Introduction

In Economics 101, students learn about the concept of a ‘perfectly competitive market’. This is a marketplace with many buyers, multiple sellers, undifferentiated products, and easily accessible information about prices. While this model is supposed to produce optimal outcomes for consumers and society as a whole, the theory dictates that hyper-competition will push sellers’ margins closer and closer to zero.

Nineteenth century economists considered this concept to be largely theoretical – but that’s because they could never have imagined eCommerce. Today’s eCommerce landscape is the closest to perfect competition we’ve ever seen and, as predicted, many online merchants feel market forces squeezing them from every direction.

In this cutthroat environment, any overlooked leak in the eCommerce payment funnel can be devastating. Riskified’s flagship product was built to address one such leak: fear of CNP fraud leads businesses to falsely decline online orders at a total value equivalent to 5.5% of their annual eCommerce revenue. But most merchants don’t realize that around 10% of revenue that reaches checkout is declined even before they have a chance to capture funds.

Not only is 1 in every 10 eCommerce dollars declined during payment authorization, but Riskified data reveals that up to 70% of these orders are placed by legitimate customers who can afford to make the purchase. In 2019, the $48 billion lost to chargebacks, and the roughly $187 billion that will be lost to orders falsely declined at checkout, will be dwarfed by the $340 billion of potential eCommerce revenue that fails payment authorization.

We put together this guide to payment declines to help merchants understand this mostly invisible problem and to recover lost revenue. In this guide we’ll explain:

  1. What are payment declines (and why merchants should care)
  2. Why it is so hard to measure their impact on your business
  3. Where payment declines are most likely to occur (which goods & retailers)
  4. Who are the customers most likely to experience payment declines
  5. How merchants can recoup revenue lost to payment declines