Cross-border payments are on the rise, and Europe is a region where cross-border revenue is soaring. In fact, European online businesses generated $100 billion Euros in cross-border revenue. According to the Bank of England, the total value of global cross-border payments is expected to grow from $150 trillion in 2017 to more than $250 trillion by 2027. The main driver for this growth can be attributed to e-commerce. E-commerce sales are projected to reach a staggering $6 trillion by 2024.
Ekata, a Mastercard company, recently released its report, “Expand Cross-Border E-Commerce: Combat Fraud — The 5 Key Challenges Retailers Can Overcome Fraud with Data,” where it cites the massive surge of cross-border payments as well as the accompanying fraud that usually follows. The report outlined key strategies and Ekata’s own solution as a formidable tool to mitigate fraud.
Let’s Look at the Numbers
Cross-border payments are vital for businesses as they sustain foreign expansion. For consumers, cross-border payments mean having the facility of sending funds to friends and family in their native countries.
With more consumers and businesses using the e-commerce space, the demand for faster, safer, and more efficient payments continues to grow as well.
As mentioned previously, Europe is seeing expansive growth in cross-border revenue, with European online businesses generating cross-border revenue of $100 billion Euros. Germany leads the pack as the largest cross-border seller, at $32 billion Euros. So, why is this relevant? This can present a prime opportunity for new players to enter the market, as Germany is known for its infrastructures to operate like clockwork.
According to Deloitte, the most mature market for cross-border e-commerce goes to China, as it has reached $1.5 trillion. Of this combined total, 72.8% is attributed to cross-border business-to-business (B2B) e-commerce. This segment is expected to reach $2.2 trillion by 2026.
On the home front, 64% of American consumers have reported making an online purchase from another country in 2021. Forty-three percent of consumers cited purchasing overseas because of the inability to purchase that product in the U.S. Close to half also mentioned lower prices for making these foreign purchases.
With Cross-Border Payments Expansion Comes Fraud
Although the statistics make the case for entering the cross-border space, businesses should be wary of the risks for fraud. And as technology continues to evolve, we will see more sophisticated attacks than ever.
Juniper Research conducted a study and estimated that retailers are at risk of losing $25 billion in payment fraud by 2024. This reflects an increase of 52% in just four years. Although these statistics are sobering, we need to get to the root causes that are putting cross-border payments at risk.
The Challenges With Cross-Border Selling
As with any payment solution, there are challenges to be reckoned with as no solution is foolproof. These are the key obstacles businesses face when selling cross-border:
1. Data Residency Laws
These laws dictate how personal data are processed and stored. One well-known law is the General Data Protection Regulation, also known as the GDPR in the European Union (EU). The GDPR has specific rules about how personal data are handled in the EU. However, processors based in the Middle East, for example, do not need to comply. Yet, if the data is from a consumer based in the EU, then the foreign processor is required to comply in the proper handling of the EU citizen’s information. Not doing so would cause a breach, leading to further consequences for the processor.
In addition to these regulations is the lack of a global customer identity standard. The format, even the reliability of individual identity data, varies tremendously by country, making it impossible for companies to implement a consistent way to verify a customer’s identity.
2. Fraud Attacks More Sophisticated
Fraud comes in many forms, each causing significant damage to a business’ bottom line. Here are some that are making its way throughout the industry:
- Chargebacks. A chargeback occurs when a customer issues a fraud claim to their card issuer that takes the consumer’s side. The merchant loses both its product and the sale. Chargebacks are costly for businesses. In a recent study, 58% of merchants stated that their chargebacks rates have increased.
- Friendly fraud. This is when a cardholder claims they never received their purchase, or they deny that their purchase was ever made when they did make it.
- Account takeover. One of the latest, most menacing attacks, this is when cybercriminals completely take over bank accounts. This can be done via phishing or malware.
- Synthetic identity fraud. A false identity is created when criminals combine fake and real personal information to commit fraud such as applying for a loan and credit cards.
- Promo abuse. This can be the fraudulent exploitation of promotional program incentives, such as a 50% coupon.
3. Fraudulent Hot Spots
Fraudulent attacks can happen anywhere in the world, but businesses must pay close attention to areas where fraud is endemic. Turkey, Nigeria, and India continue to be where fraudulent attacks are rampant. Caution when doing business there is imperative, as is having robust tools in place.
“There is a lot of sales potential, so I don’t think it’s a sound business decision to ignore them, but caution is warranted,” said Daniel Keyes, Senior Research Analyst for Merchant Services at Mercator Advisory Group. “You need to have a game plan. You must factor the risk into your prices. There are tools available to limit the losses from fraud in any country. That should be enough to give them a shot.”
4. Overly Protective Fraud Strategies Hampering Revenue
There is such a thing as being overly cautious when it comes to current fraud protection strategies. This can take the form of rejecting a perfectly legitimate buyer. Rejecting a legitimate buyer means that the consumer will take their business and their money to a competitor, jeopardizing the opportunity to create a loyal customer.
According to a PaymentsJournal report on cart abandonment, 20% of consumers said they would abandon an online shopping cart if the checkout process lasted longer than one minute. Making the online checkout process as seamless and frictionless as possible is critical to retaining loyal customers as well as growing revenue.
To address this overcompensation for risk, it would be best to account for all the false positives and investigate them at different periods of time. Businesses can also partner with their Chief Revenue Officer to go over their global expansion strategy and determine the unique risks inherent in those markets.
5. Having to Look Over Multiple Identity Data Elements
Having to search through multiple sources of data to verify and authenticate identities can be challenging for merchants. To ensure accurate authentication, current application programming interfaces (APIs) and web-based services can run searches concurrently and link real-time identity data.
The Cross-Border Payments Solution
Using a multilayer approach is the key to approving more cross-border transactions while still mitigating fraud. To detect and control fraud, an effective tool to use is automated fraud screening. To capture fraud, you will need to use global consumer identity data in conjunction with a layered process.
Ekata’s Identity Engine refines your current identity verification data for identity verification and fraud prevention. This engine is made up of two different data sources: Ekata Identity Graph and Ekata Identity Network.
The data assets and advanced machine learning capabilities are used to run Ekata’s global APIs and software as a service (SaaS) solution. Both the Identity Graph and the Identity Network equip you with the data you need to see a comprehensive view of your customers’ digital identity and the risk associated with it.
The challenge to fight fraud continues. However, by using the above-mentioned fraud tools, authenticating identities will become easier for cross-border e-commerce.