What is something you have not done as much in the past year? Most likely, stepping foot into a shopping mall is one of them – and we’re seeing these effects on physical retail. With department store Robinsons bowing out of Singapore after a 160-year tenure and Abercrombie & Fitch closing their sole Singapore outlet this May, the retail landscape is a little worse for wear as it scrambles to adapt to the restrictions and opportunities created by the pandemic.
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 recognise and trust. As a result, new users are five to seven more times likely to be declined at the point of transaction, leading to immediate lost revenue and lifetime value in the longer term.
We call this ‘New User: Missed Opportunity (NUMO)’, and NUMO is costing retailers a fortune. Here’s why.
The missing NUMO millions
When a customer first buys from a brand, 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 they want is for all that effort to go to waste when the order declines.
The extent of the damage this causes is highlighted by research. 40 percent of those declined customers will simply take their business elsewhere – and with these customers unlikely to return, the opportunity to build a long-term relationship is lost forever. In their bids to stop fraud, retailers are forgoing genuine customers at the expense of rooting out any vaguely suspicious activity.
To get a sense of the scale of lost revenue, Forter analysed 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 SGD1,270 missed lifetime value in apparel, SGD1,094 in the home furnishings and garden industry, and SGD1,450 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 legacy fraud prevention tools that struggle to make robust decisions about user authenticity with limited data. In an ideal world, the data within a fraud prevention tool includes a comprehensive history of customer purchases across online and in-store transactions, coupon usage and product return frequency, all in the name of establishing the customer’s integrity.
Unfortunately, many merchants’ fraud prevention tools are based on manual reviews and rules, which gives limited visibility over the wider e-commerce ecosystem. When lacking the information needed to establish retailer-customer trust, 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.
Trust is also a two-way street. First-time online shoppers or customers trying an unfamiliar brand, might already be wary of sharing their personal and payment information, and might abandon their purchase when pressed for extra information. This creates a two-pronged effect – with the customer being discouraged from continuing with their purchase while retailers attempt to authenticate them by getting information to satisfy anti-fraud tools.
Flipping the Fraud Prevention Mindset
It is completely natural for retailers to want to stop fraudsters – however, if they’re 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 accessing all-important behavioural data that confirms the customer’s integrity of the customer, without adding extra friction along the way. By investing in advanced tools that access a huge dataset across enterprises, banks, payment providers and industries, retailers can build a better picture of what genuine customers look like, meaning fewer are declined. It also means that retailers can expand their service offerings to include flexible pick up and return options without fear of increasing fraud risk.
This is an investment that – considering the size of the NUMO phenomenon – is easily justified. Fraud is a risk to be proactively managed, meaning the tools that achieve it should be part of your growth strategy, not just a cost of doing business. Ultimately, this avoids leaving potential customer revenue on the table and makes for a more successful, sustainable business.
