E-commerce merchants may need more data to ensure they are not turning down sales from first-time online shoppers.
Nearly a year into the coronavirus pandemic, many consumers are still taking their shopping online for the first time at certain merchants.
"Currently, the volume of new online shoppers is two times greater than pre-COVID levels," said Angela Whiteford, chief marketing officer at Forter, a provider of e-commerce risk management. "Turning these new users into repeat buyers presents tremendous lifetime value for the merchants. The challenge is, one false decline often ends the relationship."
Those new shoppers are five to seven times more likely to have their first transactions declined, according to research from Forter. The potential annual losses from first-user declines could be in the hundreds of millions of dollars worldwide, the report says.
A flood of new users shopping online, driven by the ongoing coronavirus pandemic. Forter calls this trend
"Our global network has been tracking false declines and the NUMO phenomenon for years" and has seen the problem come to the forefront during the pandemic, Whiteford said. "We have continually expanded our network to include more players in the broader e-commerce ecosystem as the transaction process involves numerous parties — and a lack of data at any point can result in a false decline."
Forter studied sellers' total processing volume and average decline rate, the additional likelihood of declining new users, the average rate of new users, the likelihood of a declined new user returning, and the frequency of user purchasing on a website.
At least 40% of first-time shoppers who are declined on the first visit, won't try again on that merchant site, Forter reported. The estimated missed annual revenue per a customer that will not return is $930 in apparel and accessories, $798 in home and garden items; and $1,062 in food and beverage, the report states.
Forter's global network obtains data from a merchant base that processes more than $200 billion annually and protects more than 800 million identities, and the company stresses that merchants should look at the network as one that reduces false declines as much as thwarting fraud attempts.
The report points out that merchants can lose up to 75 times more revenue to false declines than they do to fraud. Having data analyzed about social online identities or interaction with other online sites, as well as bank interaction information, the shopper's previous habits become more clear and can help merchants build trust in a transaction.
"Approval rates are typically the most telling sign, and this is something merchants can — and do — see on their own," Whiteford said. "We onboard many new clients because they are looking to increase their approval rates and at the same time we minimize their fraud costs."
Customers tend to feel their approval rates are as high as they can be and Forter consistently has to show them that they can be much higher because of the data through its network and the ability to accurately identify the trustworthiness of digital identities, Whiteford added. Many of these clients don't understand the extent to which they are declining legitimate buyers, she said.
Manual processes or the use of multiple, separate fraud tools can sometimes prevent instant approve/decline decisions or smooth one-click experiences.
"Every little piece of data that we have to make a good decision about a customer is key," said Jesse Carstens, global director of e-commerce operations at online store Deckers Brands. "With Forter's machine learning and global network of user data, we're able to make real-time decisions and scale automatically without adding more resources."
Forter will continue its push for merchants to consider network protection based on machine learning, cross-industry data collection and analysis and tools for real-time decisions.
"We expect NUMO to be a persistent issue even when things do return to normal," Forter's Whiteford said. "Consumers have been forced to adopt e-commerce habits and are unlikely to abandon the flexibility and enhanced shopping experience they are afforded online."
The pressure online merchants face in capitalizing on these new user opportunities is enhanced because the personalized services they currently offer such as curbside pickup, or buy online and pick-up in store, as well as flexible policies about returns, will only increase — even when brick and mortar opportunities return, the report noted.
