This past Christmas, I booked a vacation to Baja, Mexico using my Alaska Airlines credit card. In the haste of preparing for my trip, I forgot to call my card issuer to inform them that I would be traveling abroad and was a bit frustrated when my card was declined at the Cabo San Lucas airport. I wondered to myself: how is it with all this amazing technology at our disposal that I would still need to call my card issuer in advance to inform them of my trip? It shouldn't really require sophisticated artificial intelligence for them to know that I would be in Cabo on December 26th - after all, I booked my flight using their card.

For financial institutions, this issue of 'false declines' has become a growing problem as they work to balance their risk profile with the consumer experience. Without the proper controls, they expose themselves to expensive fraud and chargebacks. Too many controls and they risk alienating consumers (not to mention their merchants).

How big an issue are false declines? Pretty significant. According to Aite Group, "in the U.S. market alone, $264 billion in card transactions were falsely declined due to suspicion of fraud in 2016. And that number is projected to grow to $331 billion by 2018.​

Beyond the financial impact, there is the question of consequence that false declines can have on the customer experience. For credit card issuers, there is perhaps no business metric as closely followed as Customer Lifetime Value (CLV), which serves as a prediction of the net profit attributed to the entire future relationship with a customer. Of course, once you lose a customer to a bad experience, getting them to come back is no small task.

To better understand the impact that false declines have on customer experience, we partnered with Aite Group to conduct a cross generational survey of online banking customers to gauge the degree to which false declines would prompt consumers to leave their financial institution. Among the most surprising findings:

  • Millennials are far less forgiving of false declines than are older generations. Of the millennial cohort, 59% say that they would be very or somewhat likely to leave their FI due to a credit card false decline; in contrast, just 21% of seniors would be inclined to leave their issuer.

  • Higher-income consumers display a greater propensity to leave their FI in the event of a false decline than do low-income cardholders. Forty-four percent of consumers with income over US$100,000 per year and 48% of consumers with income between US$75,000 and US$99,999 per year say they are very likely or somewhat likely to leave their FI due to a mistakenly declined credit card transaction

  • The majority of consumers across all age groups are open to an additional prompt for identity verification if there is suspicion of fraud. Sixty-five percent of seniors and boomers say it’s fine for their issuer to request proof of identity if there is suspicion of fraud; 59% of Gen Xers and 54% of millennials agree.

To read the entire "Combating False Declines Through Customer Engagement" report, click here.