A Fear of Fraud is Making Retailers Reject New Customers at Up to 7x the Usual Decline Rate

As more consumers buy online than ever before, e-commerce merchants have the opportunity to capture new customers at much higher rates than before. But with increased visitors to their sites, retailers are struggling to balance security with fast checkout. A new report from Forter finds that new shoppers are 5-7x more likely to have their purchase declined than returning users.

Referred to as New User Missed Opportunity (NUMO), this rejection of first time checkouts can be hugely costly for retailers. For apparel and accessories merchants specifically, Forter estimates that the average annual amount lost per customer reaches $930; home and garden sees losses of $798 per customer, while food and beverage reports $1062.

“NUMO is a stark reality that is costing e-tailers millions in lost opportunities and hundreds of millions more in lifetime value of each lost customer,” said the Forter report. “NUMO is the fear of missing out manifested for e-tailers. No business wants to miss out on an opportunity to convert a potential buyer into a loyal lifetime customer.”

In practice, these rejections commonly occur because the merchant does not have sufficient customer information to approve the purchase. With the current trend towards “one-click checkout,” consumers are expecting to be able to complete their purchase efficiently; when prompted to provide additional information, these shoppers might grow wary and opt for a competitor instead.

Retailers are right to want to prevent fraudulent purchases, but Forter’s research suggests that these concerns might be disproportional to the losses incurred by NUMO. Forter found that merchants can lose up to 75 times more revenue to false declines than they do to fraud. And with 40% of consumers saying they wouldn’t return to a site after their payment was declined, the long-term risk is high.

Online fraud has increased during 2020, as e-commerce purchases have increased.

“Instead of looking at fraud prevention from a risk-aversion perspective, consider risk management as a growth engine, enabling merchants to capture as much revenue as possible and approve more good customers,” said the Forter report.

In order to achieve the right balance between checkout security and speed, retailers might want to consider utilizing a third party who can provide more insight into each consumer. By accessing the data of customers from multiple retailers, these solutions can recognize a new shopper on behalf of the merchant and provide that authentication.

This allows retailers to streamline their own checkout processes, so that customers can convert quickly. Over time, the merchant will be able to supplement the customer data with its own learnings – which may then be used to help future merchants verify their new customers. Confidence in the security of checkout can also embolden merchants to launch new services, like BOPIS and flexible returns, with decreased fear of fraud.

“Every little piece of data that we have to make a good decision about the customer is key,” said Jess Carstens, global director for e-commerce operations at Deckers. “With Forter’s machine learning and global network of user data, we’re able to make real-time decisions and scale automatically without adding more resources. Prior to Forter, embracing these new customers without creating friction would have been difficult and would have resulted in them potentially shopping elsewhere.”

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