Myths vs. Facts: Exposing Myths in Retail Payments

In our bustling retail landscape — today’s most competitive market — it’s hard to believe that many online merchants, particularly those based in the U.S., avoid access to global transactions. When considering U.S. cross-border e-commerce is expected to generate sales of $203 billion by 2021, it should be a no-brainer for online retailers to consider capitalizing on the growth potential that exists beyond U.S. borders.

However, even with online transactions being more popular than ever before, payments fraud and security scams run rampant across the online commerce exchange. This is a paramount concern for merchants apprehensive about expanding to international markets.

Ensuring consumers’ data is safe and secure is a top priority for many U.S.-based online retailers. No merchant wants to fall victim to fraud, but how can they be sure transactions are secure?

Many U.S.-based online merchants are only looking to sell domestically by offering traditional payment methods because of the lack of education on global e-commerce and local payment methods. Truth is, international markets open up new global sales possibilities for U.S.-based retailers. When leveraged across international regions, recent PPRO research highlights just how vital local payment methods are.

Let’s dive into some of the top misconceptions in retail payments fraud and security to reveal why local payments are much safer than some merchants may think.

Myth 1: Global Payments Are Riskier Than Domestic Ones

Many U.S.-based online retailers believe that selling cross-border is far riskier than selling domestically. This is evidenced by the fact that only 36 percent of U.S. merchants sell to international consumers. Local payment methods (LPMs) are a way for U.S. merchants to expand globally. LPMs are payment methods outside of traditional credit card brands such as Visa and Mastercard that expedite the needs of various geographies, cultures and domestic economies across the globe. A majority of LPMs have their own security features built into the payments. These security features, like multifactor authentication, are linked to specific banks that individual consumers belong to.

Fact: Cross-border payments made with LPMs are just as safe as domestic ones, and in many cases safer than traditional payment methods.

Contrary to popular belief, these LPMs are favored worldwide and make reaching global consumers easier and safer. For example, in China 49 percent of online transactions occur by e-wallet and only 23 percent by credit card. Offering push payment methods where the customer initiates payment are less risky because the merchant doesn't need to collect any payment data from the customer. This approach can help to reduce exposure to chargebacks due to fraudulent purchases with stolen cards. The merchant is forced to refund the cardholder, usually after the goods have already been delivered. With push payments, chargebacks aren't possible as the transaction is securely authorized by the payer. This not only protects the merchant from financial loss, but also allows for higher conversion rates as merchants don't have to worry about rejecting orders to protect themselves from fraudsters.

Myth 2: Frequent Online Shopping Will Lead to Fraud and Security Breaches for Consumers

With data breaches being a common threat to consumers, access to personal data in online shopping is often a top concern. There are some qualms among U.S. merchants in conducting global e-commerce — e.g., are these payments safe, and how do I reach global consumers? However, with the rise of digital and mobile payments, much of this risk can be averted through safer LPMs like e-wallets that don’t give merchants access to a consumer’s full bank account. There's a global smartphone penetration of 53 percent, and this figure rises in major markets like Asia and Western Europe.

Fact: E-commerce is perfectly safe and sound for shopping, as retailers can offer various LPMs to further protect global consumer information.

Bank transfers are becoming increasingly used globally, as 49 percent of e-commerce transactions in Germany are facilitated by this method. Bank transfers are the process of moving money directly from a consumer's bank account to a merchant. This is performed via redirect during checkout either through a real-time or offline transfer process. Offering payments such as these are seamless for global consumers and keep consumer data out of harm’s way from savvy hackers. By using your bank login details and the redirect for the payment method, consumers’ personal account information is not directly shared with the merchant, further reducing the risk of the payment. This enhanced consumer experience is vital as 14 percent of consumers will abandon a purchase if they can’t find their top payment method. Furthermore, 23 percent will abandon if they don’t trust payment security, and 15 percent will abandon if they find paying too tricky.

Myth 3: Cashless Payments Increase a Consumer’s Chance of Fraud

Digital payments are on the rise, yet many merchants believe these cash and cardless payments are unsafe. They prefer to offer traditional card and cash payments; however, this may no longer be the most secure payment option.

Fact: Many cashless payments like e-wallets can actually decrease the likelihood of fraud.

E-wallets are registered online money accounts that can be loaded and used for payments. They can also serve as a database to store various payment method information, eliminating the need to carry physical cards or personal data in various locations. E-wallets offer two-step authentication and encryption, further securing consumer’s personal information. These digital payments are becoming increasingly favored to traditional payments. For example, cash only makes up 6 percent of online transactions in France.

LPMs offer U.S. merchants the tools to expand their business outside of U.S. borders. E-wallets and bank transfers are great ways to reduce the risk of fraud while making payments easier for global consumers. Around the world, consumers want to feel safe when they shop and are looking for a seamless experience. LPMs check both of the boxes as they present the safety and ease that many card-based payments cannot.

Steve Villegas is vice president of partner management at PPRO Group, a cross-border e-payment specialist.