Managing risk and fraud when expanding into new markets

It is easier than ever for retailers to broaden their online presence and expand beyond their home markets. New digital tools, better communication and more efficient logistics support the creation of attractive online brands that extend across national borders.

New territories bring new challenges, not least in terms of risk and fraud. Some are familiar, such as the need in every market to balance consumer convenience with security. Others are more specific and insight into local risks is vital in avoiding the pitfalls that await the unwary. Insights into each country, a methodical process, and a reliable partner can make a move into new markets a rewarding opportunity for your business. 

Each new market will bring not only opportunities for growth but also threats to your finances and reputation. Consumer behaviour and trends, regulatory regimes and preferred payment methods, vary across and between regions and nations. To maximise sales and provide the best possible brand experience, retailers need to offer favoured local payment methods while staying on top of emerging payment trends.

Different payment methods bring with them varying levels of risk. Credit cards may be convenient but are vulnerable to fraud and require sophisticated security. Open invoices can dramatically increase conversions but can produce a corresponding rise in payment default. Where a market demands open invoices, it is essential that retailers or their payment partners accurately assess credit risk. This requires systems and processes to validate identities and addresses to assess creditworthiness and limit exposure to bad debt.

Some debtors have the intention to pay but are unable to do so. The flipside of the coin is fraud, where there is a deliberate attempt to avoid payment or acquire goods or services illegally. Although it varies between markets, fraud is a growing threat everywhere. Globally, it cost an estimated 1.47% of retailer revenues in 2016 – up from 0.51% in 2013 – with each €100 of fraud costing the retailer €240 (LexisNexis, True Cost of Fraud, 2016). According to the same source, this figure is even higher for larger e-commerce retailers, reaching 1.74% of revenues among international retailers with online and mobile transactions.

Card fraud alone is estimated to have cost more than €15 billion in 2014 (Nilson).

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Definitions of the most common forms of fraud

Fraudsters are in a constant struggle to get around new technologies and innovations and, while fraud trends vary from market to market, three of the most common approaches are worth examining more closely.

  • Payment fraud is the unauthorised use of someone else’s payment information to charge purchases to an account or remove funds. Then, there’s also first-party fraud, where an individual uses their own payment data without intending to pay.
  • Identity theft involves a fraudster pretending to be someone else by assuming another person’s identity, typically to access resources, obtain credit and other benefits, or conduct transactions in that person’s name.
  • Account takeover is one of the more prevalent forms of identity theft – accounting for 20% of total fraud losses (LexisNexis) – and is a growing threat. It occurs when someone gains unauthorised access to another person’s online accounts and uses them to conduct transactions without the person’s knowledge. Account takeover can in theory happen to any online account.

Balancing security and convenience

Fraud generates financial and reputational costs for businesses and inconvenience for customers. Intrusive security measures, such as 3-D authentication for credit cards or manually reviewing orders, just adds friction to the purchasing process and complicates the customer journey.

Minimising fraud therefore not only reduces the financial cost, but also improves customer loyalty and increases sales. Smart, integrated risk management and fraud protection finds the balance between ensuring security for consumers and retailers at every step, while making every transaction as convenient as possible to increase conversions.

Making the best use of available data is critical to that process. When it comes to risk, accurate credit scoring and address management uses the latest financial data on individuals and businesses, combined with powerful predictive tools, to filter out risky customers. The same data can also provide valuable insights that allow retailers to build better customer relationships.

Stop the bad guys without alienating the good ones

Sophisticated tools are available on the market to help make certain that shoppers are who they claim to be. Matching data points derived from unique digital transactions, such as how someone swipes, zooms, types and uses a mouse, can help create a reliable identifier of the person behind the device. Comparing this behaviour against historic behavioural patterns can provide valuable insights into passive biometrics and differentiate human traffic from non-human traffic, or the good customers from fraudsters.

A decision engine can crunch a combination of these parameters to help decide whether to allow a purchase to proceed. Any yellow flags (suspicious transactions) should be referred to a manual order review: sometimes all it takes is a phone call or email to confirm whether a transaction is genuine.

Quick insight into international e-commerce trends

When entering a new market, it is always essential to know what you are walking into: each market has its own favourite payment methods and typical forms of risk and fraud. In our Arvato Payments Review country guides, you'll find information on fraud rates and risks, risk management tools, and practical advice for entering a new market.

Compare country data

Compare data across the 14 different countries. Find out more about local payment methods, fraud and risk, and consumer behaviour.

Read the theme report