The COVID-19 pandemic has fundamentally changed the retail landscape and consumer behaviours. A pivot to digital channels has brought more shoppers online than ever before, with 2020 e-commerce sales in Australia at the highest level ever. While overall e-commerce growth helped retailers offset brick and mortar losses with online gains, the greatest opportunity comes from converting the masses of new online shoppers into loyal customers.

Turning these new users into repeat buyers presents tremendous potential customer lifetime value for retailers. The challenge is that new e-commerce customers are five times more likely than existing customers to get their purchase declined. And one false decline often ends their relationship as 40% of rejected users won’t try on that e-commerce site again. At Forter we call this phenomenon ‘New User, Missed Opportunity’ or NUMO.

Why the declines?

Online retailers are in a constant balancing act to maximise conversion rates and provide a seamless customer experience while accurately identifying and blocking fraud. Retailers lose their footing when they lack data on the digital identity of a potential customer involved in the transaction process. This causes retailers relying on manual reviews or rules-based systems for fraud prevention to flag unfamiliar activity as suspicious, even though it might not be, resulting in increased friction and falsely declining potentially legitimate shoppers.

Retailers typically lack the following data, resulting in higher rates of false declines of new online shoppers:

  • 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, and personalisation of interactions.
  • Behaviours, past actions, and connected identities from other ecommerce sites.

Due to heightened consumer expectations, it is not just false declines that send new users to competing retailers. Today’s customer expects a ‘one-click’ real-time experience that allows them to breeze through the purchasing process. Retailers commonly ask new shoppers to provide more personal information than required, increasing friction and causing concern over the sharing of personal details with a retailer. This friction causes higher rates of cart abandonment and increases the likelihood of NUMO.

According to Forter’s global research, merchants lose up to 75 times more revenue to false declines than they do to fraud itself—a staggering figure.

Say No to NUMO

A shift in both philosophy and technology is required to avoid NUMO. As opposed to viewing fraud prevention through the lens of risk-aversion, merchants should approach risk management from the perspective of business enablement to improve bottom lines.

Merchants must prioritise approval rates, the shopping experience, and customer lifetime value above all else while accurately identifying and blocking fraud. To do so, merchants require a solution to glean insights from a robust global network rather than rely on their data alone.

While combating fraud is an e-commerce priority, it cannot come at the expense of existing or new customers. This requires a fraud strategy built on three primary pillars: 

  • Fraud prevention as a revenue driver. The first step in the process is viewing fraud prevention as an e-commerce enabler that generates long-term customer value and revenues. This is a shift that can drive alignment with the CMO, CIO and CEO on the strategic vision of the company.
  • Know your customer. Retailers have been gathering transaction data from consumers for years, but the evolution of an interconnected payment ecosystem has created a massive commerce network that consists of banks, payment providers and retailers across industries. Understanding the ecosystem of providers — and their ability to tap into powerful global networks — can give retailers more insight into consumer behaviours that allow them to make more accurate fraud decisions. The transaction process involves numerous parties (merchants, banks, payment providers) and access to knowledge and insights from hundreds of merchants, millions of consumers, and the wider ecommerce ecosystem provides a more accurate view of legitimate consumer behaviours and interactions across the buying journey.
  • Automate fraud decisions. Another step to consider is eliminating manual processes and fraud decision-making with artificial intelligence and machine learning. It can help improve accuracy while removing potential biases from entering into the fraud decision process. 

As e-commerce evolves into the dominant sales channel for retailers, preventing fraud of online transactions will always be considered critical. The shifts in consumer behaviour and physical store limitations created by the pandemic offer the perfect time for retailers to evaluate their strategies. There is room now to shift the focus from preventing bad transactions to enabling more good transactions. The pandemic has been hard enough on retailers — they cannot afford to lose out on the opportunities they are presented with.

Monica Acree is vice president Asia Pacific at Forter.