How retailers can combat the spiralling issue of false positive card declines

Facing yet another uncertain year in retail, brands continue to double down on costs by closing stores and slashing headcount in an effort to stay in business. In fact, The British Retail Consortium predicts that one in ten part-time retail jobs, up to 160,000 roles, could be at risk of being lost over the next three years. Meanwhile, there is a much-overlooked issue costing online merchants millions each year - positive card declines. Developing a strategy to counter this can significantly impact revenue and customer loyalty, saving retailers billions.

It is termed a false positive when fraud detection systems incorrectly identify a genuine purchase as suspicious and prevent the transaction from taking place. Many legitimate consumer card payments are wrongly flagged as fraudulent and subsequently blocked. It’s a problem estimated to cost businesses significantly in both revenue and reputation.

Forter's own research shows the scale of the issue - that for every £1 retailers are losing to fraud they are forfeiting £30 to false declines. Most alarmingly, Forter’s data even indicates that false declines are typically 5 to 10 times higher than actual fraud. With payment card fraud losses worldwide reached $33.83 billion in 2023, this puts the issue into perspective.

Why false positives are increasing

Some of the sophisticated fraud prevention tools that retailers and banks deploy to defend against rising online threats can be too heavy handed, inadvertently blocking real customers.Research  also shows that as many as 70% of falsely declined transactions are difficult to recover, which makes this an issue that’s seriously impacting the bottom line.

Typical alert triggers for false positives include purchases made from unfamiliar locations, atypical transaction sizes or frequencies, and integration issues with emerging payment methods such as digital wallets and buy now, pay later (BNPL) services. It might be that a merchant has a rule in place to block all transactions from a certain postcode, country or area. With consumer habits evolving, such as increased mobile and cross-border shopping, these safeguards can unintentionally penalise legitimate shoppers.

The rising trends of mobile commerce and app-based payments also add layers of complexity. As devices and IP addresses frequently change, it is harder for traditional fraud detection systems to accurately verify the user’s identity without causing false alarms. With more consumers using multiple devices and payment apps, some fraud detection tools struggle to adapt to increasingly fragmented data points.

Regulatory requirements can breed a culture of caution, which impacts merchants’ approach to fraud and tools they deploy. A system that doesn’t analyse customer data and trends can all too easily tar all consumers with the same brush.

Why false positives are such a costly issue

This isn’t a minor administration issue that can be easily overlooked - it’s a boardroom issue, a significant percentage of business revenue that retailers could be driving away. In fact, up to15% of all card-not-present (CNP) transactions are falsely declined. For e-commerce retailers, this translates to around one in every seven legitimate customers being turned away at the checkout, mostly without explanation.

Beyond lost sales and continual investment in time and resource to address the issue, losing valuable customers is the biggest risk. A competitor is only a few clicks away, as according to research, 42% of shoppers will never return to a brand that falsely declines their transaction.

When frustrated customers abandon their purchase and browse elsewhere, this erodes long-term customer value. In today’s market, where customer loyalty is everything, this has a devastating impact on retail stability.

In the meantime, the real fraudsters are navigating security measures and creating ongoing risk. Banks are also taking the hit of increased customer service costs and lost customer trust when cardholders experience unjustified false declines. A ripple effect runs through the entire eCommerce ecosystem - from card issuers to merchants - fuelling calls for a more intelligent approach to shopper validation.

Smarter solutions to a growing problem

A strategy to reduce false positives requires more focus than a blanket decline approach. Central to this should be smarter, adaptive systems that balance security with convenience. Two key approaches have proven effective at handling the issue:

Advanced AI and behavioural analytics: Machine learning models, trained on extensive transaction data, can distinguish between normal customer variations and fraudulent activity. This targeted approach minimises unnecessary declines while maintaining strong fraud protection.

Risk-based authentication:  Instead of blocking transactions outright, this method involves businesses applying additional verification steps when necessary. For instance, biometric authentication or one-time passcodes can help decipher genuine shoppers. Bottom line - if there is any doubt over whether a transaction is legitimate, retailers must have steps in place to counter-check legitimacy.

Beyond technology, collaboration plays a crucial role. Sharing fraud intelligence among the ecosystem of merchants, banks, and payment processors can build a more comprehensive understanding of fraud risk and emerging threats, reducing both false positives and true fraud attempts.

What steps retailers can take

To effectively combat false positives, retailers need detailed customer insights combining purchase history, device data, and behavioural patterns to identify returning shoppers even as their habits evolve. Investing in tools that provide real-time monitoring and decision-making is essential to flag only suspicious transactions while giving loyal customers a seamless experience.

On this issue, education is critical to making change. If retailers and banks can ensure their fraud prevention teams are up to date on the latest fraud tactics and evolving payment technologies, this will generate more accurate decisions, keeping the entire payment ecosystem resilient.

Striking the right balance for the future

The challenge ahead is clear: to safeguard revenue and customers without pushing genuine shoppers away. As fraud tactics grow more sophisticated, adopting intelligent fraud prevention technologies and fostering collaboration across the payments ecosystem will be essential.

By minimising false positives and delivering seamless payment experiences, retailers can protect their revenue, enhance customer trust, and thrive in a marketplace while balancing efficiency and security. It’s a prevailing issue, but with smarter strategies and cutting-edge technology, outsmarting the real fraudsters will create the majority of declines, keeping genuine customers in the circle of trust.