your bottom line. So what’s the real cost of false positives?

1. False Positive Can Damage Your Brand Reputation

Try and picture this, you get a customer who has tried buying something from your site, and every time they try to pay at checkout, their card is declined. They will get frustrated, and their chances of coming back to your site are slim, not to mention the idea they will have about your brand.

Whenever your brand name shows up while they are online, they will definitely complain about their experience when trying to buy something from your brand. And if more than one customer writes these reviews, it will damage your reputation, and you will lose a lot of customers. People will dismiss buying from you because they already know their cards will be declined as they read from the reviews, and who can blame them?

Damage to your business reputation is a serious issue because your brand's reputation is essential to building your business and attracting more customers. If your attempts to fight fraud hurt your conversions, it’s doing more harm than good.

2. False Positive Can Drive Away Your Loyal Customers

False positives not only drive away new customers but can also affect your current loyal customers. You may have customers who have been loyal to your brand since conception, but if they suddenly start experiencing card declines, they could also take their business to the competition.

False declines cause frustration, inconvenience, and embarrassment to customers. No one wants that.

3. False Positives May Impact Your Revenues

We’ve discussed how false positives may inconvenience your customers but don’t forget it can affect your bottom line too. If your customer experiences a false decline, they may abandon the checkout process, which will cost you a sale. If more and more customers keep experiencing the same, this can add up, and that's lost revenue for your business.

4. False Positives Can Damage Your Fraud Detecting Abilities

Fraud detection needs data to work efficiently. If you block all transactions from Nigeria, for example, you are not only blocking away from legit customers, but you are giving your fraud detection tools less information to work with. This means that your fraud detection data will be less accurate.

This can be dangerous for your online business because the inaccuracy can let the real fraudulent transactions slip through.

The cost of false positives is high, so preventing them should be at the top of your priorities. Understanding where the false positives are happening in the payment chain is your first shot at pinpointing the solutions to implement. Check your payment gateway, fraud protection system, and bank approval.