Holiday fraud rules often block legitimate buyers when merchants lower decline thresholds and add verification steps to catch seasonal attacks.
Wayne Hamilton, CEO and co-founder of pmtbox, examined how tightening security measures ahead of the holidays impacts customer acquisition and retention.
Fraud Shrinks as Holiday Transaction Volume Surges
- Holiday transaction volume surges enough that suspected fraud actually shrinks as a share of total sales.
- False declines drive away first-time holiday shoppers who might otherwise become loyal customers.
- Merchants should track approval rates weekly and evaluate risk tools against seasonal volume shifts.
Risk Teams Tighten Rules Each Fall
Every fall, risk teams tighten rules, lower decline thresholds, and add verification steps at checkout to get ahead of attacks expected between Thanksgiving and New Year’s. Merchants worry about chargebacks arriving in January and February when returns increase and sales slow down. Hamilton said that this protective instinct makes sense on the surface.
Hamilton has spent his career in payments, first running a merchant processing company and now building technology that brings payments, risk and data together. Over that time, he observed that holiday fraud looks different once measured as a rate. While raw attack counts climb, legitimate volume grows much faster, meaning fraud makes up a smaller share of total transactions.
TransUnion’s analysis of the 2023 holiday period showed that 2.4% of U.S. e-commerce transactions from Thanksgiving through Cyber Monday were suspected fraud. That figure compared with 4% for the rest of that year. When merchants tune tools for a larger raw threat that is proportionally smaller, good customers absorb the cost.
False Declines Drive Away Good Customers
A false positive, or false decline, occurs when a legitimate order is rejected because it looks risky. Merchants typically monitor fraud through chargebacks, fees, and processor warnings, but a declined good customer generates none of those alerts. Hamilton said that many of those rejected shoppers never return.
Datos Insights estimated the industry average false decline rate at 1.51% of annual sales based on a survey of U.S. e-commerce merchants. Few merchants track that metric with the attention given to direct fraud rates. The holiday season brings in buyers who differ from usual purchasers, including first-time customers and once-a-year shoppers.
Gift buyers frequently ship to addresses that do not match their billing information or place larger orders than normal. Those exact purchasing patterns trigger tightened fraud rules, putting new and seasonal marketing acquisitions at risk. When a first-time customer gets declined, the merchant loses both that specific order and future lifetime value heading into the new year.
| Metric Type | Holiday Period Share | Rest of Year Share |
|---|---|---|
| Suspected E-commerce Fraud (TransUnion 2023) | 2.4% | 4.0% |
| Industry Average False Decline Rate (Datos Insights) | 1.51% (Annual Average) | 1.51% (Annual Average) |
Practical Steps for Merchants Before Peak Season
Before changing rules for the holiday rush, merchants should compare last year’s holiday fraud rate against the rest of the year. If the rate held steady or dropped during volume surges, treating the season as a special threat requiring stricter rules is unnecessary. Setting a target approval rate for the season and reviewing it weekly helps balance risk management.
Merchants should also review how fraud tools treat first-time customers, gift orders, and mismatched shipping addresses. Asking fraud providers how their models account for seasonal volume clarifies whether systems can distinguish a genuinely busy shopping day from a coordinated attack. Hamilton advised merchants to avoid reacting mid-season to raw attempt counts without checking percentages.
Fraud will remain part of the holiday season, but so will first-time buyers who could transition into regular customers. Adjusting risk parameters with both outcomes in mind protects revenue pipelines across the entire calendar year.
Disclaimer: The information provided in this article is for educational and informational purposes only and does not constitute financial advice.
