A false decline is when your customer’s credit card transaction is declined, but for reasons other than not having enough funds available in their bank account.
False declines usually stem from the transaction failing a security check or being flagged by the issuing bank as suspicious.
False declines are frustrating for customers and businesses. Customers may not understand why their transactions were declined and won’t trust using that credit card again any time soon.
Businesses see a dip in sales because customers will likely abandon the shopping cart if they cannot pay with a particular credit card and choose to buy something else instead.
False declines can be expensive for businesses, especially if they rely on those purchases to remain profitable. Read on to learn what causes false declines and how you can reduce their likelihood in your business.
False declines are quite common, and around 30% of online transactions experience one in the US. This is a high percentage, and many of those are falsely declined by all parties. That is because there are many reasons for false declines, many of them being due to mistakes, and thus possibly avoidable.
If there are lots of false declines, this means the checkout process has been over-securely programmed, and thus is not letting many potential customers complete a purchase, which in turn is driving them to competitors.
False positives are legitimate transactions that have been wrongly identified as fraudulent. False declines are legitimate transactions that have been wrongly identified as non-fraudulent.
To be clear, these are two different things, although both are a problem for a business and its customers. The main difference between the two is the impact on the customer.
False positives will annoy customers, but false declines will drive them away. A false decline is when the customer genuinely makes a purchase, follows all the rules of the checkout process, and are then falsely accused of being a criminal.
A false positive is when a customer accidentally or deliberately tries to commit a crime, but their attempt fails or is easily detectable.
There are many reasons for false declines, and most are avoidable.
- Incorrectly flagging a card due to its risk level - If a card has a certain risk level, it will be used by a certain type of customer. If a particular card is used by a customer who does not match the profile for that card, it is possible that the payment processor will make a mistake, and mark the card as a risk.
This is common with prepaid cards. There are a few reasons a prepaid card can be falsely marked as risky, such as:
- A one-time use card is used multiple times - A customer who appears to be purchasing a lot of items can be flagged as fraudulent, even though they are likely buying gifts for others.
- Using a card for a large purchase that is not related to the product it is linked to - Someone who bought a prepaid card for groceries might try to use it to buy a laptop, which might look fraudulent.
- Using a card at a high-risk store - Some ecommerce stores have a high rate of fraud, which means they will mark almost all cards as risky.
- Incorrectly flagging a card due to the IP address or device it is used with - Some payment processors will wrongly flag a card if it is used via a certain IP address or device. This is especially common if there is a breach, and this IP or device address is used by hackers. This can happen if a card is used from a cybercafe, internet café, library, university or cyber school, or from an IP address used by hackers. This is a mistake and not deliberate, but it can cause a false decline.
- Incorrectly flagging a card due to a customer’s location - Some payment processors will wrongly flag a card if the customer’s country of origin does not match the location of the purchase, or if the customer has no address listed. This is not a standard, but can happen. This is especially common with prepaid cards that are bought with cash, because there is no address linked to the card.
- It makes the customer feel they are not trusted - When a customer sees a false decline, they feel like their card is somehow problematic or that they are doing something wrong, or that the ecommerce store does not trust them. This can make them feel insulted.
- It makes the customer think the business does not care about them - If a customer sees a false decline, they will likely think, “if this business does not trust me, why should I trust them?” This can drive the customer away.
- It makes the customer feel that the business is not competent - If a customer sees a false decline, they will likely think, “this business is so incompetent that they don’t know what they are doing,” which can drive them away.
- It makes the customer feel that the business is deceitful - If a customer sees a false decline, they will likely think, “this business is trying to trick me,” which can drive them away.
- Check your risk levels - Make sure you know the risk levels of your different cards, and that your payment processor knows them too.
- Reduce variation in your purchases - Try to sell to a target customer, and don’t sell to many different types of customers at once.
- Use a single address for all cards - If you sell to many types of customers, it makes sense to have addresses for each, but if you sell to just a few types of customers, it is more secure to have a single address for all cards.
- Check your IP addresses and device addresses - Make sure the IP and device addresses for your sales are correct, and that they are not being used by hackers.
- Create a customer profile - Make sure you have a customer profile, and that it is used by all parties.
Alternatively, you can automate a lot of this work with Spotrisk's buyer verification tool.
As it is a mistake, false declines can be avoided. If they are high, it is because they are happening due to genuine mistakes that could be avoided, and this is why they could be reduced through better practices.
On the other hand, there are some trends that could make false declines more of a problem. For example, we are seeing an increase in e-commerce, and a growth in online fraud, which can make it more likely that a genuine transaction is misidentified as fraudulent.
Countries like China, India, and Brazil are also becoming larger markets for e-commerce, and these are more likely to have higher rates of fraud, as people in these countries are more likely to buy on a platform they do not know or trust.
False declines are a frustrating part of e-commerce, but they can be avoided. There are many reasons for false declines, and most can be reduced or avoided through better practices. The best way to avoid false declines is to have a consistent system for managing your risks, and implementing it in a way that is both secure and convenient for customers.
Get started in minutes. No credit card required.