CNP authorization approval rates continue to indicate a substantial false decline problem
E-commerce transaction volumes, already rapidly rising, experienced an additional boost thanks to the COVID-19 pandemic. Fraudsters are quick to follow the money however, and card-not-present (CNP) fraud has seen commensurate increases in attacks from organized and opportunistic fraudsters as a result.
In a new Impact Report sponsored by Experian, The E-Commerce Fraud Enigma: The Quest to Maximize Revenue While Minimizing Fraud, research and advisory firm Aite-Novarica Group examines the current state of CNP fraud and false declines for U.S. e-commerce merchants. It also addresses the building blocks of current control frameworks and merchant appetite for more collaborative solutions to reduce false declines and fraud.
Report highlights include:
- CNP authorization approval rates continue to indicate a substantial false decline problem. The weighted average of authorization approval rates for CNP for surveyed merchants is 81%, compared to card-present authorization rates, which see higher than 96% approval rates on average.
- The average false decline rate across all merchant responses is 1.16%. In 2021, U.S. e-commerce sales were US$960.1 billion. The resulting US$11.1 billion in false declines is a substantial and impactful figure for U.S. e-commerce merchants and their customers.
- Fifty-two percent of merchants say that they ultimately approve more than 70% of the transactions they manually review. This figure highlights an opportunity to reduce operational overhead with better data to inform automated transaction decisioning.
- Merchants and issuers alike seek ways to analyze a transaction and its associated data in real-time to enable higher authorization rates while reducing fraud. When asked whether they would be open to new collaborative ways to share data securely with issuers to help with these goals, 88% of the surveyed merchants responded affirmatively.
“Fighting e-commerce fraud can often feel like battling the mythical Hydra. Once insurers and merchants successfully address one attack vector, two more spring up in its place,” said Julie Conroy, author of the report and Head of Risk Insights and Advisory for Aite-Novarica Group. “The CNP transaction is particularly challenging from a fraud mitigation perspective, as very limited data passes through the authorization stream from the merchant to the issuer. Using a wide variety of data sources to augment the decisioning on the merchant side is of the utmost importance,” she added.
“With digital transactions rapidly increasing, merchants have to balance the need to verify legitimate customers without adding friction or fraud losses,” said Kathleen Peters, Chief Innovation Officer, Experian Decision Analytics North America. “To understand the true risk profile for a customer, it’s important to analyze additional real-time data sources, like those available through new Experian Link™, that can help reduce false declines and increase online sales. This is a win-win for merchants and consumers as it enables companies to verify consumers while providing an efficient and safe shopping experience.”
About Aite-Novarica Group
Aite-Novarica Group is an advisory firm providing mission-critical insights on technology, regulations, strategy, and operations to hundreds of banks, insurers, payments providers, and investment firms—as well as the technology and service providers that support them. Comprising former senior technology, strategy, and operations executives as well as experienced researchers and consultants, our experts provide actionable advice to our client base, leveraging deep insights developed via our extensive network of clients and other industry contacts. Visit us on the web and connect with us on Twitter and LinkedIn.
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