E-Fraud Risk in Global Retail

by Cleveland Brown

Online shopping has become a mainstay for consumers. In 2016, e-commerce spending exceeded $22 trillion. By 2025, an additional 1.8 billion consumers will enter the market, spending an estimated $30 trillion.

Because the Internet is a borderless world, international e-commerce is expected to grow significantly in the coming years. In fact, just 40 percent of e-commerce sales in the United States were domestic in 2016. By 2018, the number of cross-border shoppers is predicted to grow by 50 percent.

E-commerce merchants who are not looking beyond the domestic market are missing a tremendous opportunity. Consumers are looking for the best deals and products online — regardless of where in the world that search takes them. However, cross-border e-merchants experience fraud costs 22 percent higher than the average multi-channel merchant.

U.S. retailers lost $32 billion to fraud in 2014 — a 39-percent increase from 2013 — and international e-commerce merchants have the highest fraud costs as a percentage of annual revenues. Their costs are 85 percent higher than international merchants that operate physical stores only.

As international e-merchants contend with several types of fraud — losses are attributed to friendly fraud (30 percent), lost or stolen merchandise (30 percent) identity theft (22 percent) and fraudulent requests for return/refund (17 percent) — retailers must address fraud on multiple fronts and use layered solutions. Multi-layered fraud solutions can reduce false positives by roughly 13 percent and cut the average monthly number of successful fraud attempts by more than 50 percent.

The most successful merchants in online marketplaces are those with a robust, secure and flexible payment infrastructure, as well as a relationship with a processor that is well-versed in guiding companies through every country’s cross-border policies and requirements. Effective fraud management is every bit as important to a Web-based business’s success as transaction and payment processing.

Cleveland Brown is the CEO of global payment processing provider Payscout, Inc.

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