By Yarden Altshull
Exotic goods from lands afar have captivated minds since the dawn of humanity. For thousands of years, camel trains and ships carried goods from distant lands. More recently, travellers would sail or fly abroad, filling suitcases to the brim with local fashion and memorabilia. Today, we still seek the “alluring” and the “different,” and competition has added “bargain” to the list. But there’s no need to board a plane. We can simply launch a web browser from the comfort of our own homes to experience the back-to-back sales and endless choices that eCommerce has to offer.
Cross-border sales, meaning purchases made by residents of one country from a business based in another, account for 25% of all eCommerce orders today. This global market is growing rapidly and is expected to reach an astounding $2 trillion by 2018! In this post, I share best practices for online retailers looking to seize this opportunity and grow revenue from international consumers.
Why miss out on the fun?
While access to millions of potential new customers across the world presents a huge financial opportunity, cross-border eCommerce poses some challenges for merchants more adept at handling domestic orders. Cross-border consumers have unique shopping behavior and use international credit cards or other foreign payment methods. In order to best handle these orders, retailers should be sure to do the following:
1. Learn how to correctly interpret shopper behavior
Behavior that would be considered suspicious in the context of a domestic purchase may be completely legitimate in a cross-border transaction. Reshipping services and proxy servers are two relevant examples:
Reshippers: Using a reshipper (aka package forwarding service) in a domestic order may indicate that the buyer is trying to mask their real location. In rare scenarios, a domestic consumer may use a reshipper to avoid local sales taxes by using a reshipping service in a neighboring state. But in cross-border sales, consumers utilize reshippers to lower shipping costs or to shop from sites that don’t ship to their home country. Residents of the Caribbean island states commonly use US-based reshippers to receive goods purchased on US retail sites. Our data shows that there is 0% fraud in online fashion purchases by consumers from Barbados, the Bahamas and Jamaica who shipped to a US address.
Proxy servers: Fraudsters often connect to the Internet via proxy servers – usually through a service that assigns them with an IP address different to the true location of the computer from which the order is being placed. But just like reshippers, in addition to the fraudulent use case, there are completely valid reasons to use proxy servers. Some international customers use proxy servers to access media sites unavailable in their country, such as Netflix or the BBC. Other consumers choose to use proxy services due to privacy concerns. Chinese consumers are avid users of proxy services, as these connections allow them to gain access to websites blocked by their government, such as Facebook and Youtube. In fact, we detect proxy server usage in almost 10% of online purchases by Chinese consumers, and we still safely approve 75% of these orders. In other words, 3 of every 4 online Chinese transactions with proxy servers can and should be approved.
2. Don’t let biases influence your decisions
Your perception of certain overseas markets, especially after being hit with fraud from abroad, might lead to you to adopt an overly cautious policy that results in the rejection of most online orders from these markets. Unfortunately, relying on your personal idea of what is “high-risk” can lead you to reject good customers and to curb your cross-border sales.
The Ukraine is ranked a dismal 130th on Transparency International’s Corruption Perception Index, so you may be surprised to learn that 93% of online purchases placed from Ukrainian IP addresses can and should be safely approved. Riskified also approves and guarantees approximately 97% of eCommerce orders from Nigeria, the birthplace of the notorious Nigerian Prince email scam. Moreover, it’s important to understand that some of the tools you utilize to manage fraud have built-in biases. For retailers relying on shared blacklists, the negative experiences of other businesses can pre-determine the way certain international orders are handled. Another example of built-in biases is IP address risk scoring tools. For example, Mexican IP addresses consistently receive high proxy scores, yet 83% of online orders placed from IP addresses in Mexico are safely approved by Riskified. To demonstrate the potentially negative impact of blindly relying on third-party scores, we created a visual showing the rate of safely approved online purchases from countries with consistently high proxy scores:
3. Familiarize yourself with local social networks and data sources
While fraudsters go to great lengths to conceal their true identity, good customers will often have a solid digital footprint – leaving plenty of virtual “breadcrumbs” that when collected can corroborate the legitimacy of their purchase. In some countries, Facebook isn’t the most popular social media network. To best handle orders from these markets, retailers need to be familiar with the relevant social networks, such as VK in Russia or QZone in China. Familiarity with local data sources will allow retailers to cross-check the physical addresses provided by the buyer. For example, in the UK, 192 serves as a local version of the Whitepages, while Italy and France have their own web-based phone and address registries.
Who are you turning away?
When it comes to fraud prevention, it’s important to remember there’s a real person behind the order. Relying on rules that flag data mismatches or on fraud filters that reject purchases from ‘high risk’ countries is counterproductive to the goal of growing your business and expanding your international customer base. So who is it that you’re turning away?
The “classic” international purchase involves consumers sitting at their home or work computers and shopping at online stores based outside their country. In terms of data, these orders usually exhibit the “4 geos match” – meaning that the issuing bank, shipping address, billing address, and IP address are all in the same country. This four-way match is a positive indicator, as it reflects a very logical purchase story. In fact, Riskified safely approves over 99% of cross-border purchases from China, Saudi Arabia and Thailand that display this pattern. But a rules-based fraud prevention system, such as AVS filters, may lead retailers to miss out on these legitimate sales.
Other common types of cross-border purchases – most often placed by foreign students or tourists – involve an international credit card and a local shipping address. Foreign students use credit cards issued in their home countries to shop online with local businesses, and ship the items to their dorm rooms. In terms of data, their orders include an international credit card, a domestic IP address, and a local shipping address. Retailers accepting only purchases with a billing-shipping address match are missing the opportunity to sell to roughly 1 million foreign students who enroll in US colleges every year, and to the 3 million foreign students who attend European universities annually.
Tourists are another important consumer segment when it comes to cross-border eCommerce. We commonly see consumers shopping online from the comfort of their own home ahead of a vacation or business trip. In these orders, retailers will see an international credit card, an international IP address, and a domestic shipping address – as the goods are shipped to the hotel, short-term rental apartment, or to friends and relatives’ homes. Shopping online in advance of the international trip allows tourists to spend more time touring and sightseeing. With 582 million tourists visiting Europe and 75 million foreign tourists coming to the US every year, eCommerce sites that do not allow consumers to pay with an international card when shipping domestically are losing out on a huge market.
Maximize your online revenue and minimize your risk
So what should merchants do in order to capitalize on cross-border opportunities without compromising on fraud prevention?
• First, don’t let single data points obscure the full picture. For example, since most credit cards issued outside the US, Canada, and the UK do not support AVS, relying on AVS filters to accept orders will hold you back from international expansion.
• Second, it is vital to understand what certain behaviors indicate in the context of a cross-border purchase. Familiarity with positive use cases of proxy servers and reshipping services, and understanding the circumstances in which purchases with foreign credit cards and a domestic shipping address make sense – are key to handling cross-border shopping.
• Third, try to connect the dots and construct the story behind every transaction reviewed for fraud. Legitimate customers do not hide their identities, and simple online searches can often corroborate the validity of a purchase that may otherwise seem suspicious.
As more consumers around the world come online and start shopping from foreign sites, the number and variety of online retailers continues to grow. With competition so tight, turning away good customers is not an option. A successful business will work to avoid false positive declines, meaning rejecting valid customers due to suspected fraud. At the end of day, the key to accurately telling apart good customers from fraudsters is knowing legitimate customers’ shopping patterns, even in new and unfamiliar markets.
Yarden Altshull is a content writer at Riskified, an eCommerce fraud prevention solution provider that protects online merchants from eCommerce Fraud.