Executive Summary

2020 was marked by significant changes to the global commerce climate. A pivot to digital channels has propelled higher rates of new online shoppers than ever before. While this offers enormous business growth potential, it has also caused a corresponding increase in the number of new shoppers being falsely declined, something we refer to as New User Missed Opportunity (NUMO). To help merchants better understand the cause and impact of these false declines, this report examines:

• How much revenue is at stake?

False declines are costing e-tailers millions in missed revenue. Explore just how much revenue is at stake across industries such as apparel, home and garden, beauty and food and beverage.

• Why are e-tailers turning away new customers?

Learn what is behind the challenge of false declines and existing fraud systems.

• How can you capture more customers and revenue?

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.

The current e-commerce climate

Hundreds of millions of shoppers around the globe have been 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 e-commerce 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. Here’s an all-too-common scenario that is hurting online retailers.

1.

Mary Smith decides to try a food delivery service for the first time. She spends time reviewing options, and then places an order.

Without any good reason, the transaction is declined. Mary is very frustrated.

2.

Instead of trying again, she goes to a competitor’s service, which doesn’t decline the transaction.

3.

Mary never returns to the first vendor. Her second attempt elsewhere was successful, and she has found her new food delivery service.

NU MO

(New User Missed Opportunity)

With the increasing number of new online shoppers there has been a corresponding increase in the number of those new shoppers being falsely declined, something we refer to as New User Missed Opportunity (NUMO). Forter’s Fraud Attack Index shows that new users are 5-7x more likely to be declined than returning customers because merchants do not have enough data on these new shoppers. 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. 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.

So if Mary Smith is a casualty of NUMO, where an e-commerce system incorrectly labels her initial attempt to buy something as fraud, she isn’t likely to come back.

Retailers have long known and measured the value of customer loyalty. 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.

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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.”

Nitish Pandit, Sr. Director Finance

Today’s volume of new shoppers is 2x greater than pre COVID-19 levels

2x

New shoppers are 5-7x more likely to be declined by current fraud tools than returning customers

40% of those declined on the first visit won’t try again on that merchant’s site

Missed annual revenue per customer:

APPAREL & ACCESSORIES
$930

HOME & GARDEN
$798

FOOD & BEVERAGE
$1,062

Just how much revenue is at stake?

Let’s put the challenge of NUMO into real dollars and cents to understand the actual impact. Using data from Forter’s robust global merchant network which processes over $200B annually and protects more than 800M identities, it’s possible to estimate the real missed opportunity cost when a new customer is turned away.

75x

Merchants can lose up to 75x
more revenue to false declines
than they do to fraud.

SOURCE: AITE GROUP

Methodology

Calculation of missed revenue is done by factoring:

• Seller’s total processing volume (TPV)
• Seller’s decline rate (in USD)
• Additional likelihood of declining new users
• The average rate of new users
• Likelihood of return of a declined new user
• Frequency of user purchasing on the website

Missed annual revenue per customer

APPAREL & ACCESSORIES
5 x $186
purchases avg. price
= $930

HOME FURNISHING & GARDEN
3 x $266
purchases avg. price
= $798

FOOD & BEVERAGE
9 x $118
purchases avg. price
= $1,062

BEAUTY & HEALTH
3 x $81
purchases avg. price
= $243

Why do e-tailers turn away new customers?

1. Not enough data

So what is behind the challenge of NUMO? While new online shoppers can account for significant revenue, many are being wrongly declined by merchants’ fraud prevention systems that don’t have enough identity data about them. Such data includes:

• Purchasing behavior and history (purchasing patterns, value spent, financial instruments, etc.)
• In-store interactions including returns or item exchanges, coupon usage, loyalty or reward point memberships, personalization of interactions, etc.
• Behaviors, 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.

2. Obstacles in the purchasing journey

Customers expect “1-Click” real-time experiences that allow them to sail through to checkout with no added friction.

Most merchant fraud systems currently rely on a combination of risk scoring, machine learning, and manual review teams causing delays and added friction. Manual processes and the use of multiple separate fraud tools prevent instant approve/decline decisions or “1-Click” experiences.

When new shoppers are asked to provide more personal information or data than actually required, this adds friction. 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.

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Every little piece of data that we have to make a good decision about the customer is key. 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.”

Jess Carstens

Global Director, E-Commerce Operations

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Forter allows us to monitor transactions in a way that is safe and efficient and doesn’t harm anything about the customer experience. There’s also a lot of competition out there; if our retailers don’t trust the technology we’re using, they have the right to go somewhere else, so maintaining trust is super-important.”

Brian White
Director of Customer Experience

Say hello to more customers and revenue

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. Ultimately, this shift in perspective drives more business growth and encourages increased customer lifetime value (CLTV). To do this merchants require:

A global data network

Access to knowledge and insights gained from a wider set of data across enterprises, banks, payment providers, geographies, and industries offers retailers a more accurate view of legitimate consumer behaviors and interactions, resulting in higher approvals. Instead of requiring shoppers to provide more information, adding friction to the buying journey, a robust network of data powers the ability to make instant and accurate decisions — no added friction.

Automation

Real-time decisioning made possible through machine learning provides greater accuracy and offers merchants the ability to expand and improve their customer benefit offerings to include competitive and seamless services such as BOPIS/BORIS, next-day shipping, and flexible returns policies, without the fear of fraud or abuse.

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With the right approach to risk management, you hold the power to an e-commerce and customer lifetime value enabler. Use the power of data and the Forter network to get the visibility, insight, and real-time decision-making capability that’s needed to make that first customer experience and the hundreds of experiences that will follow, the best they can be.

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Forter is the leader in online fraud prevention

Processing over $200B in e-commerce transactions and protecting over 800M consumers globally from credit card fraud, account takeover, identity theft, and more.

The company’s identity-based fraud prevention evaluates the trustworthiness of every shopper in real time, across the entire customer journey.

Forter’s integrated fraud prevention platform is fed by its rapidly growing global merchant network, underpinned by predictive fraud research and modeling, and the ability for customers to tailor the platform for their specific needs. As a result, Forter is trusted by Fortune 500 companies to deliver exceptional accuracy, a friction-free consumer experience, and increased revenue through a higher approval rate. Forter was recently named the Leader in E-Commerce Fraud Prevention by Frost & Sullivan.