How much does a false decline cost your business?

False declines (also known as “false positives”) — erroneous rejections of legitimate transactions — threaten revenue and customer loyalty. It’s the digital equivalent of slamming a door on a paying customer. While the intent is to prevent fraud, these false declines often result in greater losses than the fraud they aim to prevent.

One decline, years-long loss

False declines have a hefty price tag. According to INETCO, global losses from false declines reached a staggering $430 billion in 2021, up from $331 billion in 2018. The impact of these figures is multifaceted and extends well beyond the immediate lost sale. According to The Aite Group, merchants could lose up to 75 times more revenue to false declines than to actual fraud.

To determine the true cost of a false decline, we consider the following:

• Lost sale: The immediate revenue from a declined transaction vanishes. These figures are derived from the average order value (AOV) per industry. 
• Customer service costs: Addressing inquiries about declined transactions costs the business both time and resources. Industries with a high AOV are sensitive to the customer experience, but providing personalized service to luxury clientele requires highly trained, multi-lingual staff capable of handling longer call times and complex inquiries about high-value products. This results in an increase in the average per-ticket cost to handle a false decline.
• Wasted customer acquisition budget: The average marketing expenses required to win the customer in the first place. Whether through online media, search engine marketing (SEM), or social media campaigns, ecommerce brands invest considerable funds and energy in customer acquisition and retention, bringing users to the website and ensuring they become repeat customers. Most successful e-commerce brands aim to maintain a customer acquisition cost (CAC) under 20% of the customer’s lifetime value.
• Customer lifetime value (CLV): The cost of losing customers permanently is even more severe. A 2021 survey revealed that 40% of shoppers would boycott an online store after a false decline. These customers don’t just stop purchasing from your brand—they often turn to competitors, resulting in lost sales, diminished brand loyalty, and, over time, a widening gap in market share.
• Reputational damage: Misjudged risk assessments can result in a cascade of disengagement, tarnishing hard-won reputations. Such reputational damage can have profound consequences, especially in industries where word-of-mouth and social media hold significant sway. Irritated customers often share poor experiences through word-of-mouth with friends, family, or colleagues, or on social platforms like Reddit, TikTok and Google, further eroding brand trust and market share.

The average cost of a false decline per three sample industries

Luxury fashion

Figures are derived from a combination of internal and external sources. Personal luxury fashion encompasses luxury apparel, accessories, watches, jewelry and eyewear.

Consumer electronics

The figures are derived from a combination of internal and external sources. The consumer electronics market is divided into six segments: TV, radio and multimedia, TV peripheral devices, drones, telephony, gaming equipment, and computing.

Online ticketing

The figures are derived from a combination of internal and external sources. The online ticketing industry includes tickets for concerts, sporting events, live theater, fairs, and festivals. It includes online ticket resellers but not ticket sales at brick-and-mortar locations.

Our research reveals that the total “cost per decline” can reach thousands of dollars, varying by industry. This compounding financial strain highlights why mitigating false declines is crucial across all sectors.

Why balance is key

Merchants rely on fraud prevention systems to protect their business. When the measures used to identify fraud are too heavy-handed, legitimate customers can be mistakenly turned away, resulting in false declines. On the other hand, loosening these protections may lower false declines but open the door to increased fraud, leading to costly chargebacks. Striking the right balance and finding more nuanced ways to verify risky but legitimate orders is essential to safeguard revenue while ensuring a seamless experience for valued customers.

Applying the appropriate type and amount of verification

Addressing this issue requires smarter solutions that balance security with seamless payment approval, ensuring both trust and profitability in every transaction.

Currently, most solutions lack an intelligent, balanced approach to a merchant’s checkout flow — one that prioritizes increasing conversions as much as reducing risk. Too often, the focus leans heavily on fraud prevention, leading to overly cautious measures that inadvertently block legitimate customers. What’s missing is the precision needed to identify the fine line between fraudulent orders and those that, while appearing risky, can actually be approved.

Advanced technologies are beginning to fill this critical gap by offering greater accuracy in assessing risk. Instead of making blanket assumptions based on limited data points, they recognize the nuanced differences between scenarios like a stolen credit card versus an account takeover (ATO). Each scenario demands a tailored approach, applying verification methods specific to the nature of the risk. 

Merchants can ensure that most customers enjoy a smooth, uninterrupted checkout experience by using a solution that uses machine learning to gauge which checkout pathway is right for each order’s risk level — whether directing them straight to authorization, declining them as fraudulent, or judiciously deploying additional verification where it’s absolutely necessary. With such a solution, merchants also gain more visibility into why friction was applied and which type of verification will most likely help convert orders that would otherwise be declined.

Looking forward

As digital commerce grows, so does fraud. But thanks to advancements in anti-fraud and risk solutions, merchants no longer have to choose between security and conversion at checkout. By leveraging AI-based risk assessment, selective identity verification, and processes that enhance authorization rates, businesses can break the false decline barrier — recovering lost revenue while enhancing customer loyalty.

Introducing, Adaptive Checkout.

Explore how Riskified can help you adapt your checkout process to your customers and reduce false declines.