Declining or demotivating New Users with unfriendly authentication and checkout policies in the name of fraud prevention spells Missed Opportunities.

What is something you have not done as much in the past year? Most likely, lazing in a shopping mall is one of them. And we are seeing the effects of lockdowns and pandemic-control measures on physical retail.

Renowned brands such as Espirit and Zara have seen a chunk of—if not all—outlet closures across Asia. In Australia, all Target stores are either going to be closed or rebranded into Kmart, its parent organization. The retail landscape is a little worse for wear as it scrambles to adapt to the restrictions, although the migration to e-commerce has also created opportunities.

Research from Forter shows that the number of first-time online shoppers has doubled in the past 12 months. However, despite the potential of these customers, retailers are struggling to differentiate legitimate new customers from fraud attempts, or feel uncomfortable transacting with customers they do not recognize and trust.

As a result, new users are five to seven times more likely to be declined at the point of transaction, leading to immediate lost revenue and potential lifetime value in the longer term. We call this ‘New User: Missed Opportunity (NUMO)’, and NUMO is costing retailers a fortune. Here’s why.

Lost revenue from NUMO

When a customer buys from an unfamiliar brand or platform, this first experience is critical and must be as welcoming, easy, and friction-free as possible. Having gone to the trouble of selecting their purchase and entering their personal details, the last thing a customer wants is for all that effort to go to waste when the order is declined at the point of transaction.

The extent of the damage this causes is highlighted by the fact that 40% of those declined customers will simply take their business elsewhere. These customers are also unlikely to return, so the opportunity to build a long-term relationship is lost forever. As a result, in their efforts to stop fraud, retailers are foregoing genuine customers at the expense of rooting out any vaguely suspicious activity.

To get a sense of the scale of lost revenue, Forter analyzed insights from our global merchant network to assess the monetary value of a new customer decline. Based on this, we found that every new declined customer represented S$1,270 missed annual revenue in apparel, S$1,094 in the home furnishings and garden industry, and S$1,450 in food and beverage.

AITE Group estimates that merchants may lose up to 75 times more in false customer declines than they lose to actual e-commerce fraud. Considering the boost to online retail sales in 2020 that the pandemic has brought (nearly 80% of APAC consumers made an e-commerce transaction in between February and May 2020)—the sheer scale of missed revenues is startling.

Customer friction vs retailer caution

More importantly, why are valuable customers being turned away? This boils down to the limitations of traditional and siloed fraud prevention tools that struggle to make accurate decisions about user authenticity with limited data.

Unfortunately, many merchants’ fraud prevention tools are based on manual reviews and rules that provide limited visibility beyond the transaction into the wider e-commerce ecosystem.

When lacking the behavioral information needed to establish retailer-customer trust (for example, comprehensive history of customer purchases across online and in-store transactions, coupon usage and product return frequency) reviewers and tools are simply not dynamic enough to keep up with the increased volume or changing behaviour, resulting in false declines and frustrated users.

Also, trust is a two-way street. First-time online shoppers or customers trying an unfamiliar brand may already be wary of sharing their personal and payment information, and they may abandon their purchase when pressed for extra information. This creates a two-pronged effect: with the customers being discouraged from continuing with their purchase and retailers frustrating them further with anti-fraud measures.

Pivoting from risk to trust

It is completely natural for retailers to want to stop fraudsters. However, if they are compromising genuine customer relationships in the process, they could be suffering even greater potential losses.

This is exacerbated in an environment where there is fresh customer opportunity for the taking. Rather than accepting the attrition of good customers as a necessary trade-off of fraud prevention, retailers must approach it in terms of generating growth, by accepting new customers wherever possible.

The key is to build trust between the retailer and the customer by leveraging the all-important behavioral insights that confirm the integrity of a potential customer, without adding extra friction along the way. By investing in advanced tools that serve the online retail ecosystem across enterprises, banks, payment providers and industries, retailers can build a better picture of what genuine customers look like, so more customers are approved. Increased trust within the ecosystem also means that retailers can expand their service offerings to include flexible pick-up and return options without fear of increasing fraud risk.

Considering the amount of missed opportunities lost, this is an investment that is easily justified. Fraud is a risk to be proactively managed. The tools that achieve it should be part of your growth strategy, not just a cost of doing business.

By mitigating fraud with a sensible approach towards trust, organizations stand to achieve great returns from their investments, including cost savings, revenue boosts and accelerated growth, and saying no to NUMO.