This study uncovers some of the essential fraud precautions that should be considered before expanding internationally. It identifies differences in the cross-border eCommerce strategies for high-risk verticals, providing best practice examples. In this context, cross-border will refer to an eCommerce purchase where the IP country, card issuing country and shipping country differs from that of the merchant.
Case 1: Moving to the US within a high-risk vertical
Understanding the market which your business is entering and taking the necessary precautions is essential for cross-border expansion to be a success. So, what sort of precautions could be taken in this case? Let’s start with analysing the US heat map.
The darker blue on the heat map represents where the highest chargeback rates (by US state) occur.
It is possible to moderate higher-risk states by using a variety of velocity and value-based rules. Florida was the US state with the highest risk in 2017, with a 0.40% chargeback (CB) rate. The CB rate is calculated by dividing genuine transactions by the reported chargebacks (CB/TXN = CB Rate). New York (0.35% CB rate) and California (0.34% CB rate) also featured highly, so a tighter rule balance strategy is best, at least initially, when trading in these states.
The biggest consideration when implementing a tighter ruleset is how false positives (rejected genuine transactions) could increase, and in turn, how this could impact the overall customer experience.
The advantage of implementing a tighter ruleset is that chargebacks will be minimised. Chargebacks can be very costly, and losses can be as much as double the initial recommended retail price of the product.
Considering all these factors, the recommendation when entering a new region with a high-risk vertical is to start with a focused ruleset, relaxing the criteria when the business has settled and the ruleset has matured.
Case 2: European expansion
Completing the same analysis for France in 2017, French cards made up 89.15% of the transaction volume with Spain (0.38%) coming second. The most fraudulent card issuing countries with French shipping addresses were Taiwan (3.85% CB Rate), Croatia (3.27% % CB Rate) and Mexico (1.73% CB Rate).
Using this type of information, it would be possible to incorporate rules around high-risk card issuing countries, adding limitations if fraud continued into 2018-19.
Key Takeaways for Merchants
Ultimately, merchants should carefully consider their fraud solution and strategy before pursuing cross-border eCommerce expansion.
Additionally, when moving to a larger market, it is recommended to only allow cards, billing and shipping information that matches your new channel.
It is also important to consider a solution serviced by a global risk team, which has the local experience needed to combat local threats.
Though there are myriad considerations, there is great opportunity when expanding your eCommerce business cross-border, provided fraud prevention is part of the strategy every step of the way.
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