Justin Pike, a veteran in secure payment innovation, shares how mimicking real-world checkout behaviour online, where customers can tap and enter a PIN just like in-store, offers a way to stop fraud without punishing honest shoppers. It’s a wake-up call for merchants: fraud tools might be costing more than fraud itself.
If you’re running an online business, fraud (and the chargebacks that come with it) is probably high on your radar. And for good reason, it’s a big problem that cost merchants $43 billion last year. But there’s an even bigger issue that’s much larger than fraud, quietly eroding revenue and damaging customer trust – false positives. These occur when legitimate transactions are incorrectly flagged and blocked by fraud-detecting software.
I’m not just saying this for effect. All you have to do is look at the numbers. Merchants are losing up to $443 billion a year in false positives alone. That’s ten times more than fraud. If you think about the numbers, for every dollar a fraudster steals, merchants are throwing away $10 in good sales to stop them. Not only is this huge in lost revenue, but it also comes with enormous reputational damage.
How do false positives happen?
It’s pretty simple, really. Getting the AI fraud-detecting parameters right is very difficult because rules-based, or early AI struggles with nuance. So it sees something unusual and slaps a big red X on the transaction. As an example, first-time customers are 7x more likely
to be declined, even though they’re exactly who you should be welcoming. Same with= someone shipping to a different address. Or making an expensive purchase. These types of nuance can be fraud red flags, but not always.
The key is in discerning which are legitimate and which are fraud. And here’s the kicker: anywhere between 60% to 70% of the transactions the anti-fraud software declines are actually false positives caused by overzealous filters.
And customers don’t just shrug it off either. One survey showed about a third of customers never come back after being wrongly declined. What if it’s a loyal customer? The research shows that 27% never return, and their lifetime value drops to 17% even if they do. So, when AI incorrectly stops a transaction, it’s potentially turning away a good customer for life.
The reality is, you spend money to acquire these customers, get them to your site, and your fraud system kicks them out before they can even make a purchase. In my opinion, this is a huge issue, and there aren’t enough conversations happening about it!
What can we do about it?
I think part of the problem is that merchants have been conditioned to believe that it’s not possible for the online checkout process to be the same as how we pay in-store. We’ve all just accepted that online payments being less secure, more risky, and with more hoops to
jump through is part of trading online.
But when there are so many problems with fraud, chargebacks, and false positives, why can’t we make online payments as secure and safe as they are in-store? When we asked ourselves this question at Burbank, the answer quickly became clear – we don’t need to reinvent the wheel here. The world’s safest way to pay already exists; we just need to find a way to replicate and scale it in online channels.
When you shop in a physical store, you tap your card and sometimes enter a PIN. Nobody second-guesses you. The system is based on the fact that the presence of your card (and its chip) and the correct PIN confirms legitimacy. Bringing that experience online might be our best option, in the form of Card Present over Internet technology. The beauty of this technology is in its simplicity. When you’re ready to check out online, instead of typing in your card number and hoping the fraud filter approves you, you just tap your physical card on your phone and securely enter your PIN.
Et voila, that’s it. Your phone becomes a payment terminal. The payments network receives all the same information it would from in store payments: valid card and chip, correct PIN, sufficient funds = transaction approved.
What’s great about this method is that it enables ‘card present payments’, and the liability for card present payments sits with the card issuer. Just like it does in-store. For customers, it’s a fast, secure, and familiar way to pay. For merchants, it removes the need for the anti-fraud tools that are costing them more than fraud ever did.
A final thought
False positives aren’t a technical glitch. They’re a customer experience failure, and most importantly, a revenue killer. Online trading is competitive, acquisition is hard, and loyalty is everything, which is why we cannot have AI tools turning away good customers.
It’s time to reframe online payments. Because protecting your business should not mean punishing your customers. With Card Present over Internet technology, the industry can stop relying on overactive fraud filters that do more harm than good. Merchants deserve tools that reduce risk and drive growth. And customers deserve a checkout experience that’s simple, secure, and seamless.
False positives should not be a necessary cost of doing business online. And with Card Present over Internet technology, they’re a solvable problem. It’s time to stop blocking good customers and start building trust, loyalty and growth into every transaction.
Justin Pike is founder and CEO of Burbank Developments – creators of CPoI, the world’s first technology that enables card-present payments to be accepted in online channels. As an innovator in the IT industry for over 27 years, Justin has founded numerous companies including eNett.
