What Are False Declines? How They Happen and What to Do About Them

Transaction declined.

Well that’s never a fun thing to see when you’re trying to buy that lightning deal online before time expires. What happened here?

You go into detective mode. You start double-checking the card details, wondering if you made a typo. As you refresh, hoping it’s a temporary error, frustration builds. It feels like either the business or your bank just doesn’t trust you—and for no discernable reason. It’s never been a problem to use this credit card before, why is it happening all of a sudden?

This all-too-common experience is an inconvenience that affects millions of people every day. A recent survey shows that nearly 40% of global shoppers experienced a false decline within the last three months. In the US, that percentage jumps to 56. But why do false declines happen? And what do they mean for your businesses’ bottom line and your wallet? Read on to find out.

What Are False Declines?

A false decline , also known as a false positive, occurs when a legitimate transaction is mistakenly flagged as fraud and is subsequently rejected by the merchant, the bank, or by the payment processor. They’re a frustrating byproduct of our increasingly digital, ecommerce-driven economy.

With online shopping nearly doubling in growth since 2019 , the parties involved in ecommerce are more vigilant than ever in monitoring for fraud. Which is a good thing! Yet as they tighten security, they unfortunately increase the chances of false declines. The Global Fraud Survey by the Merchant Risk Council reveals that most merchants report false declines on between 2% and 10% of total ecommerce orders, and one in five merchants reports false declines on more than 10% of orders.

When one out of ten legitimate transactions create an unnecessary headache for the consumer, there’s a problem that needs fixing.

Why Do False Declines Happen?

False declines are an unfortunate consequence of businesses’ attempts to reduce card-not-present (CNP) fraud ; this fraud happens when stolen payment card information is used to make a transaction from a distance, like online or over the phone. Unlike in-store purchases where a customer can verify their identity with a PIN or signature, CNP transactions are a prime target for fraudsters who have stolen card information. For merchants and banks, preventing fraud is critical for maintaining security, yet it’s also challenging to separate legitimate transactions from fraudulent ones based solely on observing transaction data.

Let’s break down a false decline step-by-step. Imagine Sarah, an online shopper, tries to buy a $300 camera from a major retailer’s website. Since it’s a high-value purchase, the merchant’s anti-fraud system scrutinizes the transaction, looking for red flags. It checks Sarah’s location, purchase history, and account behavior. If Sarah’s transaction appears slightly “off” compared to her usual spending patterns, it could trigger the system. The transaction gets declined, and Sarah is left wondering what went wrong.

What May Trigger a False Decline?

There are several reasons a transaction might be falsely flagged as fraudulent.

Big Purchase

If the amount is significantly higher than usual, it could trigger a false decline.

New Location

Fraud detection systems may flag order that ship to new addresses.

New Device or IP Address

If you make a purchase from an unfamiliar device, the system could interpret it as a potential account takeover.

Transaction Speed

An unusually quick checkout or repeated purchase attempts may resemble bot activity and trigger a decline.

The Negative Effects of False Declines

False declines create a number of problems for consumers, merchants, and banks. For starters, they prevent people from buying things they genuinely need or want. More than that, the emotional impact of a false decline can be severe. More than 80% of cardholders who experienced a false decline report embarrassment, particularly if the false decline occurred in-store where onlookers might judge.

For merchants, false declines carry significant financial implications. When a legitimate transaction is declined, they lose the sale, and often, the customer. One study found that 39% of customers will “never place an order with that merchant again,” and 28% would use social media to complain about the brand. This leads to a real loss of revenue for businesses. 451 Research estimated that false declines led to more than $16 billion in sales turned away in the US alone in a 12-month window. And that’s not to mention the loss of trust and return shopping visits from slighted customers.

Banks, too, feel the pinch of false declines. When a customer experiences a false decline, their trust in the bank’s security protocols may wane. While banks do recover some costs through fees, the long-term brand damage from disgruntled customers is harder to quantify and can have a lasting effect on their reputation.

What Can I Do About False Declines?

While false declines are largely out of your hands, there are steps you can take to reduce the chances of them happening.

Communicate with Your Bank

If you’re planning a large purchase or know you’ll be shopping while traveling, consider notifying your bank or card issuer in advance. Some financial institutions allow you to set travel alerts or add notes for unusual purchases, which can help prevent a decline.

Update Account Information

If you’re using a new device or shipping to an unfamiliar address, let them know! Some payment platforms allow you to add multiple addresses and devices to your profile, which can reduce the chance of a false decline.

Two-Factor Authentication

For big-ticket transactions, two-factor authentication (2FA) can give banks and merchants added assurance. With 2FA, you can quickly verify your identity without halting your purchase.

Adopting Smarter Technology

Anti-fraud algorithms need to become more sophisticated. This means using AI and machine learning to better detect fraud patterns without penalizing legitimate customers. But it also means adopting new technologies that cut false declines off at the source. Ellipse Verification Code (EVC) cards have a built-in dynamic security code that virtually eliminates false declines by adding a more secure 2-factor authentication that is never stale. This changing card information makes it virtually impossible for fraudsters to compromise card data, making your transaction inherently safer, leading to less false declines.

False declines aren’t just inconvenient; they can feel like an outright accusation of fraud. They lead to reduced trust, heightened inconvenience, and billions lost. To reduce false declines, banks and merchants must strike a better balance between security and accessibility. Smarter algorithms, innovative card technologies like EVC, and better communication between consumers and their banks could all help reduce the sting of false declines.