This past year has been tough with many businesses having to pivot quickly in order to survive and thrive within the parameters and restrictions of a worldwide pandemic. The swift adoption of e-commerce by businesses has opened up a wide range of opportunities to reach a new swathe of customers. This increase in online growth plays a big part in offsetting losses from in-person shops that may lie closed with social distancing norms and crowd capping in place.
Research shows that the volume of new online users has grown 200 percent since the pre-COVID level, which in itself has the potential to be translated into huge online gains. However, online retailers seem to be more focused on discouraging fraudsters than welcoming new shoppers, so much so that many users are declined at the point of transaction due to stringent fraud prevention measures, leading to the immediate loss of this revenue. In many cases, these customers never return, meaning a longer-term loss of lifetime value. At Forter, we call this phenomenon New User missed Opportunity (NUMO), and it is costing businesses a fortune.
Forter’s analysis has shown that merchants can lose up to 75 times more revenue to false declines than they can lose to fraud, making NUMO a major challenge for online retailers. To get a sense of the scale of this loss, an analysis of insights from a global merchant network processing over US $200 billion in transactions annually and protecting almost a billion identities globally, assessed the monetary value of a new customer decline in different retail sectors. As part of the methodology, the seller’s total processing volume, customer decline rate, the additional likelihood they would decline new users, the average rate of new users, the likely return rate of a declined new user, and the frequency of user purchasing on the website, were all reviewed.
Based on this analysis it was found that every new declined customer - where a customer visiting a merchant for the first time is prevented from completing a transaction - represented a missed lifetime value of US $1,105 in food and beverage, US $968 in apparel, and US $833 in home furnishings and garden. While these are the global numbers, translating that to India’s fast-expanding online retail sector means the numbers add up and results in a lot of lost revenue, in the effort to stop fraud.
Saying No to NUMO
A relatively simple way for businesses to say no to NUMO, and to increase sales and revenue is to ensure that they are able to convert all customers that are accessing their online sites. Retailers need to convert each visit into a sale with an easy and clean experience. A false decline or NUMO can end a customer relationship before it has even begun. The best scenario for an online retailer is capturing a new customer by providing a seamless experience and frictionless transaction, leading to an expanding base of repeat and loyal customers.
The transaction process itself involves numerous parties (sellers, banks, payment providers). Retailers can adopt a fraud prevention platform that accesses knowledge and insights from hundreds of merchants, millions of consumers, and the wider e-commerce ecosystem to provide a more accurate view of consumer behavior and interactions across the buying journey. This, combined with automated solutions that offer real-time decisions, allows sellers to trust the data to reduce customer friction and offer competitive and seamless customer offerings such as take out, BORIS (buy online, return in-store), and next-day shipping.
Such a solution allows sellers to glean insights from a robust global network rather than rely on their data alone. Therefore, 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. Retailers must prioritize approval rates, the shopping experience, and customer lifetime value above all else while accurately identifying and blocking fraud. Ultimately, a more robust solution and approach limits false declines and minimizes new user missed opportunities, enabling merchants to capitalize on their business growth potential.