How to Combat Fraud in International Markets

Last year, China overtook the U.S. as the world’s largest economy. That milestone drew attention to the explosion of online retail sales in China, which had built up speedily over a number of consecutive years of significant growth. In 2014 alone, Chinese online retail sales grew 50 percent to reach $450 billion.

Despite these impressive figures, until very recently U.S. e-retailers had good reason to be wary of entering China’s booming e-commerce arena. Aside from all the ordinary concerns about new markets, governmental attitude was against encouraging foreign businesses within China.

However, in line with an overall trend of increased economic openness in China, a new wind is blowing which could bring exciting opportunities for U.S. online retailers. China has publicly announced its support for cross-border trade, and full foreign ownership of e-commerce businesses is now possible (and even being made easier through new regulations).

There’s no doubt that many American companies will see this as the ideal chance to step into an energetic economy, driven by consumers who are interested in international brands and merchandise. Chinese consumers are already a power in global terms. According to McKinsey Global Institute research, Chinese consumers will buy 20 percent of all global luxury goods sold in 2015. Furthermore, a report by The Paypers noted that 84 percent of Chinese online consumers purchase from the U.S. With those kinds of numbers, even retailers that haven't previously dipped their toes into international e-commerce might be tempted to engage.

To really benefit from cross-border e-commerce with China, though, retailers will have to prepare by giving meticulous attention to all aspects of their business. One element that's often overlooked, to significant cost, is fraud prevention.

Merchants cannot afford to adopt a cavalier attitude to fraud. In 2013, China accounted for 14 percent of Asia Pacific attacks, with estimated losses of $59 million. And by far the two largest online B-to-C purchase categories in China are consumer electronics and appliances, which make up 52 percent of B-to-C e-commerce sales, and apparel, which represents 27 percent. While enormously valuable, these verticals are also popular with fraudsters, since the goods are widely popular and easy to resell at prices close to the original price.

What can retailers do to ensure that the profits they hope to see from this new market don’t get swallowed up by successful fraudsters? The key thing is to understand the nature of the space in China, and how it differs from the U.S., and prepare accordingly.

For example, mobile commerce is more popular in China than it is in the U.S. Therefore, merchants can be confident that a smooth mobile checkout will be important to determining success in that market. That means that fraud prevention must be adapted to mobile and optimized for it, just like any other element of your website.

For instance, if you want to use device fingerprinting, you can’t rely on types of browser, make of device and personal settings in the same ways. Although there are useful distinctions between mobile devices, they’re not the same as those that are useful in distinguishing between laptops. If you’re talking about mobile, there’s more homogeneity when it comes to the variety of device available, and settings aren’t personalized in the same way. You can adapt the technique for mobile, but only by giving it thought and putting time and work into it.

Additionally, cultural factors mean that signs that might be suspicious in a U.S. buyer are neutral or even positive in a Chinese customer. For example, using a proxy service (i.e., hosting) doesn’t have the same connotations in China that it does in the U.S. As a result, you’ll reject a lot of good customers if you continue to regard that quality as suspicious.

It’s important to remember that avoiding "false positives" — i.e., avoiding turning genuine buyers away because they look risky — is just as important as blocking the real fraudsters. It’s true that the cost of fraud is prohibitive — after all, every dollar lost to fraud costs online retailers $3.08 — but if you think about the value of a consumer who might become a repeat customer, the cost of false positives starts to rocket up as well.

Retailers must make sure that their fraud prevention solution isn’t simply risk averse. That way lies a lot of offended potential buyers who have been rejected. To be successful in a new market like China, merchants need fraud prevention which is expert, agile and able to adapt seamlessly to the challenges of international orders.

Bill Zielke is the chief marketing officer of Forter, a real-time fraud prevention solution for online merchants.