After completing automated and manual screening of your orders, they either move
into the fulfillment process or are declined.
Our
11th Annual Fraud Report tells us that over the past two years, many
merchants have reduced the number of orders they decline due to suspicion of
fraud with no overall increase in the average fraud loss rate. Declining valid orders from good customers is
sometimes referred to as “customer insults” and is also known as “false
positives,” where an initial determination of high fraud risk turned out to be
false. Since many customers will either
try to re-submit their order or place it with a different merchant, it is
difficult to know how many false positives / customer insults your fraud
process is generating – or how many customers you are losing.
Depending on what goods are being sold and the costs of
goods sold as compared to their gross margins, different levels of order
rejection are appropriate for different merchants. High-risk goods with high costs and low gross
margins typically have higher order rejection rates. This can be attributed to higher fraud
attempts for these types of goods as well as lower merchant tolerance for risk
because more additional “good” sales are
needed to make up the loss on a single fraudulent order. Alternatively, merchants with relatively high
gross margins, a high cost of customer acquisition, or larger lifetime customer
value tend to employ the lowest rejection rates.
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