International Payments Without Risks
With UK online retailers looking to break into new international markets, ecommerce merchants are facing challenges to ensure potential new revenue streams are protected. Chase Paymentech’s President and Managing Director Shane Fitzpatrick shares his insight and research on how retailers can consider increasing international payments while mitigating the increase of fraud levels.
In 2011, UK retailers lost a total of £221m to card-not-present (CNP) fraud. This represents a significant reduction in fraud compared to the record loss set three years earlier (£328m) and shows that the introduction of additional fraud prevention tools by card companies, banks and retailers has had a positive impact. However, fraud remains a real and growing threat to revenue, particularly as retailers grow and expand their CNP channels to include new international markets.
The European online retail market was estimated to grow by 19% in 2011 to £214bn according to the IMRG . These aggressive growth patterns were acknowledged and even exceeded by many of the companies surveyed for Chase Paymentech’s Dynamic Markets: The Changing CNP Payment Landscape report. This research shows that companies with the largest daily CNP sales plan to grow by 39% this year. As more consumers move from high-street shopping to shopping online, retailers are embracing this opportunity to expand at home and overseas despite the threat of fraud.
However, the same research found that international traders have increasingly fallen victim to fraudsters, with 80% having lost money due to fraudulent CNP transactions, compared with 53% of national-only traders.TACKLING INTERNATIONAL FRAUD
Chase Paymentech’s research found that the majority of CNP retailers surveyed are already trading in mainland Europe, with more than two thirds of large retailers making plans to expand into additional countries over the next couple of years.
The survey also found that the experience of retailers trading internationally identifies real risk. Troubling is that nearly a third of international merchants surveyed have seen their levels of fraud increase in the past year. Yet, while fraud presents a significant challenge for international companies, the report found that most remain confident that the opportunities for growth far outweigh the risks. Even among those companies that have seen fraud go up in the last twelve months, the most attractive markets for growth are also those regarded by retailers as some of the worst for fraudulent attacks, with Russia (38%) and Germany (24%) topping the list.
As merchants look to commence, or indeed continue, international expansion, it’s useful to have a more sophisticated picture of fraud broken down by country to help identify specific threats. Naturally, every company will have its own experience and different sectors may be concerned about differing fraud threats in different countries. The Chase Paymentech survey further suggests that while most sectors have concerns about the level of fraud in the UK and the US, travel and leisure companies are more likely to have concerns about Germany and Italy while retailers regard Russia as the worst country for fraud.
International retailers looking to minimise fraud may therefore find it extremely beneficial to look at country specific data and analyse levels of fraud in each international market. If necessary, this data can be broken down further by state or town to give useful insight.
Chase Paymentech research found that among companies already trading or planning to trade internationally for the first time, the top-three markets they will focus on over the next 12 months are the UK (48%) for non-domestic companies, Germany (37%) and the US (30%). France, Russia and Ireland also scored quite highly, with Cyprus (3%) occupying the bottom of the list. Industry sector also plays a key role in which countries are deemed important, with the US (44%) and Germany (56%) being more of a focus for manufacturers, compared to retailers (20% and 25% respectively). In contrast, more retail companies think Italy (15%) and Denmark (18%) will be a key focus for them, compared to manufacturers (both zero).
When it comes to CNP fraud, Russia tops the list in Europe, followed by Italy and Cyprus, but the UK comes in a close fourth. In contrast, Sweden and Denmark are at the bottom of the list.ON-GOING ANALYSIS
International retailers should also consider further analysis of transaction and chargeback records to ascertain reasons behind authorisation declines based on currency or location.
It is also worth tailoring continuous transaction monitoring to ensure that the fraud scores given for a particular country reflect the appropriate level of risk and the most relevant factors for that country. Proxy piercing tools may be considered by merchant to help accurately determine the location of the customer, rather than rely on an IP, delivery or billing address alone. It is also important to ensure that the rules implemented to stop fraud from a specific country do not affect the company’s ability to receive orders from neighbouring countries in the same region.
Finally, a good payment acquirer should be able to explain the options available for getting a universal picture of your fraud by integrating reports on fraud and payment acquiring together. This will help identify fraud within countries and across borders as well as supporting an expanding international business with simplified management of sales and chargebacks, enabling retailers to manage growing international volumes without increasing cost or complexity.WHAT DOES THE FUTURE HOLD?
Despite careful analysis, change is inevitable. New patterns of fraud are being shaped by the growing popularity of mobile shopping, social media and new technologies such as tablets and smartphones. Many retailers are certain that fraud levels will increase in the next few years as these channels become more widely adopted. In order to keep up, fraud prevention methods need to continue to evolve. However, consumer confidence remains paramount throughout. In the Chase Paymentech survey, 92% of shoppers said they would avoid shopping with a retailer that had fraud related issues on its website or smartphone app. Yet, while a third of consumers want to see mobile shopping made safer, a similar number complain that they find it too difficult to use their mobiles to navigate websites or enter payment details. One way retailers have tried to maintain a seamless mobile shopping experience is to collect less information when orders are taken but this makes it more difficult to identify potential fraud.
Perhaps the biggest challenge for retailers as they open new channels is to strike the right balance between security and consumer convenience. This requires a more flexible and agile approach to fraud prevention. Fraudsters will always try to exploit new models, such as one-click payments or same-day delivery, but the inability of a retailer to meet the expectations of customers because of an inefficient fraud prevention process may present a greater cost to the retailer. Delays in fulfilling orders could see dissatisfied customers switch to a competitor.
In conclusion, the CNP world is ever-changing and so is the threat of fraud. However, it is possible to plan strategically to ensure that a business can detect fraud across all channels as close to real time as possible. This will in turn enable retailers to identify threats quickly to counteract and prevent future fraud, particularly as these companies grow and expand their CNP channels to include new international markets.