As the CEO of a technology company that develops identity authentication solutions for a variety of industries, including banks and credit card providers, you might think I wouldn’t hear those dreaded five words very often. Well, think again. Like millions of other consumers, having your card declined when the transaction is either legit or you are certain you have sufficient funds, can (and does) happen to all of us.
When a waiter, sales clerk, or even an anonymous screen message comes back with “Your credit card was declined”, most people experience a plurality of visceral responses, ranging from embarrassment to anger, and even panic. So why does it happen?
Good Credit – Bad Call?
Having a card declined when the cardholder is legitimately attempting to make a purchase or when there are ample funds to cover the purchase is known in the banking industry as a false positive. A lot of things happen between the time you swipe your credit card and when you get an approval or a denial. Very simply, the process works like this:
- A merchant passes the transaction information (including amount and your credit card information) through the credit card network to the bank or credit card company that issued the card (the card issuer).
- Next, the card issuer’s fraud management system evaluates the transaction to determine the probability that the transaction is fraudulent. This evaluation typically starts with generating a fraud risk score between 1 and 999. The higher the score, the higher the probability of fraud.
- The transaction information, along with the fraud risk score, is then fed into a decision rule engine, which ultimately determines whether the transaction should be authorized or declined.
The fraud risk score and decision rules are based on an analysis of your normal behavior, prior behavior of all individuals who carry the same credit card, and known fraud patterns. Deviation from your normal card usage behavior will often trigger a decline. This evaluation process is essentially the same for debit cards as well.
False positives not only cause significant inconvenience and embarrassment for you, they are also responsible for millions of dollars in lost revenue for financial institutions. Depending on the card issuer, false positive ratios – the number of high-risk transactions the system flags as suspicious, compared to the number of transactions that are actually fraudulent – can be as high as 40:1. This means that up to 97% of card transactions flagged as high-risk (initiating a card decline, account block, or intrusive customer contact) are actually legitimate. That is an astounding percentage. This is true in both card present (when you are physically making a purchase with your card in hand) and card not present (when making a purchase online or over the telephone) transactions.
I Am Not A Crook!
I commented in a recent post that credit card issuers are faced daily with new and increasingly sophisticated types of attacks, so in their pursuit to keep our information secure and protect us from fraud, we are often subject to feeling as if we are the criminal.
In a recent study conducted by Penn Schoen Berland, feedback revealed that cardholders would be prepared to increase use of their cards, both domestically and abroad, if they felt more confident that their card would not be declined. The impact on customer satisfaction from having transactions declined and cards blocked, especially when traveling abroad, is considerable. While I wasn’t one of the study participants, I can definitely agree with their perspective.
Because financial institutions are scrambling to more effectively fend off fraud, the many layers of security customers are being asked to navigate are seen as a nuisance. We call our bank before taking a business trip or vacation in hopes our card won’t be declined while trying to pay for a rental car or theater ticket, etc. We are asked to set up alerts so that text messages can be sent to our mobile phones if the bank suspects fraud. And don’t get me started on the elaborate (and not necessarily fool-proof) passwords being demanded of us these days.
How to Reduce False Positives
So what can you do to lessen your chances of hearing those five dreaded words? Here are some tips that may help:
- Communicate With Your Card Company
Predictive models used to identify fraud are usually based on identifying charges that don’t fit a previous pattern. So, if you’re taking a vacation abroad, or even travelling just outside your own state, let your bank know in advance. It may not always save you from a card decline, but it is still a good idea.
- Competition is Good – So Carry Several Cards
You’ve probably experienced the (frustrating) situation where your card is declined, but when you present a different card for the same transaction, it’s approved. Because it’s challenging to know which charge may get flagged as a potentially fraudulent transaction, having other cards from competing issuers may help. Think of it as a back-up generator or spare tire.
If you want a greater likelihood that you won’t get stuck without a way to pay for goods or services, especially if you’re going to be far from home, having a prepaid card on hand is a reliable strategy. They are often sold at airports, so if you’re heading out of town, you could pick one up before take-off.
Technology like Finsphere’s that incorporates mobile proximity and location-based fraud analytics has been proven to significantly reduce false positives for both card present and card not present transactions. As adoption of this kind of identity authentication solution grows, your day should get a lot brighter.
Being in the business of identity and financial security, I’ve heard numerous personal stories about being declined. And we know that everyone has a story. So, if you’re so inclined, we invite you to share yours and hope you’ll follow the conversation here or on Twitter, Facebook, or LinkedIn.