The economic recovery could be delayed unless businesses plug an annual $20 billion hole in online transactions, according to a new study by Checkout.com.

Loss of sales caused by false declines, where legitimate transactions are flagged as fraudulent, cost online retailers at least that amount in 2019 in the world’s biggest e-commerce markets.

At a time of unprecedented trading conditions, merchants are handing nearly $13 billion to competitors as consumers take their falsely rejected business elsewhere. A further $7.6 billion of consumer money is effectively written off the balance sheet of the digital economy as consumers give up online purchases all together, according to the report.

The research was conducted by Oxford Economics, based on 5,000 consumers and 1,500 merchants across the US, UK, France and Germany.

The US was worst hit, losing $15 billion last year to false declines, followed by the UK ($2.3 billion), Germany ($1.7 billion) and France ($1.3 billion).

The volume of online payments is growing as consumer habits change due to the pandemic, with Checkout.com reporting a 250 per cent increase in online transaction volume in May year-on-year.

The research showed that more than two thirds (65 per cent) of merchants don’t receive the data that tells them when, why and how customer payments have been declined, stopping them from addressing their payment inefficiencies.

While only around half of businesses have a clear payment strategy that is understood across their business, those that prioritise payments are reaping the benefits. Companies growing at more than 40 per cent year-on-year, were more likely to have an authorisation rate of 96 to 100 per cent than other businesses surveyed.

The report also revealed that almost a third (31 per cent) of the merchants surveyed agreed that payments issues were preventing them from entering new markets.

Not offering consumers the right payment options is a further barrier to expansion, with 56 per cent of consumers stating they would take their money elsewhere if the merchant did not offer their preferred payment option. Yet only 37 per cent of the merchants surveyed currently offer a full range of alternative payment methods, from local methods like Giropay in Germany and iDeal in the Netherlands, to digital wallets like AliPay and Apple Pay.

The research found that there is stored up potential for merchants to be making strategic use of their payments data. Despite this, two thirds of merchants were not using payments data to inform business innovation, new products and new business models.

Bradley Riss, chief commercial officer at Checkout.com, said: "Now more than ever, merchants must be empowered to create better customer experiences and innovative offers that drive more business and capture more revenue.

"Payments are a source of amazing hidden value that merchants can use to unleash growth, but they need more actionable, granular data and better control to create the right solution for their business."

Using willingness to pay analysis, the economists working on the report were able to find that consumers will pay $4.13 on average for the security of two-factor authentication. French consumers were most security-conscious, valuing two-factor at €4.95, followed by the UK (£3.99), Germany (€3.10) and the US ($3.17).

In contrast, merchants believe security is one of the least important aspects of payments to consumers. The data showed that merchants rank security of 3D Secure - the next generation of authentication required under the Strong Customer Authentication rules - third after screen optimisation across devices.

Andrew Row, managing director of Uber Payments, who was interviewed for the report, added: “The worst thing is to lose a customer at the point of payment - the most expensive mistake you can make is to lose people at that stage, because you've spent so much on customer acquisition, and now you're losing them for reasons that you might not even be aware of.”

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