Auth rate increases with merchants using a fraud protection solution. Will issuers trust a merchant more if fraudulent transactions are stopped upstream?

How Issuers Assess Merchant Risk

Issuers determine whether to approve or decline a transaction based on multiple factors, including but not limited to:

• Cardholder authentication and history
• Real-time behavioral signals
• Known device or token profiles
• Fraud and chargeback rates at the merchant level
• Decline and dispute patterns across their cardholder population

A merchant with a high history of fraud or frequent issuer declines (especially fraud-specific declines) is often “profiled” as riskier, leading to increased decline rates across all their transactions.

Effect of Upstream Fraud Prevention

If a merchant successfully blocks fraudulent transactions before submitting authorizations to the issuer:

• The total number of fraud-triggered declines falls.
• The portion of declined authorizations due to suspected fraud decreases.
• Over time, data shared with issuers (either directly, via schemes, or through chargeback reporting) reflects a lower fraud rate for that merchant.

This can lead to the following benefits:

• Fewer negative signals sent to issuing banks.
• Less need for issuers to “defensively” reject valid transactions due to risk at that merchant.
• Improved merchant profile with card networks (Visa, Mastercard, etc.) and large issuers, as these organizations monitor and benchmark merchant-level fraud and dispute rates.

Impact on Approval Rates

Issuers and card networks frequently re-tune their risk and approval models. If a merchant’s historical fraud and decline rates demonstrably improve over several weeks or months, this typically results in:

• A higher probability of approval for legitimate cardholder transactions at that merchant.
• Reduced likelihood of “false positive” declines, especially for returning customers or for cards previously flagged at risk.
• Greater willingness by issuers to approve marginal or cross-border transactions for that merchant.

However, these improvements do not happen instantly. Most issuer models work with rolling windows (30/60/90 days) and rely on accumulated signals from the ecosystem. If upstream fraud prevention is sustained, the merchant’s “reputation” and approval conversion should gradually improve.

Key Takeaway

Yes, by consistently stopping fraudulent transactions before authorization, a merchant can improve its issuer approval rate over time as fraud rates decrease. The effect is not immediate but develops steadily as the merchant’s improved fraud metrics are reflected in issuer and network risk models.

For optimal results:

• Maintain low fraud and dispute rates over time.
• Monitor your approval/decline rates by issuer and by card type to gauge improvements.
• Communicate with acquiring partners or networks about significant improvements in fraud controls, especially if you experience persistent declines unrelated to actual risk.

Keep in mind that external factors can impact the improvement. Global fraud spikes, new fraud tactics, or industry-wide risk changes can still affect approval rates, even for well-controlled merchants.

Merchant Analysis

Based on a sample of PayPal merchants comparing 3 months of data prior to and 3 months of data post-implementation of Fraud Protection Advanced in 2024.

Majority Success Rate

• 58% of merchants achieved the primary goal of reducing issuer declines within 3 months, demonstrating the platform's effectiveness.

Compounding Benefits

• Among successful merchants, 76% experienced dual benefits - both issuer decline reduction and authorization rate improvement. This resulted in an overall increase in sales and potentially revenue for the merchant. The additional authorization rate is most likely due to an improvement in issuer risk profile of the merchant through automated modeling and analysis.

Balanced Risk Management

• The remaining merchants typically saw a same or lower authorization rate due to effective fraud prevention declines, as evidenced by stable chargeback rates and increased rule reject activity, indicating the system was actively filtering out potentially fraudulent transactions. Additionally, their chargeback rates either maintained or decreased 6 months post onboarding.

This comprehensive analysis demonstrates that the FPA platform delivers measurable value across multiple dimensions while maintaining effective fraud prevention controls.