A significant number of ecommerce retailers are unnecessarily walking away from substantial, hard-earned sales without even knowing it, a recent Signifyd analysis shows.
These retailers, who are relying on outdated, set-it-and-forget-it fraud filters, are damaging their daily conversions in the short run and their profitability in the long run.
A Signifyd analysis of 2.3 million transactions showed that ecommerce retailers who rely on old-school AVS (Address Verification Service) and CVV (Credit Verification Value) filters as a first screening for fraud, stand to lose as much as $51.75 in orders for every $100 in orders that clear the filters.
Even when Signifyd accounted for the possibility of persistent customers re-trying their transactions up to five times, the analysis concluded that merchants using old rules were giving up nearly 8% of the revenue they would have realized using the latest payment fraud protection methods and technology.
A little background: AVS is a process that matches the billing address used in a transaction with the billing address information that the card-issuing bank has on file for the cardholder. CVV refers to the familiar three- or four-digit security code often on the back of a credit card.
- Review all the steps you take to improve customer experience and increase revenue: It’s human nature to live by the cliche: “If it ain’t broke, don’t fix it.” But what if you don’t even know what is, well, broke? Revenue leakage from AVS and CVV mismatches is not always obvious. Not all fraud protection systems are clear about why an order was turned down.
- Understand your fraud protection solutions: Whether they were built in-house or provided by an outside partner, make note of whether they are rules-based tools that standardize review or whether they are machine-learning models that constantly evolve to react to and anticipate changes in fraudulent behavior. Are you oversubscribing on security while underselling customer experience and the resulting revenue optimization?
- Make a practice of regularly reviewing your fraud protection solutions: Systems relying on static rules aren’t going to change unless someone tells them to. If you’re handling your own fraud management, regularly assess the signals your fraud protection relies on to sort legitimate from fraudulent orders. If you work with an outside fraud solution provider, stay engaged. Ask questions. As the fraud landscape changes ask how your provider is changing to stay ahead of fraudsters. If you’re seeing an unusual, or unsatisfactory, level of declines, find out why those orders are being rejected. Remember, you and your provider are partners in fraud protection.
The two, three-letter verification standards have long been used by credit card payment processors for card-not-present orders to determine whether an account was being used by the legitimate cardholder or by a fraudster.
AVS filters’ effectiveness degraded by sophisticated fraudsters, demanding consumers and fat fingers
The screens were a reasonable precaution at one time. But times change. Fraud rings have become increasingly sophisticated and continue to adopt new techniques and strategies by the day. Consumers have much higher expectations online — and they are far more likely to be shopping and buying on mobile devices, which leads to fat-fingering addresses, zip codes and three- or four-digit codes.
How costly is a mistyped address or security code to a merchant relying on AVS or CVV matches to screen out bad orders? Nearly 60% of consumers said having an order declined by a retailer when there was no apparent problem was grounds for never shopping with that retailer again. In fact, it was the number one reason consumers cited for abandoning a merchant, according to the survey conducted for Signifyd by market research firm Survata.
It’s clear that by relying on legacy fraud filters, the merchants are not only losing the immediate conversions at hand, but they are also killing future customer lifetime value by damaging the customer experience when they needlessly decline orders from consumers ready to buy from them.
In the face of the ongoing transformation of retail, future-focused merchants have replaced their legacy Merchant Fraud Prevention methods with risk management designed for the new era of ecommerce. Guaranteed fraud protection models, like Signifyd’s Revenue Protection solution, use big data and machine learning to produce faster, more accurate and more scalable fraud protection.
Signifyd’s analysis of transaction data found that AVS and CVV mismatches on orders accounted for between 38% and 54% of revenue for the merchants in the analysis. While those orders would have been declined by a static, rules-based system, Signifyd’s machine learning system approved between 93% and 95% of the revenue that would have been declined by the legacy systems.
Inflexible AVS and CVV filters mean merchants turn away 7.8% of revenue
After identifying the transactions that included AVS or CVV mismatches, Signifyd ran a calculation to approximate real-life behavior. Analysts conducted a simulation in which a diminishing percentage of consumers tried the transaction a second time, a third time, a fourth time and a fifth time to simulate consumers re-entering orders or trying different credit cards.
Granted, the model represented a best-case scenario for merchants. Few consumers are patient enough to submit an order five times. Instead, many simply turn to Amazon after being declined once. The model also assumed roughly three-quarters of those trying again would be successful. Even at that rate, merchants lost out on 7.8% of the revenue they would have realized by relying on a state-of-the-art fraud protection solution like Signifyd’s.
It’s not often that retailers are offered an opportunity to instantly unlock 50% or even 7.7% in additional revenue without increasing sales volume. Re-examining the reliance on AVS and CVV as a way to screen out fraudulent orders gives retailers the chance to do just that.
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