Original Research Report 2024

Ecommerce False Declines & Consumer Behavior

Ecommerce is officially the norm. Customers who once defaulted to in-store shopping now know they can purchase almost anything without leaving home.

And retailers can reach more consumers than ever before. On the flip side, this shift has created a wealth of opportunity for fraudsters. They’ve become more sophisticated, leveraging multilevel crime rings and AI bots to mimic valid users.

Not only do ecommerce businesses have to protect themselves and their customers from fraud, but they also struggle to distinguish between fraudsters and valid customers. So much so, in fact, that businesses often fall into the trap of being too strict and unintentionally turning away good orders through false declines — which can do irreparable damage to any business.

At the same time, online retailers are also discovering the relationship between consumer loyalty, exceptional customer experience and a sense of trust — once trust is built with a brand, consumers will keep coming back.

This is what makes the order evaluation and approval process so critical, because it marks one of the most vital moments of trust in a customer’s buying journey. 

When a customer’s order is falsely declined, that trust is broken.

In this report, we’ll discuss false declines, how they impact customer experience and consumer trust, and what ecommerce businesses can do to prevent them from happening.

The Ecommerce Dilemma

In today’s ecommerce market, companies have to place a heavy focus on customer experience (CX) to attract and maintain a loyal customer base. Among the many factors that impact CX is fraud prevention. Our original research revealed that 83% of customers won’t return to a retailer that failed to protect the customer from fraud. 

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That presents online businesses with a dilemma. They need to bring their fraud prevention “A” game to provide a superior customer experience without making it a hassle. Easy, right? Not so much. Especially when companies have to combat more fraud than ever.

Fraud teams are busier than ever

Fraudsters have taken advantage of the recent ecommerce explosion with new tactics and schemes. From scams to fake charity websites to criminals pretending to offer IRS stimulus checks, the Federal Trade Commission received nearly 5 million fraud reports from consumers in 2020 and 2021, equaling US$3.5 billion in losses.

And a Juniper Research study titled “Online Payment Fraud: Market Forecasts, Emerging Threats & Segment Analysis 2023-2028” estimates that ecommerce payment fraud will exceed $362 billion cumulatively through 2028.

To fight fraud effectively, companies need to know trends and recognize patterns. Here are some of the most prevalent fraud trends to recognize.

ATO fraud

A type of identity theft, account takeover (ATO) fraud occurs when a fraudster uses a piece of a victim’s identity, like their Social Security number or email address, to access and take over the victim’s account. ATO fraud accounted for every fifth login attempt and 13% of U.S. ecommerce fraud costs in 2021.

How does ATO fraud happen? Criminals use several tactics to get customer information:

Phishing: These scams happen when a fraudster sends a link via email, text message or even social media using well-established website interfaces that seem trustworthy. When the user clicks on the link, it automatically installs software that gives the fraudster access to the user’s device.

Malware: When fraudsters install malicious software on a victim's computer, it lets the fraudster capture keystrokes as the user enters login IDs, passwords and emails. Using that data, fraudsters access the victim's accounts and make fraudulent purchases.

Triangulation fraud

Triangulation fraud happens when an innocent customer makes a purchase on a third-party marketplace, except the item they receive was fraudulently purchased from another retailer’s website.

Friendly fraud

Friendly fraud happens when a customer pays with a valid card but then claims their order never arrived, that it was damaged or that it was substantially different from the product description on the website.

Policy abuse

Policy abuse encompasses a wide variety of schemes that fraudsters attempt in an effort to take advantage of online companies and their business policies. This can show up in multiple ways:

Loyalty fraud: Loyalty fraud happens when a fraudster hacks into a consumer’s personal information and takes over their loyalty points to redeem benefits.

Coupon abuse: Coupon or discount abuse happens when a fraudster creates multiple accounts so they can use a promotion more than once.

Gift card fraud: Gift card fraud happens when fraudsters access the activation codes on gift cards and use them to make purchases with little to no tracking.

Return abuse: Return abuse describes fraud types that involve criminals taking advantage of an ecommerce company’s return policy. This includes stolen merchandise returns, receipt fraud, insider fraud, bricking and wardrobing.

Fraud-as-a-service (FAAS) 

One of the more recent fraud trends, fraud-as-a-service (FAAS) involves renting bot networks from fraud "service providers" to launch large-scale fraud campaigns against websites. This type of fraud can easily overwhelm a business because they don’t necessarily recognize the problem until it’s too late.

How should companies address all these fraud types? Often, ecommerce businesses resort to a number of tactics — many with unintended consequences.

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Businesses rely heavily on fraud filters

Just about every ecommerce platform comes standard with fraud filters that use transaction screening and algorithms to fight fraud, including:

AVS (billing and shipping address) matching

Card verification number (CVV)

Transaction amount

IP addresses

Geolocation

Email confirmation

Device fingerprinting

External data sources

While fraud filters are useful, they tend to be overly strict. So, when they’re a company’s only line of defense, fraud filters often end up automatically declining valid orders without the company even knowing they’ve lost business.

Understanding False Declines

False declines — sometimes called “false positives” — happen when a customer’s valid order is declined because the business mistakes it as fraudulent.

A false decline doesn’t necessarily mean that the transaction won’t eventually go through. There are two types of declines:

Hard declines are the result of an error or issue that cannot be resolved immediately. The decline isn’t temporary, and subsequent attempts with the same payment method will likely not be successful. Customers often walk away from false declines angry and embarrassed.

Soft declines are due to temporary issues and can be retried. Subsequent transaction attempts with the provided payment method information may process successfully. This is dependent on the customer’s willingness to retry the purchase.

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Unfortunately, false declines are quite common. Our original research shows that 25% of respondents experienced at least one false decline in 2022, and 36% of those customers experienced two or more false declines. Even when customers experience a soft decline, where they could try the transaction again, our research revealed that only 22% of customers definitely would do it. This can create issues for businesses as well.

How False Declines Impact Businesses

False declines impact different types of businesses in different ways. Small and mid-sized businesses depend on every customer, so a false decline can be detrimental. Enterprise businesses don’t necessarily know they have an issue with false declines until it’s too late.

Let’s look at how that happens.

Customers don’t like being declined

For the last three years (2020-2023), we’ve surveyed customers to find out their attitudes toward fraud, chargebacks and false declines, and one thing is for sure — they’ve become less and less tolerant of false declines.

Most recently, we found that 41% of customers said they will never shop on a site again after they’ve experienced a false decline, and 32% will take their complaints to social media, potentially creating a negative reputation for the company.

Even when a store takes measures to correct the situation and woo the customer back, many of them want nothing to do with it:

11% of online shoppers said they wouldn’t provide clarifying information to a business that had declined their order.

When it comes to soft declines, where customers give their purchases another shot, we did discover some positive data:

59% of consumers surveyed said they would at least consider reaching out to customer service to try again after being declined.

Remember that 41% of customers will never shop with a company after a false decline. This can mean big trouble for a company’s bottom line. Especially when you consider this fact: as much as 65% of declined transactions are actually legitimate orders. That means two-thirds of the time, a business may be turning down sales from perfectly good customers.

This stat is alarming enough. But what raises even more concern are the short- and long-term costs of turning away good orders.

False declines are costly

Think about the customer who won’t re-attempt to make their purchase and will never shop on your site again. That customer represents a lifetime value for your business.

So, if they normally spend an average of $100 per month, you haven’t just lost $100. From that customer, alone, your company loses $1,200 each year, for every year they would have been shopping with you.

If that’s a baby boomer or Gen X customer, you could be losing 20-30 years of shopping, multiplied by that $1,200. But if that customer is a millennial or Gen Z shopper? The lifetime value of that customer increases considerably. Now you’re looking at a loss of 40-50 years. That’s considerable revenue that your company will never see.

To make matters even worse, if that customer tells their friends and/or posts on social media, your business is now at risk to lose the lifetime value of even more customers.

In financial terms, it’s safe to assume that every $1 in false declines equals a loss of $13.

“There’s a lifetime value of each customer that you lose when they’re not going to buy from you anymore. You might lose a sale for a $200 item. But that may be a customer who was going to shop with you five times over the course of a year. That’s $1,000. And over a lifetime of shopping, that could be $25,000 of lost revenue from one false decline.”

Rafael Lourenco,
ClearSale Executive Vice President & Partner

False Declines, Consumer Trust & CX

False declines cost businesses more than revenue — they tear away the foundation of consumer trust.

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How? A false decline essentially communicates to the customer that you don’t recognize them, which breaks a cardinal rule of customer experience: personalization. Today’s customers want to be recognized and appreciated — 71% of customers expect to have personalized interactions with companies they frequent.

Online businesses show their appreciation with personalized messages, emails and online pop-ups, offering discounts and special deals. But … is there anything more personal than being recognized as a valid customer?

Consumers have no patience for false declines

Our research uncovered quite a bit more about how customers feel about personalization and false declines, specifically based on generational factors.

Older generations have low expectations

Older generations are less familiar with technology and online shopping — we would say the same about novice online consumers. For these consumers, personalization can be somewhat confusing because they are still learning and adapting to online shopping. In fact, their priority is to have their ecommerce shopping experience mimic the in-store experience as much as possible.

For them, a false decline can easily be interpreted as their mistake, and these customers will most likely try again. At the same time, this cohort could also be confused by a false decline. They may misinterpret it as an attempt at identity theft. Either way, a false decline with this population could risk losing these customers — 42% of Gen X and 56% of baby boomers will find another retailer, according to our research.

Millennials and Gen Z are more familiar with technology

In stark contrast, millennials and Gen Z understand technology. They’ve been using it most, if not all, of their lives. They tend to know more about online shopping — even the backend processing — and expect it to work. Most importantly, they expect their orders to be approved.

In particular, Gen Z has some unique concerns when they shop online. More than half (59%) say fear of scams limited their online shopping. Their reasons are valid. These customers experience a reasonably high frequency of online fraud and false declines.

If your ecommerce store declines their transaction, Gen Z assumes it’s your fault or an error in your processing, making 43% of them more likely to find another online store with the same products. And there are plenty of those.

The risk of damage to your company’s brand reputation is higher with these consumers, too. They do much of their communicating on social media, so it’s only natural that a bad experience with an online business would be shared on their social accounts. Just under 45% of millennials will complain on social media, compared to 41% of Gen Z consumers.

Of course, businesses unintentionally decline valid customers in the name of fraud prevention. But the grand-sweeping tactic of “decline anything suspicious” flies in the face of the rising demand for a better and more personalized customer experience. This means companies of all sizes need to navigate their way to find a balance between more approvals, better CX and less fraud.

Earning (& Keeping) Ecommerce Consumer Trust

Establishing and maintaining trust with your customers can seem like walking a tightrope when you are balancing fraud prevention and order approvals. This is another place where personalization makes a difference. For instance, many companies are shifting their model toward a customer-focused approach.

The emergence of customer centricity

The key to winning and retaining customers depends on customer-centricity. Gartner defines the term as “the ability of people in an organization to understand customers’ situations, perceptions and expectations.”

Using a customer-centric approach, top-performing brands outperform their competitors by two to one in terms of revenue, and their chances of success are higher when they roll out new experiences for their customers.

Among the many ways to deliver customer centricity in an ecommerce environment, a few stand out:

Social commerce

Already highly personal, social commerce is immediate, shareable and constantly current. It provides an opportunity for brands to align content, influencers, advocacy, and community with customer needs, wants and values.

Chatbots and conversational apps

Chatbot market growth is expected to reach almost 25% through 2028, meaning customers have and will continue to become accustomed to this technology. However, simply adding a chatbot does not equal customer-centricity. Your chatbot should use natural language processing and respond accurately and personally to complex customer questions using real-time and historical customer behavior and purchasing data. 

Less friction

Friction is definitely a sticking point for consumers. The more steps consumers have to take to successfully make a purchase, the more risk of them abandoning the process altogether. In addition to chatbots and conversational apps, a simple knowledge base offers a great alternative for companies with limited bandwidth or budget.

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How to earn consumer trust

Consumer trust is essential for loyalty. Unless a customer feels recognized and welcomed, they may not want to keep shopping on your site. Companies can take additional steps to earn consumer trust, including:

Become familiar with customers through data

Customers share a lot about who they are by how they behave and what they purchase online. This type of data can help companies better understand who their customers are, what they want, and how to meet their needs — including approving their legitimate transactions.

In fact, making use of real-time and historical customer data can help companies avoid declining good orders while providing the fraud prevention and protection customers expect. This data includes devices, behavioral biometrics, and geolocation and it should encompass all transactions the customer has made with your business — if not all transactions made with any online business.

Using this data, companies can distinguish between a mistyped address and a fraudster’s attempt to make a purchase. Historical data can establish that the customer has had the same email address for over a decade and lived at the delivery address for 20 years, making it easier to detect fraud versus legitimate purchases.

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Show customers they belong

Another way to earn consumer trust is to recognize them at key junctures on their buying journey. For example, creating an autofill function on your checkout page that populates name, address, email, phone and other data gives customers a similar feeling to being greeted by name at their local store.

Address Gen Z customer needs

Gen Z customers are much like new online consumers in that they have a short history of transaction data. However, Gen Z differs in that they know how the process is supposed to work and are quick to distrust a brand that can’t or doesn’t deliver on their CX promise. Addressing those needs means companies must conduct more thorough transaction reviews and adjust fraud-control parameters to account for less historical data. This could also include secondary reviews for transactions over a certain amount and a different automatic approval threshold for this subset of customers.

Focus on providing a superior user experience

Inherent to consumer trust is a level of confidence that your business will give customers what they need as they need it. User experience (UX) can help instill that confidence.

The safer and more comfortable consumers feel while navigating your website or app, the higher their confidence in your brand. It may behoove your team to conduct an audit for the following best practices:

Think like an influencer and display certifications, ratings and reviews prominently.

Perform periodic testing and usability reviews on every page and interface to find broken links, errors, misspellings or any other technical glitches.

Use technology like pop-ups, conversational chatbots or other design features to communicate information about additional costs and fees, shipping caveats, return policies, and any other “fine print.”

Opt for filters over multilevel dropdown menus for easier navigation.

Use historical data to suggest additional products when customers are filling their shopping carts. (Note: Just remember that this is more for Gen Z/millennial customers than for boomers.)

How ClearSale Eliminates False Declines

Even with a focus on UX, you’ll still need to make sure your company has a solid strategy to prevent false declines. At ClearSale, we have developed a global lens and large database that allows us to help clients approve more orders, faster.

Our insight into fraud patterns and trends comes from working with businesses around the world in some of the most high-risk regions. We maintain a massive transaction database that is constantly learning as more orders are processed, and we can see the impact fraud has on diverse markets. This makes it easier for us to identify fraud trends as soon as they emerge and then use those insights to make more accurate decisions.

Machine learning/AI

All transactions are screened using artificial intelligence and machine learning to process transactions and fine-tune fraud models based on customer behavior. Transactions that pass with flying colors are automatically approved, and questionable or suspicious transactions are flagged for further review.

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Contextual fraud review 

Our data scientists and fraud analysts can help with secondary reviews of potentially fraudulent orders. They use their expertise and understanding of fraud trends — while sharing that information with your team — to determine if a transaction is valid or not. And, if a company so chooses, our analysts can pleasantly and very diplomatically reach out directly to customers to confirm they made the purchase — all the while, training your team to do the same. 

Post-processing audit

Machine learning/AI can also be used post-processing to validate decisions and help find patterns to be aware of moving forward. For instance, our auditing program offers a safe test environment where we analyze random sets of declined transactions to see what would have happened if we had approved the orders. This enables us to measure the accuracy of our client’s automated rules and fine-tune them as needed.

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“When you bring in an experienced fraud prevention partner to strengthen your fraud protection team, not only does it free up internal resources to be more strategically allocated, but it also gives internal fraud teams a real intelligence boost. The partner will have a wealth of data and analytics into global fraud patterns and trends, giving your team a much more complete fraud picture and your company much better approval rates.”

Elma Ocampo,
ClearSale International Marketing Director
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