By Ajay Bhalla, President Enterprise Security Solutions, MasterCard

Ajay Bhalla
Ajay Bhalla

For too long, banks and retailers have been forced to effectively falsely accuse their best customers of committing fraud with their own cards, in order to thwart criminals.

In a world of increasingly sophisticated criminal threats, well-intentioned efforts to detect and prevent fraud can lead to genuine card transactions being erroneously declined. This experience is all too common for many of us; whether it’s when travelling and we’ve forgotten to make that call in advance to our bank, or when shopping online.

But while nobody would condone a less vigilant approach, the effects of these mistakes can be extremely damaging for business – and frustrating for cardholders.

To manage fraud, one in six cardholders have experienced at least one such false decline in the past year[i].

In the U.S. alone, this has led to $118billion in transactions being falsely declined in the past year – a staggering figure when the total value of fraud committed was $9billion in the same period[ii].

But that’s just the immediate impact.

A quarter of cardholders use a card less frequently after they have had a transaction declined, while two in five will stop using it altogether.

And for retailers, the picture is equally concerning. A quarter of shoppers ease up on spending in stores that have declined a payment, while a third will desert them entirely[iii].

Worse still, the highest spending – and most valuable – cardholders are more likely to suffer false declines, due to their spending behaviour being outside of perceived normal patterns[iv].

Amid the intensifying battle for top-of-wallet and front-of-phone status, it’s clear this is a problem that needs addressing for the benefit of all – especially in today’s progressively complex and technological payments landscape.

So how can banks and retailers stem the tide?

To truly separate genuine transactions from those that are fraudulent requires “super-intelligent” payment security solutions that can understand and differentiate between cardholders and their spending habits.

While the systems already in place are sophisticated, the pace of change when it comes to fraud means even these systems are evolving.

Machine to machine (M2M) technology, which allows wireless and unwired systems to communicate with other devices of the same type, is making this a reality. Drawing on data from multiple sources in real time, enables intelligent decisioning that promotes business without compromising on safety.

For banks and retailers, this capability is invaluable. This is because when it comes to cardholders, they have until now been unable to see the best picture. Intelligent decisioning will help connect the dots between the available data and that used to define a genuine or fraudulent transaction. If banks were using spend data to identify and manage their best customers better, and retailers could confirm that the customer they are seeing is known and trusted, then decisioning could be improved, leading to a better consumer experience and improved commerce.

Intelligent Decisioning shores up cardholder spending data related to the account in question overall, by channel and by transaction type. In other words: how spending on the account compares to others in the same country, channel, and transaction type.

This extra depth of insight – coupled with a bank’s standard set of checks – leads to fewer false declines at no extra risk of fraud.

And, as the technology is capable of performing this level of rigour at the moment of the transaction, it means the right call can be made when it matters most.

For retailers, the power of intelligent decisioning is of equal importance, particularly when authorizing card-not-present transactions.

Currently, the information gap between banks and retailers, against a backdrop of rapidly increasing e-commerce purchases, is fuelling a huge rise in false declines for cardholders when shopping online.

Consider for a moment that online purchases grew from a mere $28 billion (1.1percent of total retail sales) in 2000 to $352 billion (8 percent of total retail sales) in 2013[v]. E-commerce sales are expected to maintain a 6.7 percent compound annual growth rate through the next five years, reaching $486.3 billion in 2018.[vi]

At the same time, over half of all fraud now originates through digital channels[vii].

Banks continue to lose more from card-not-present fraud than from any other type, with losses in the U.S. alone estimated to reach $6.4 billion by 2018[viii].

To make up for these losses, banks are declining up to four times more card-not-present transactions than card-present transactions, resulting in lost revenue[ix].

So, it’s crucial that the growing trend of false declines is tackled head-on now. Retailers have invested heavily in resources to screen and verify consumers who use their sites. This kind of data could significantly benefit banks to boost the accuracy of their authorization processes. And with the addition of intelligent decisioning solutions it’s possible for banks and retailers to collaborate in real time enabling genuine  transactions with greater precision.

Only by adopting this as part of a layered, holistic approach to payment security, can retailers and banks prevent their customers being erroneously caught in the net.

Now is the time for the payments industry to work together to use its collective intelligence to weed out fraud while growing stronger, long-lasting cardholder relationships.

Together, and empowered by intelligent decisioning, we can end the sweeping one-size-fits-all approach to payment security and take a heavy hand against criminals while creating an improved consumer experience.

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