Business Opportunities, offered by Cross-Border eCommerce, outweigh Legal Challenges
International expansion through cross-border ecommerce requires risk management and due diligence processes in compliance with international law and local legislation. Risk levels differ per region, but global ecommerce remains more vulnerable to fraud schemes than traditional face-2-face retail; in part, because online sales involves anonymous Card-not-Present (CNP) payments.
E-identity theft, credit risk, repudiation and cyber infiltration of Payment Service Providers and online Merchants represent a large percentage of online fraud. Managing and prevention risk requires Enhanced Due Diligence (EDD), strict implementation and integration of processes and procedures in compliance with regional law, local rules & legislation; elaborate screening and Customer Due Diligence (CDD) before customer acceptance, ongoing Due Diligence once the customer has “boarded” and strict implementation of a proven underwriting protocol. Financial institutions must secure cardholders’ data in compliance with the PCI Data Security Standard (PCI DSS Compliant).
Ecommerce’s exploding growth figures, $1.4 trillion by 2015, require new laws, innovative technologies and solutions and smart processs developed in sync with card schemes in order to mitigate risk in the Card Not Present (CNP) market space. Card schemes developed a 3D Secure Protocol, and American Express launched SafeKey. In addition to implementing innovative technologies, different geographical regions, markets and industries require a customized approach to threat. However, 55% of online Merchants, surveyed by LexisNexis, never heard of automated transaction scoring and 47% are unfamiliar with innovative fraud prevention technology, such as device fingerprinting, browser/malware tracking, geolocation tools and transaction/customer profile databases. 80% of these merchants are satisfied with their (manual) fraud solutions. This may account for the rising fraud and chargeback figures.
Surveys further indicate that online Merchants experience the differences in rules and regulations on product returns, labeling and packaging, as barriers, which demotivate them to expand internationally. Taxes also differ per region. For example, Value-Added Tax (VAT) is a tax paid by buyers located in the European Union, Canada, Australia and many other countries. The Merchant has to calculate the VAT and pay it to the proper authority of the country in which the item was sold. Legislation, tax issues, interregional interchange rates, time-demanding due diligence processes and the integration of various business processes, along with logistics, customer support and reporting requirements, are challenges which merchants who want to expand face, and these have a restrictive impact on the development of profitable online trade.
These challenges do not outweigh the opportunities. International online trade has grown with 13% globally over the past 5 years, with China & Hong Kong, Brazil and Canada topping the cross-border ecommerce charts. Some emerging markets are very attractive, with millions eager to shop cross-border, but if these countries miss a developed infrastructure and the legal framework to prevent financial crime, the business opportunities equal the risk.
Online payments acceptance from smartphones and tablets is growing consistently. Merchants understand the need to multi-channel in an global market which offers consumers a variety of methods, each one of which need a customized approach to prevention. Interestingly, e-Merchants who accept Mobile Payments are more likely to use anti-Fraud solutions across the Board.
The Card-Not-Present (CNP) Payment Sector and the Authorities need to share expertise in order to understand the potential vulnerabilities associated with ecommerce and online (CNP) payments. Legislation and business processes need to be revised, best practices redefined and prevention systems need to be updated constantly; pre-emptive measures with regard to customer identification, auditing and reporting must be taken. Payment Service Providers, licensed as e-money providers or as a bank, have obligations in the field of identification of customers, detection, monitoring and reporting of suspicious financial transactions. In 2008 the Financial Action Task Force (FATF) analyzed risks associated with internet trade and presented their findings and recommendations in this FATF Report.
The complexities Payment Service Providers face, when having to solve issues related to international online trade are challenging. Some payment services providers may decide to outsource a part of their risk management process to a third party with the knowledge and expertise to ensure that international online trade remains profitable.
The impact, which regulation has on online retail is considerable. This is confirmed by a European Survey, which indicates that different product return laws and compliance rules are of major concern for those who want to sell cross-border. However, booming figures suggest that profitable cross-border ecommerce offers merchants tremendous business growth potential. By forming a partnership with a global acquirer, an expert in innovative card processing, with in-depth knowledge of risk management and legislation, connected with a network of international payment service providers in the different regions, challenges can be transformed into great opportunities.
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