Cross-border trade is booming, with an estimated market size of £230bn and a year-on-year growth of 25%. Is it any wonder then, given this huge growth, that Cardholder Not Present (CNP) fraud against online retailers based outside the UK reached £119.4m in 2016?
Trading across borders is by no means a new phenomenon; in fact, we can trace cross-border trade as far back as the Han Dynasty in 207BC and the Silk Road network of routes connecting the East and West.
From a UK perspective, cross-border trade makes a great deal of sense, with 96% of the global GDP accounted for outside of these shores. In fact, Department of International Trade research found that 85% of companies would not have been able to achieve the level of growth they have without international expansion.
E-commerce and m-commerce have played a major role in this growth. With Europe showing the highest mobile penetration rates in the world, it may surprise no one that online spending will continue on this upward trajectory.
Online payment fraud in Europe continues to rise at a steady pace, with CNP fraud the most prevalent form. Almost two-thirds (60%) of all card fraud is associated with this type of fraud, according to the European Central Bank.
Unfortunately, cross-border trading increases a merchant’s exposure to fraud and particularly CNP fraud. As many merchants look to overseas markets to grow their business, threats from cyber criminals and online fraudsters are an unwelcome bi-product of entering new markets. Research from LexisNexis backs this up, with fraud 2.5 times greater in international markets compared to domestic markets
Offering a truly global e-commerce service means accepting a variety of payments methods and multiple currencies. This potential strain on time and resources is alleviated somewhat by electronic payment tools, such as e-wallets and mobile payments, allowing customers to pay for products in their native currencies.
From a merchant’s point of view, multi-currency cross-border payments can require new bank accounts, new business entities—and that is before you consider the different regulatory challenges and pressures that each country presents.
So, how can merchants keep pace with their contemporaries and avoid missing the cross-border e-commerce opportunity?
A combination of best practices and fraud prevention tools is a good place to start. There are a good number of safeguards that can be introduced, and we recommend implementing the following for accepting online and phone payments.
- Validate repeat orders that differ from established customers’ patterns or transactions – If a regular customer orders a shipment to a different address or something deviates from the established pattern, contact the customer directly and validate the purchase
- Priority shipping requests – High shipping fees can be an indicator of a fraudulent transaction, especially if a merchant has a low cost or free shipping option. Fraudsters have no problem paying excessive shipping costs!
- Verify the customer details and transaction information – Before you ship any product, validate the transaction details with the customer
In addition to the these safeguards, having a fluid and balanced fraud prevention strategy is important for any merchant, even more so for international businesses. Flexibility is hugely important, and it is fair to say that there isn’t always a ‘one size fits all’ solution that works for every business. Finding a solution that works for your business might require a mixture of fraud prevention tools.
At Verifi, we like to think of a well-balanced fraud prevention strategy as one that follows the “Goldilocks Method”. This ensures that you find a solution that’s ‘just right’ in terms of up-front fraud protection and chargeback prevention and sales recovery.
The “Goldilocks Method” consists of three key considerations:
- Using the right tools for your business – For most merchants, the best solution is a combination of fraud prevention tools that protects their business, while also having the least impact on legitimate sales
- Utilise end-to-end transaction data to identify emerging threats and quickly adjust your fraud prevention problem – Not only do you need the right tools, but you also need to know what to do with the data that these tools generate. That is why an end-to-end solution is critical, allowing you to see and understand the entire transaction life cycle. Get the information you need to prevent fraud before it happens and keep your good sales.
- The need for speed – adapt quickly and cost-effectively to positively impact ROI – The pace of fraud is hard to keep up with, but to ensure your longevity you need the solutions that will allow you to keep pace. We want you to use both predictive analytics and a rules engine that enables you to change and configure fraud tools on-the-fly, without having to disrupt your workflow with new integrations.
One thing that is certain is that most merchants will need to look out with their own business to find the best fraud prevention solutions for them. As a merchant, you are an expert in the field of creating viable products to market and sell, so it makes good sense to ask the experts in fraud protection and prevention to support you and your business.