The Shocking Level of Digital Fraud and Decline Rates in 2021 (According to Data)

By 

Alex Zeltce

 on August 8, 2022. 
Reviewed by 

Staff Editor

Picture of hacker behind laptop in the background of headline: The shocking level of digital fraud and decline rates in 2021 (according to data)

Here’s what you already know.

Digital fraud has become an all too common sight, especially in the digital goods space of gift cards and gaming.

And here’s what you should avoid.

While trying to take precautions, you end up rejecting legit buyers, leaving a lot of money on the table.

The real question is how high decline rates are compared with actual fraud rates and how they impact your digital goods business.

The answer to this question is what hinders your growth.

And so, we decided to reach into our treasure trove of data - over 10 million transactions since January 2021 totalling almost $400 million in value - to help paint a clear picture of the state of fraud in digital goods and what you can do about it.

Below are the actual fraud rates vs. decline rates by industry and geo - all backed by data.

We’re sure you won’t want to miss this eye-opening report.

The Decline Rates Are Higher Than You Think (And Are Getting Worse)

High decline rates are a very common reality for digital merchants trying to minimize the possibility of fraudulent payments.

But, with the boom in demand for global digital goods, this problem has become worse.

Our team of data scientists uncovered that the average decline rate in the digital gift card segment is 15%, while eGames and downloadable content have a higher average rate of declines at 20%.

The higher percentage in the latter segment is the uppermost end of the industry standard decline rate of between 15% and 20%.

Here is the scary part: only 19% of those declines are actual fraud, meaning 81% are real buyers.

When digital campaigns are actively running, such as promotions or discounts, the rate drops further down to only 16.2%.

Let us put it differently.

Up to 4% of overall declined transactions are actual fraud, which is the highest decline rate that digital merchants should be aiming for.

But the unfortunate reality is that payments from legitimate shoppers are being turned down.

The fact that 4 out of 5 declined payments come from real customers should give a pause to every digital merchant.



Decline rates in digital good are getting worse

Reevaluate the True Cost of Fraud

To make matters worse, 72% of these declines are new customers.



The true cost of fraud is higher than you think

This is important because the final cost of fraud doesn’t stop at that one rejected transaction.

Some of these mistakenly rejected customers were going to be long-term, loyal customers.

Instead, they turn to Amazon (for the most part) where the shopping experience is much smoother and frictionless.

In reality, the false declines you have are actually the minimum of what you are losing in terms of revenue.

So, lost revenue is reflected through the entire lifetime value (LTV) of a customer, not to mention the damage to brand loyalty and reputation.

This means that when you factor in all the above, the true cost of digital goods fraud becomes even higher than just declining transactions.

Our estimates put the total fraud costs on a global level around the $108 billion mark.

Fraud Is Everywhere, But….

The impact isn’t spread evenly.

Here’s a breakdown of actual fraud within declined transactions per geos:

The markets in North America and Europe are close to industry averages.

For North America, the percentage of declined fraudulent transactions for digital goods is 21% while in Europe, it’s 17%.

Considering that the industry standard is between 15% and 20% and that these markets are technologically mature, these are still high percentages.

This implies that 79% and 83% are false positives and wrongly declined.

When it comes to fraudulent transactions, things are far worse in Asia, and especially in LATAM and Africa.



Declined transactions in North America and Europe



In Asia, 38% of declined transactions are actually fraud, while in LATAM and Africa, those rates are 52% and 56%, respectively.

Why do we see such high percentages in these areas?

Because many companies are lacking security resources and have weak verification systems which, coupled with poor customer awareness, make payment fraud possible with relative ease.

Then, there is the regulation.

The use of digital payment services is proliferating at a pace that most regulators can’t keep up with, creating opportunities fraudsters are quick to seize upon.

And, there is limited access to best-in-class fraud protection solutions, which makes striking an optimal balance between customer experience and safety a constant struggle.

We also noticed that the worrying levels of fraud in LATAM, Africa, and Asia have another impact.

Many vendors opt to decline customers from these regions based on their high average decline rates, which ultimately means more false positives.



Elevated fraudulent transactions in Asia, LATAM, and Africa

Digital Gift Cards vs. Egames - Who Takes the Lead?

With an all-time high demand in 2020, the interest in digital gift cards has resulted in more fraud than ever before.

So, 27% of declined digital gift card transactions are real fraud, which means only 4% at max of total transactions is actual fraud.

This is driven by the fact that digital cards are anonymous and issued immediately, making them an attractive target for fraudsters.

The gaming industry is faring slightly better with 18% of declined transactions being actual fraud.

But, certain categories have very high fraud rates.

One such category is in-game purchases (various items or points that a player can buy for use within the game’s virtual world) where a whopping 41% of declined transactions are real fraud.

When it comes to console gaming, there is no real difference as the two of the most popular services – Xbox Game Pass and PlayStation Now - are at 15%.



Real fraud in digital gift card vs gaming

Turn This Into an Opportunity

It’s no secret that fraudsters are here to stay.

Plus, the fraud problem is only going to get worse as it grows more sophisticated and more effective.

This is not a lost battle. You have the opportunity to change your mindset about how you effectively protect yourself from fraud.

Manual reviews don’t cut it anymore.

So, now is the time to step into the AI-driven fraud protection game that makes accurate decisions in real-time, and finds the optimal balance between a healthy fraud rate and smooth customer experience.

And think about this:

with a constantly growing volume of online transactions and the right fraud protection solution in place, you’ll be able to meet demands at scale to capture all potential revenue.

In other words - grow your business with confidence.

Just in time, if you ask me.



Note: This data is brought to you by nSure.ai, a predictive AI fraud protection company specifically tailored to the digital goods space that approves 98% of transactions with a 100% chargeback guarantee.

Offer: Want to pick our brains on how to protect yourself from digital fraud? Let’s talk. No strings attached.