The impact of false declines after implementing SCA: How can merchants increase conversion rates

Thursday 17 March 2022 07:05 CET | Editor: Irina Ionescu | Interview

Toby McFarlane, Head of Ecommerce at CMSPI, answers merchants’ need on how to deal with false declines after the SCA implementation

What challenges do merchants face when getting good customers through the checkout?

Everything you do as a merchant to convert your customers – ecommerce marketing investment, developing your digital app, improving the checkout page – is all great, and it’s under your control. The problem is that once the customer clicks ‘Pay’ (or ‘converts’), merchants seemingly lose that control.

Even after conversion, one transaction can pass through four or five different parties before it’s finally approved, and it can fail with any one of them. The challenge for merchants is that failures can happen even for payments made by good, non-fraudulent customers. Those ‘false declines’ occur for a number of reasons. The main one is triggering fraud rules – each party will have their own rule sets that can be triggered when they shouldn’t, meaning that good transactions are turned away. The other big one is data transmission errors, for example when a global PSP is transmitting data to a local issuer or network and different data formats are required.

More than anything, it’s lack of communication. Because of conflicts of interest in the payments industry today, particularly for processor-owned networks or issuer-owned processors, even if something does go wrong, it’s hard for providers to have productive conversations, so they can’t necessarily resolve those errors quickly or to a good standard. 

How prevalent are these problems? Are they worse for smaller merchants?

Every merchant experiences false declines – that’s just a fact. We estimate that US merchants lost USD 24.4 billion to false declines in 2020 alone, compared to USD 12.25 billion lost to fraud itself. In Europe, the estimated figure sits at around EUR 23 billion. At the merchant level, our data suggests that 1 in 5 declines online are false. It might be that a more sophisticated merchant sees a better ratio than that, but they also have greater transaction volumes, so a billion-dollar retailer would still be losing millions to false declines. 

Does the challenge differ by region?

In Europe, the problem of false declines has been accentuated over the last 10 months by the introduction of Strong Customer Authentication. SCA introduced additional friction into the payment process for consumers and increased the likelihood of declines on the issuer side, so there’s a double hit for merchants. We’ve been reporting on SCA’s industry impact since August 2020, and even post-implementation, the European weighted average transaction failure rate is estimated at 29% (September figures). Although dependent on risk appetite, for merchants, the costs of lower conversion generally outweigh any supposed fraud benefits of SCA. 

SCA is an important example of a regional nuance affecting approval rates, and it has brought lots of European merchants’ focus back to their core markets. In my experience, merchants often focus on their non-core markets where they see lower approval rates, but in reality, it’s their home markets – where average approval rates are higher – that are costing them more because a small percentage difference translates to much more in income terms. 

Can merchants resolve some of these problems by shifting away from card payments?

On the surface, some of the fastest-growing alternative payment methods on the market look like they’re going to generate lots of incremental sales. What we’ve seen from our analysis tools is that the revenue sacrifices merchants are making to implement them – often due to fear of missing out on those sales – are considerable. 

Unless the merchant is conducting a thorough analysis of their performance and comparing it to others in the industry, they might be paying for something they don’t need or not maximising the value of something they have already implemented. Buy Now, Pay Later options are a clear example of that; for some merchants, our analysis suggests that approval rates for BNPL transactions can be much lower than those for other payment methods even months after implementation, meaning that any boost to conversions isn’t necessarily materialising in terms of revenue gains. 

What can merchants do about it?

For merchants, the number one priority is making sure you can effectively benchmark the performance of your suppliers. That means processors, gateways, networks, issuers, APMs – all of them. Merchants need to be drawing on benchmarking data from as many sources as possible to make sure they’re isolating which declines are false. Once you’ve done that, make sure that you’re engaging with all parties in the supply chain, not just your processor who might tell you that you’re performing well against their own internal benchmarks. If you are taking ecommerce performance seriously, you need to be talking to the major issuers in your portfolio regularly too and backing those conversations up with the right data insights and benchmarks. 

Finally, remember that no supplier is immune to the structural issues affecting approval rates, regardless of what you’re paying for them. There’s an opportunity to improve approvals through collaboration – provided you have the right data – even from the highest position in your supplier’s portfolio. 

This interview is part of The Fraud Prevention in Ecommerce Report 2021/2022, the ultimate source of knowledge that delves into the evolutionary trail of the payments fraud ecosystem, revealing the most effective security methods for businesses to win the battle against bad actors.

About Toby McFarlane

Toby is Head of Ecommerce at CMSPI, leading global payments advisory firm. Toby’s team works to boost merchants’ revenue by optimising their ecommerce approval rates, using data insights to facilitate cross-party discussions that make the supply chain more productive for all.



At CMSPI, our payments experts provide advisory services and powerful analytics. Our ultimate goal? Supporting a more innovative and productive payments ecosystem. For hundreds of clients across the globe, our insights help improve performance and create positive change.


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Keywords: CMSPI, online authentication, multi-factor authentication, two-factor authentication, fraud detection, ecommerce, merchant, PSP
Categories: Fraud & Financial Crime
Countries: World
This article is part of category

Fraud & Financial Crime

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