Guest Column | April 18, 2022

Innocent Until Proven Guilty: What The Payments Industry Has Backward

By Kris Zanuldin, VP of product strategy at Forter

Control Site Payments

The “guilty until proven innocent” mentality is helpful in situations like investigations and legal disputes — and it certainly makes great television. Just look at how long Law & Order has been on the air. This mindset is also the default in digital commerce, and it’s costing merchants billions of dollars in lost revenue on an annual basis. According to recent research, false declines are becoming increasingly common – meaning a legitimate customer fills their online shopping cart, hits purchase, and is inaccurately declined. The study states that 30% of those would-be customers will immediately go to a competitor to complete their transaction.

How many times have you gone on an international vacation, only to have a legitimate purchase declined because it’s originating from an unexpected location? Or have you ever tried to buy a big-ticket item that is outside of your usual spending habits, a car, for example, only to endure an hour on hold with the bank because you are spending an unusual amount of money?

Treating consumers as ‘guilty until proven innocent,’ is often the result of legacy, rules-based systems that only take into account limited information about a single transaction; they fail to understand the trustworthiness of the identity behind the transactions. These systems rely on rules that say the consumer is supposed to be in a specific geographic location or that any purchases over a certain dollar amount automatically get flagged.

This dated model not only costs retailers significant revenue, but it results in a poor customer experience that degrades trust and convenience. This is particularly noteworthy given an influx of new digital commerce shoppers, accelerated by the global pandemic. Legacy rules-based systems decline new shoppers at five times the rate of other customers—because they lack a known purchase history. Studies have found that 40 percent of declined new users won’t return. And so, merchants that lean on legacy solutions risk missing out on massive customer lifetime value.

This missed opportunity can be avoided by shifting to modern solutions that enable digital commerce and treat shoppers as “innocent until proven guilty.” These solutions have two differentiating factors. First, they use a coalition approach; whereas legacy systems often make decisions on a single merchant’s data silo, modern solutions rely on a global network of merchants and serve as an independent intermediary. A good customer (or a fraudster) known to one merchant is known to all merchants.

Second, these solutions make best use of machine learning to pattern match across this vast dataset—to pinpoint bad actors and prevent them from participating in digital commerce. This allows merchants to focus their energy on delivering superior experiences for legitimate customers, generating more revenue and lifetime value.

Part of showing shoppers that they are “innocent until proven guilty” is streamlining their experience. For example, in some geographies, there is a requirement for Strong Customer Authentication (SCA), and merchants use 3D-Secure to require consumers to provide pins or passwords, validate their identity via a device, a fingerprint, or other means. With many forms of multi-factor identification software, these methods add steps into the process of digital commerce on the consumer end. This increases the time that shoppers have to ponder their purchases and heightens the rate of cart abandonment. In fact, our research indicates that 18% of U.S. shoppers have abandoned a transaction because the process was too long and complex.

Meeting regulations or adding a relevant layer of security does not require that ALL shoppers go through these steps. 3D Secure can be applied selectively; other transactions that are low risk, low value, subscription payments or similar can be exempted. Small changes in approach can yield significant differences in completed transactions rates and revenue.

As digital commerce favors more convenient and speedy solutions, to assume buyers are guilty until proven innocent both slows down the process and reduces conversion rates. To increase revenue and reduce fraud at the same time, adopt technologies that enable you to treat consumers as innocent until proven guilty.

About The Author

Kris Zanuldin is the VP of product strategy at Forter, where he leads the company’s product development roadmap and vision for becoming a modern platform for e-Commerce optimization. He has over 20 years of industry expertise around payments and digital commerce having spent time at Amazon and American Express.