Your source for payments education Fact or Friction – Industry Collaboration Now Tackling the New #1 Problem: False Declines Keith Briscoe, Chief Marketing & Product Officer, Ethoca Lyz Nesvold, Director of Risk Service Management, ClickBank Steve Furlong, Director OF Fraud Management, FNBO

False Declines occur when good transactions are wrongly rejected due to the suspicion of fraud. As a result, cardholders often elect to abandon a purchase, seek a different online store, or use an alternative payment card.

False declines hurt! Lost sales / revenue Poor customer experience Encourages customers to use competitors Brand damage

13-1 Ratio Where should your focus lie? $118B The value of transactions falsely rejected by U.S. card issuers in 2014. Source: Javelin 2014 $9B The value of actual fraud measured by U.S. card issuers in 2014. Source: Javelin 2014 versus

By the numbers: False declines US issuers falsely declined an estimated $331 Billion in 2018 (CP + CNP). (Source: Aite) 33% of cardholders don’t retry a purchase after a false decline and move their card to the back of their wallets. (Source: Aite) 69% of businesses are concerned about the number of transactions that are falsely declined. (Source: Experian) 40% of declined payments are categorized as “do not honor”. This provides little insight as to the underlying reason for the decline. (Source: Vantiv)

Ethoca research The average decline rate for physical goods merchants is 3 - 4% – compared to15%+ for digital goods. The ratio of suspected fraud to actual fraud rejected by US issuers is 13-1. Up to 52% of orders that merchants think are fraud, are in fact legitimate. AVERAGE MERCHANT DECLINE RESULTS 44.4% 9.4% 20.6% 10.4% 15.2% FRAUD INSUFFICIENT FUNDS ERRORS LOST / STOLEN OTHER

FRIENDLY FRAUD refers to fraud that is committed when an individual had knowledge of and/or was complicit with – and/or somehow benefited from – the transaction on their own account although the individual reported the transaction as unauthorized.

Friendly fraud covers a spectrum of activities from benign to hostile

Ethoca Survey – Friendly Fraud Rates by Industry: 2018

The negative effects of friendly fraud Bad experience Purchase friction Card on file breakage Card reissue Bad customer experience Lost revenue Chargeback / representment cost Decreased acceptance Bad cardholder experience Increased OPEX Spend on card decreases Rules engine noise Card reissue

By the numbers: Friendly fraud Friendly fraud grew from 7% to 15% of all fraud victims in 2018. (Source: Javelin) 37% of merchants feel unprepared to combat friendly fraud. (Source: WorldPay) Nearly half of the chargebacks experienced by in-app digital goods merchants are thought to be the result of friendly fraud. (Source: Javelin) Leading global digital goods merchants have reported friendly fraud rates as high as 60-90% (Source: Ethoca) 46% of merchants report friendly fraud is damaging revenues. (Source: WorldPay)

HOW DOES FRIENDLY FRAUD CONTRIBUTE TO FALSE DECLINES? Good transactions are coded as fraud. Dynamic, self-learning fraud models get tuned incorrectly – ‘garbage in, garbage out’. Card issuers decline more Good customers are turned away.

Panel Discussion

Questions?

Thank you Don’t forget to submit your session evaluation! Keith Briscoe, Chief Marketing & Product Officer (Ethoca) Lyz Nesvold, Director of Risk Service Management (ClickBank) Steve Furlong, Director OF Fraud Management (FNBO)