Rafael Lourenco, executive vice president, ClearSale
U.S. ecommerce retail growth dipped slightly in 2018, and 40% of 2018’s $517 billion in domestic online retail sales went to Amazon. How can smaller U.S. ecommerce retailers compete and grow their businesses? One option is to sell their products on Amazon and other marketplaces in addition to their own online stores. But there’s another option that many US online retailers ignore–cross-border ecommerce.
Right now, only 36% of US ecommerce merchants sell across borders, but cross-border sales offer an opportunity for growth. Even with low rates of cross-border sales now, the U.S. is second only to China as a destination for international online shoppers. And cross-border growth rates for the next several years range from 10% in the U.S. to 30% in Europe, according to PaymentsSource. Worldwide, the B2C cross-border ecommerce market is expect to be worth $1 trillion by next year.
The U.S. is popular with cross-border shoppers and there’s a world of growth waiting, so what’s holding ecommerce sellers back? Concerns about fraud.
Security is a concern for cross-border payments
Fraud is a valid worry for ecommerce merchants. Card-not-present fraud is currently growing fast. It’s expected to cost the global ecommerce industry $130 billion from now through 2023. Many sellers see cross-border sales as inherently riskier than domestic ones, so they block international orders or reject most of them. That approach, though, is costing merchants good orders.
One study of Q2 2018 ecommerce data found that device spoofing and identity spoofing fraud were 15% and 22% more likely, respectively, among cross-border orders than among domestic orders. However, merchants rejected cross-border orders 69% more often than domestic orders due to concerns about fraud. In some cases, merchants were automatically rejecting all orders from specific countries that were viewed as too risky.
Clearly, there’s room for improvement in the way many merchants respond to cross-border fraud risks. The U.S. CNP fraud rate is well above the global average, according to the U.S. Payments Forum, but it’s unlikely that a U.S.-based ecommerce merchant would stop selling domestically based on that information. That’s because domestic sellers feel comfortable managing those risks in order to make sales.
The key to selling confidently into other markets is to understand the risks and potential rewards, and to develop a fraud-detection plan that doesn’t include generating high rates of false positives through automatic order rejections. After all, it’s hard to sell profitably into any market if your store earns a reputation for turning away good customers. Many consumers won’t try again if their orders are falsely declined, and they may share their negative experiences with others on social media.
A focused approach to cross-border ecommerce
In order to get a clear picture of the risks and rewards of a new market, it’s wise to plan your expansion carefully and start slowly. Consider beginning with countries where you have existing customers, or which use the same language. Give your company time to research the new market’s customs and tax rules, the best ways to localize your online store, local payment methods you might want to accept, shipping services, and the prevailing fraud trends and risks in each market.
Just as when you sell domestically, it’s important to build a multi-layered fraud-protection program that evaluates many variables, not only for each transaction but also for the customer’s identity, location, and behavior. Rather than automatically rejecting flagged orders, which can raise false positive rates and your cost of customer acquisition, consider building a fraud analyst team or outsourcing one so you can manually screen flagged orders instead of rejecting them automatically.
This team will need to be skilled at customer service, fluent in the language spoken in the markets you sell into, and available during customary business hours in those markets. Manual review capabilities are an investment that builds customer trust and avoids false positives that can undermine your efforts to build your customer base in a new market by offending good would-be customers.
Fraud-prevention best practices include monitoring false declines, fraud attempts and completed fraud by payment type and by channel (desktop or mobile), and cross-border sellers should track by market, as well. These metrics can show you which areas of your fraud prevention program are working, and which need improvement.
When merchants carefully plan their ecommerce expansion into new markets—including detailed planning of their payment methods, market-specific fraud prevention practices, and customer outreach for order validation, they can grow sales while minimizing the risks of selling across borders.
ClearSale provides online retailers with fraud-prevention technology and services designed to protect against chargebacks.
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