Forter has published a new report identifying a major problem that could be costing retailers millions every year. The report, ‘Are new shoppers falling out of your funnel forever’, (registration required) highlights revenue loss through falsely declining customers during online transactions. Forter calls this phenomenon: New User, Missed Opportunity (NUMO).
The new reality of online shopping
The report notes millions of shoppers around the globe are quarantined at home, shopping online as they shelter in place. In fact, on average there has been double the number of new shoppers online during the pandemic than there was before. Current conditions have provided merchants a growth engine to drive new revenue and encourage customer lifetime value.
However, it’s not all good news for eCommerce operators. There is another statistic that should terrify online retailers of all sizes. New shoppers are 5-7x more likely to have their purchase declined than returning users. This is an all-too-common scenario that is hurting online retailers. Furthermore, 40% of those declined will never return to that merchant.
The online payment process has been described as the Achilles’ heel of the eCommerce infrastructure. The process is complex and inefficient. It results in 1 out of every 10 legitimate purchases being wrongly declined. Declines often happen at the payment and bank-level (e.g. issuer, acquirer, PSP, gateway). It leaves merchants little visibility and control in determining whether a transaction is ultimately approved.
How much revenue retailers maybe losing
As a result of the pandemic, some merchants may have successfully transitioned in-store customers to online. However, many other merchants are still losing annual revenue per customer every time a new customer is declined. Forter has estimated this loss at:
- Apparel & Accessories: £684 (Approx. 5 transactions per 12 months, £137 average transaction price).
- Home & Garden: £589 (Approx. 3 transactions per 12 months, £196 average transaction price).
- Food & Beverage: £781 (Approx. 9 transactions per 12 months, £87 average transaction price).
- Beauty & Health: £179 (Approx. 3 transactions per 12 month, £60 average transaction price).
The company suggests, its not hard to see how much revenue false declines are costing merchants. Especially for those whose customer base is far outstripping the capabilities of its fraud prevention systems.
Forter’s provides data on annual total processing volumes for merchants in sectors booming during the pandemic. It gives an illustration of the proportion of revenue that merchants potentially are losing:
- Apparel & Accessories: £1.1 billion.
- Home Furnishings & Garden: £1.4 billion.
- Food & Bev: £514 million.
According to Nitish Pandit, Sr. Director Finance at Priceline says, “Improving our approval rate is a major focus for us. Especially because we have legitimate transactions that are potentially being declined. Improving our approval rate enables us to deliver a better customer experience, which drives repeat business. With Forter, we have accurate, automated decisions that allow us to maximize approvals.”
The report identifies why e-tailers turn away new customers
Not enough data
While new online shoppers can account for significant revenue, many are being wrongly declined by merchants’ fraud prevention systems. These systems do not have enough identity data about them. Such data includes:
- Purchasing behaviour and history (purchasing patterns, value spent, financial instruments, etc).
- In-store interactions including returns or item exchanges, coupon usage, loyalty or reward point memberships, personalisation of interactions, etc.
- Behaviours, past actions, and connected identities from other e-commerce sites.
Many merchants currently have limited visibility. They only see data from their own site and don’t have the benefit of a larger data network. This results in higher decline rates of legitimate buyers — especially new shoppers.
Obstacles in the purchasing journey
Customers expect “1-Click” real-time experiences that allow them to sail through to checkout with no added friction.
Friction happens when new shoppers are asked to provide more personal information or data than actually required. First-time online shoppers often feel nervous about sharing their details with a store. So prompts for more information may frighten them away. The result is higher cart abandonment rates and missed opportunities for customer acquisition.
Most merchant fraud systems currently rely on a combination of risk scoring, machine learning, and manual review teams. This can cause delays and added friction. Manual processes and the use of multiple separate fraud tools prevent instant approve/decline decisions or “1-Click” experiences.
Deckers is another company that has changed its approach to fraud management. According to Jess Carstens Global Director, E-Commerce Operations at Deckers: “Every little piece of data is key. With Forter’s machine learning and global network of user data, we’re able to make real-time decisions. Furthermore, we can scale automatically without adding more resources. Previously, embracing these new customers without creating friction would have been difficult and would have resulted in them shopping elsewhere.”
Enterprise Times: What this means for business?
This is an interesting report. Instead of looking at fraud prevention from a risk-aversion perspective, Forter suggests retailers consider risk management as a growth engine. The company is trying to re-position fraud prevention to enable merchants to capture as much revenue as possible. THe goal is to approve more good customers.
Ultimately, this shift in perspective potentially drives more business growth. Furthermore and just as importantly, it encourages increased customer lifetime value (CLTV). Simply put, you cannot grow the lifetime value of a customer if they’re never given the opportunity to become a customer in the first place. That makes perfect commercial sense.