Costs related to hardware, software, and personnel to avoid e-commerce fraud can constitute up to 23% of a merchant’s operating costs. A large portion of these costs can occur when having to correct a transaction that is falsely cancelled. Reasons for false cancellation can include a mismatch of billing and shipping addresses, which does not account for travelers shipping goods or sending gifts. False fraud alerts can also cause losses of over 2% annual revenue. Hassle from false transactions can cause customers to stop shopping with a merchant as they feel it represents poor service. This is vital because it costs up to 5 times the amount to find a new customer than to retain an existing customer. Up to a 25% increase in profit can be seen by increasing customer retention by as little as 5%. Up to 50% of merchants are disappointed with the current anti-fraud solutions and say they must find a balance where some fraud is allowed and dealt with in order to maintain good customer relations without the hassle of rectifying falsely cancelled transactions.
- Fraud management is important for online retailers but it can be costly and sometimes counterproductive when it incorrectly detects fraud which is deemed a “false positive”.
- Sometimes as much as 30% of declined purchases due to fraud management may be false positives, and this affects an online retailers overall sales.
- False positive not only damage customer relationships, but they can cause customers to entirely leave by seeking other outlets.
“A recent study conducted by Javelin Strategy & Research and Vesta Corp. found that fraud management now consumes up to 23% of merchants’ operational budgets, due to associated software, hardware and personnel costs.”