Blurred Lines: Managing Cross-Border E-Commerce Fraud
Omnichannel is a term merchants can’t avoid. Industry experts are clamoring for retailers to deploy a cohesive shopping experience across all channels. The entire strategy is contingent upon blurring lines, providing consumers a multitude of options and enabling them to interact with a retailer’s brand every step of the way.
However, true "total commerce" extends beyond just blurring channels and focuses on breaking down geographical barriers. Engaging in cross-border commerce is an incredibly important step in the total commerce journey. Just as consumers desire a unified shopping experience across all channels, they're taking a similar stance when it comes to cross-border e-commerce. No longer do customers view websites as domestic or international; it's all simply online shopping.
Cross-border e-commerce has become an extremely lucrative venture for many merchants. The massive consumer base is undeniable. However, the opportunity is muddied a bit when considering the increased fraud exposure. Let’s explore the risk/reward relationship of cross-border e-commerce as it pertains to fraud management.
What scares merchants most is they simply don’t know — this unknown fraud risk coupled with the inability to accurately weigh the sales opportunity against the increase in fraud losses. And frankly, why would they? Their focus is delivering tremendous products and building a world-class brand. These are unchartered waters in a relatively new venture like cross-border e-commerce.
Cross-border e-commerce, as compared to pure domestic e-commerce, is inherently riskier. Taking a look at a two-year snapshot of Radial data (spanning over 100 clients, eight verticals, and 100 million transactions), the cross-border attack rate exceeds the domestic attack rate in every vertical. The highest-risk verticals are footwear, electronics and jewelry. On the flip side, the sale potential is tremendous. Again, examining Radial’s transactional data, cross-border sales represent a significant chunk of overall orders. These figures vary depending on the vertical, with apparel and cosmetics representing the top tier. Cross-border sales in these verticals account for 15 percent and 12 percent of their total e-commerce sales, respectively.
While the sales opportunity isn't a shock to most merchants, it's important to dig a little deeper. All cross-border countries aren't created equal. For example, the Asia-Pacific region (commonly referred to as APAC), represents exceptionally high cross-border sales volumes. Three of the biggest players — China, Japan and Korea — account for almost half of the total cross-border sales in some verticals. Therefore, when considering cross-border e-commerce, it’s important to drill down on the specific region and country you're looking to expand into.
A lot of risk, a lot of sales potential … so what’s the answer? Merchants should absolutely expand their customer base and look for every opportunity to engage in cross-border e-commerce. As for the risk? It can be managed.
The most effective fraud management approach is one that blends brilliant technology with human ingenuity. These solutions are comprehensive, dynamic and rely on data-driven decisions.
The technology element comes to life with data scientists using machine learning and predictive analytics. For this technology to achieve maximum efficiency, data must be plentiful. Data is the lifeblood of any premier fraud solution and enables the technology to be fully optimized. This collaborative effort helps to develop a robust risk profile around all transactions that come through the system. Machine learning is excellent at limiting the population of risky orders to a very small percentage. However, it's extremely important to not stop there.
Professional fraud investigators should be deployed to probe the riskiest set of orders. This is especially important in cross-border e-commerce, as data is often ambiguous and it's difficult for statistical models to develop a complete risk profile. Well-trained fraud investigators use an arsenal of fraud-fighting tools. These tools marry nicely with a well-trained skill set in investigation and fraud detection. This layer of fraud management delivers precision, ensuring no sales are left on the table.
Deploying a comprehensive blend of sophisticated technology and human intelligence is the best way to maximize sales, minimize fraud disputes and delight customers. The higher-risk, complex nature of cross-border e-commerce magnifies the need for this approach. Merchants shouldn't sacrifice the opportunity to grow their business and their brand. Cross-border e-commerce fraud can be managed by merchants of all sizes and can contribute to significant bottom-line and top-line growth.
PJ Rohall is supervisor, fraud management solutions at Radial, an omnichannel commerce technology and operations provider. Darnell Wilkins is senior product strategist, product management at Radial.
Related story: How to Combat Fraud in International Markets