Security
False declines reduced, approvals increased with Fiserv CU pilot program
False card declines is a concerning issue for financial institutions and customers. Not only is it a transaction loss for a merchant, it can mean a cardholder may stop using a card after experiencing a false card decline.
August 18, 2020 by Pat Shea — Editor, NetworldMedia
Losses due to false declines are expected to spike to $443 billion by the year 2021, an amount greater than the losses caused by the original fraud issue, according to Aite Group research. So the big question is how can the number of legitimate debit card transactions, that are wrongly identified and fraudulent, be reduced?
ATM Marketplace talked with Patrick Davie, VP, product strategy, card services for Fiserv on Authorization Lift, a technology that uses analytics to reduce the number of false declines, and Craig Booth, SVP and CIO for Island Federal Credit Union, a company that piloted the Authorization Lift solution, to learn more about the false decline issue impacting consumers and businesses.
Q. What is a false decline?
Davie: False declines, or false positives, occur where legitimate transactions conducted by an authorized cardholder are incorrectly identified as fraud and subsequently declined by issuers and merchants. Certain transactions are at higher risk of being rejected by fraud models, and at particular times of year. For example, around the holiday shopping season we typically see a spike in the number of false declines because there are more fraud attempts at that time of year.
High-value transactions and merchant types that appear unusual or out of character for a particular cardholder, ordering from multiple geographic locations or shipping to multiple addresses can all be potential indicators that the transaction is not genuine. However, the way we purchase goods has evolved, and the fraud rules that are triggered are not always as accurate as they should be and that can mean a perfectly legitimate customer, and their money, are turned away from a sale or merchant.
Q. How does it happen if these are legitimate transactions?
Davie: Issuers are focused on protecting their cardholders from fraud, but sometimes they can be somewhat overly cautious in their approach and this can drive a higher level of false declines. It is difficult to strike a happy balance between appropriate fraud strategy diligence and protecting the cardholder relationship because if the rules are too aggressive, there will likely be less fraud, but an aggressive strategy may result in a higher instance of transactions being erroneously denied. On the other hand, if transactions are "waved through" too liberally, then the risk of higher instances of fraud increases.
Q. Why is that a concern for financial institutions?
Davie: Consumers expect their financial institutions to safeguard them against fraudulently activity, but they also expect efficient experiences when they are making purchases. The negative impact of a false decline can include the erosion of consumer confidence in using a particular card. We conducted research into the potentially harmful impacts of false declines and our study showed when a cardholder has been incorrectly declined two or more times over a six-month period, 20% of them stopped using the card altogether.
What that means for the issuer is not just the loss of interchange associated with the transaction wrongly declined, but losing future transactions as it creates the opportunity for the customer to have positive experiences with a competitor's card instead. Bad news travels fast and a consumer who is a victim of a false positive can influence other consumers, whether by word of mouth or social media, to avoid a financial institution who has been over-zealous in this area in the future.
Q. Why is it a concern for banking customers?
Davie:Experiencing a false decline when conducting a bona fide transaction leads to an acute sense of embarrassment and frustration on the part of the cardholder. A loyal customer, especially a repeat customer, is unlikely to be happy being treated with suspicion. Today's consumer is used to shopping with ease and convenience whether in-store or online, and with so many options available, they do not want to spend time dealing with merchants who make it difficult to execute a transaction.
Q. Does a false decline cause revenue loss?
Davie: Yes. While the intent is to protect the customer relationship and lower their potential exposure to fraud losses, being too aggressive or fraud focused can have the exact opposite outcome in terms of customer confidence and still lead to losses from money that is spent elsewhere in the future.
Q. Why do you feel customers are reluctant to use the card after a false decline?
Davie:Tolerance for poor customer service in any area is at an all-time low. Consumers know they have choices and if using a particular card is consistently not as easy and seamless as they have come to expect, they will eventually make a different choice. Not to mention that being continually challenged when making legitimate purchases is a very uncomfortable experience.
Q. What prompted the creation of Authorization Lift?
Davie:The issue of false declines and their impact on both financial institutions and customers has been well documented and thoroughly researched. There is a recognition that this problem exists, but until now there hasn't been a solution on how to ease that problem.
Striking a balance between protecting against fraud losses and not inconveniencing the consumer unnecessarily has proven extremely difficult to navigate. Therefore, when we looked at this problem, we knew it was a significant issue and then we asked ourselves, "What can be done to address this?" And from there, Authorization Lift was created.
Q. What are the benefits to a bank/credit union using this technology?
Davie: The benefits are an improved consumer experience, ensuring an issuer's card remains top of wallet, maximized portfolio profitability, easing of the fraud loss burden and protection of the lifetime value of the customer.
Q. How easy is it for a bank/credit union to use this technology?
Davie:Implementation is easy. Our team of experts analyze and optimize the issuer's portfolio and make best-practice changes on their behalf. The bank/credit union receive enhanced reporting illustrating the authorization trending, false-decline statistics and the overall fraud environment.
Q. Island Federal Credit Union piloted the Authorization Lift program. How do you think it went?
Booth:The partnership with Fiserv allowed us to roll this program out in phases, not only mitigating member impact, but also making it easy for our team to become acclimated with the solution.
The deployment required collaboration with Fiserv, but ultimately after that it was very hands-off for our institution. After seeing results for a small subset of our membership, we decided to expand the pilot to cover our entire debit portfolio. The positive results carried over to our remaining debit card users.
Q. Why do you think approval rates have improved?
Booth: We've changed our risk focus to allow Fiserv's industry experts to drive our authorization strategies and that has increased to approval rates.
Q. Were there any challenges in using the program?
Booth:No, the pilot and the deployment of the technology was seamless.
Q. Are you using Authorization Lift following the pilot?
Booth: Yes, we continue to use the solution post-pilot. We saw an increase in authorization activity, reduction in member calls related to false positives and a lift in interchange revenue.
About Pat Shea
