Financial Institutions Experience Reputation Damage and Revenue Loss; Estimated $303 Billion in Card Transactions Will be Lost Due to False Declines This Year
iovation, the leading provider of device-based consumer authentication and fraud prevention solutions, today released findings from its newest consumer preference report, "Combating False Declines Through Customer Engagement." The survey, conducted in partnership with global research and advisory firm Aite Group, polled nearly 1,100 consumers across four generations to better understand the impact of false declines on the customer experience. Findings from the report show a large contingent of connected consumers are unforgiving of the inconvenience of a false decline, with more than 42% of respondents reporting that a false decline would motivate them to leave their banking institution altogether.
False declines occur when a valid transaction by the authorized cardholder is erroneously declined. Last year in the U.S. market, approximately $264 billion in card transactions were lost due to false declines from suspicion of fraud in 2016 and is projected to grow to $331 billion by 2018.
Millennials Willing to Sever Relationships with Financial Institutions
The report, which surveyed millennials (35%), Gen Xers (26%), Baby Boomers (32%) and seniors (7%), found that consumers' willingness to leave their bank over a false decline was directly correlated to their age, with 59% of millennials, or "digital nomads", admitting to being very or somewhat likely to leave their financial institution due to a credit card false decline. In contrast, just 21% of seniors would be inclined to leave their issuer over a false decline, suggesting that millennials are far less forgiving of the aggravation than older generations. Gen Xers and Baby Boomers fell somewhere in the middle, with 39% and 32% willing to leave their banks due to a false decline event, respectively.
Another deciding factor in whether consumers stayed with their banks was income level. Forty-four percent of consumers with income over $100,000 per year and 48% of consumers with income between $75,000 and $99,999 per year say they are very likely or somewhat likely to leave their financial institution due to a mistakenly declined credit card transaction.
"False declines have a material impact on an issuer's business. While lost transaction revenue is painful, damage to the issuer's relationship with their customer is of far greater concern," said Michael Thelander, director of authentication products for iovation. "Banking and financial institutions need to balance security levels with user experiences. Consumers are open to a range of authentication methods as long as they are easy-to-use. Dynamic multifactor authentication does just this by balancing security and user experience by adding flexibility to authentication."
All Demographics Open to Dynamic Multifactor Authentication
When it comes to transactional security, however, consumers have shown that the process does not always have to be completely transparent. Despite showing impatience with their issuer following a false decline, the majority of consumers across all age groups are open to an additional prompt for identity verification if there is suspicion of fraud, in the hopes of preventing a false decline from ever happening -- nearly 60% of consumers, in fact.
Sixty-five percent of seniors and boomers indicate that it's acceptable for their issuer to request proof of identity if there is suspicion of fraud, while 59% of Gen Xers and 54% of millennials agree.
"As the survey indicates, online banking customers growing openness to engagement represents new opportunities for banks as they look to reduce false declines" said Julie Conroy, research director for Aite Group's Retail Banking & Payments practice and author of the report. "The path to change will happen over time. But, the ubiquity of mobile devices is already driving progress by enabling a variety of new ways to harvest contextual and authenticating data, which informs institutions' authorization decisions and, ultimately, improves all user experiences."
To access iovation's full "Combating False Declines Through Customer Engagement" report, please visit: https://www.iovation.com/resources/reports/combating-false-declines-through-customer-engagement. This report follows a companion March 2017 report, "Moving Beyond the Password: Consumers' Views on Authentication" which examined the same group of banking consumers and their attitudes toward various authentication mechanisms used online today.https://www.iovation.com/fraud-prevention
iovation's solutions portfolio tackles the heightened threat environment from multiple directions, including through device-based risk detection and consumer authentication services. Highly intelligent business rules, combined with proprietary machine learning algorithms, flag anomalies around hundreds of attributes and obscure risk factors, offering the highest degree of confidence when it comes to stopping fraud and improving customer experience in the finance, insurance, ecommerce, social media, travel, ticketing, telecommunications, gaming, and gambling industries.
TransUnion Global Fraud & Identity Solutions unite both consumer and device identities to detect threats across markets while ensuring friction-right user experiences. The solutions, all part of the IDVision with iovation suite, fuse traditional data science with machine learning to provide businesses unique insights about consumer transactions, safeguarding tens of millions of transactions each day.