The False Positive Puzzle

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For retailers, perhaps the worst unintended consequence of fraud detection is how many sales are lost from good customers whose transactions are mistakenly flagged and rejected.

These missed opportunities, known as false positives, not only subtract from a company’s profits, they can also alienate honest consumers.

A study from Javelin Strategy & Research finds that one out of every four declined transactions happened with someone who just wanted to buy grandma a new sweater. Where actual fraud losses amount to approximately 7% of the total cost of fraud management in ecommerce, losses from false positives total 19%, according to the 500 ecommerce merchants surveyed.

It’s no mystery as to why these incidents are on the rise. As fraud detection tools screen every transaction more carefully, their filters sometimes catch legitimate sales as well, because of characteristics and patterns deemed suspicious. Having been burned too often in the past, merchants are now erring on the side of caution.

As thieves shift their efforts toward online transactions and away from stealing credit and debit cards (now that chips have made them safer), false positives will continue to occur and likely increase. And retailers will continue to endure them as a necessary evil.

It’s unfortunate, but protection against fraud is essential, and every retailer should have advanced tools in place to keep them safe. That starts with a secure and dependable payment processing solution.

Looking for the best way to protect your business? Check out Cliq’s retail merchant services solutions.