Who’s Afraid of Global Fraud?

Fraud loss as a percent of revenue grew significantly in 2014 for retailers with an international aspect to their business

Globally, the U.S., UK, Germany and China are the big four of e-commerce—and they’re set to double in size over the next three years. These markets are so significant that conservative retailers may focus their efforts on domestic markets rather than reach out to tackle the challenges of selling to a worldwide audience, or perhaps just one or two other countries with which they’re most familiar.

Going Global

Delays in selling globally may very well restrict sales growth, alienate ready-to-pay global buyers and increase the risk of falling behind more aggressive competitors who are taking advantage of the possibilities.

There are many businesses that are acutely aware of both the enormous benefits of going global and the inherent dangers. In particular, fear of fraud on a global level is a primary reason many retailers delay entering the global sales arena.

And it’s a completely rational fear. According to LexisNexis, fraud loss as a percent of revenue grew significantly in 2014 for retailers with an international aspect to their business—in fact, it grew nearly twice as much as that of domestic-only merchants.

Information, Information, Information

So how can e-commerce merchants reap the benefits of international growth without suffering the effects of international fraud? The answer is information.

We live in the era of big data, and the sheer amount of information flowing through an e-commerce website means that retailers already hold the answers to many of the most pressing industry questions in their own hands or at least embedded within their online stores.

Of course, simply having access to data isn’t enough; you need to be able to make sense of it in a sophisticated manner. It can be challenging for busy merchants, whose primary emphasis is and should be on sales and maximizing revenue, to aggregate and analyze data in a way that provides meaningful results.

Examining Global Fraud Trends

Forter’s analysts and data scientists are constantly looking for new ways to give our retailers an edge and to keep ahead of the trends in the international fraudster community. The company recently published research based on the transactions it processed over a full calendar year, highlighting the fraud trends uncovered globally.

We hope that this information benefits retailers seeking their place on the global e-commerce stage who are aware that, to do so safely, they need to understand the fraud picture of different countries and continents.

Fraud by Continent

Fraud rates vary notably by continent, with Africa, the most fraudulent continent, showing up as nearly 10 times higher than the world average. The fact that Africa is the most fraudulent continent may not surprise experts, but the extent by which it surpasses the average is definitely something to provide food for thought. Beware of stereotyping, though—the most fraudulent country in Africa may not be what you’d expect. In fact, it’s South Africa, something that makes sense when you think about it—a country with the perfect storm of good and readily available Internet, a weak economy and relatively convenient e-commerce.

Asia comes in at close to the world average in terms of fraud rate, which is particularly interesting since four of the top five countries with the highest average cart (namely Kuwait, UEA, Saudi Arabia and Hong Kong) are situated in Asia—meaning that in Asia customers are inclined to spend online, while only meeting the world average for fraud rate.  

And Europe comes in at lower than the world average, which comes as a relief to retailers attracted to working with the countries on the other side of the Atlantic.

Fraud by Country

Taking a look at the countries that are both most and least fraudulent sheds an interesting light on the continental side of the research, showing how individual countries sometimes epitomize an overall trend, and sometimes demonstrate the importance of acquiring precise, location-specific information and not relying on wider trends.

For example, three of the top five fraudulent countries come from the two most fraudulent continents, South America (Brazil and Venezuela) and, as we said, Africa (South Africa). But of the remaining two, number one on the list, Indonesia, is actually from average fraud rate Asia, while the last of the five, Romania, is located in Europe, which as we said, has a lower fraud rate than average when taken as a continent.

This is something that retailers should bear in mind when approaching international e-commerce. Even if you’re doing well in, and understand one or several countries in a region, you can’t rely on that knowledge when dealing with a country next door. Each one is different and has a unique risk profile, as well as particular preferences when it comes to products, brands and payment types. Always do your research—and make sure to keep up to date.

Fraud: A Part of the Socio-Political and Economic Picture

Something that is key to understanding each country’s relationship to fraud is placing the question in the context of the broader socio-political and economic environment that exists there.

Why should Romania rank highly for fraud even though it’s in lower-than-average fraud rate Europe? The relative poverty faced by individuals there, combined with an abundance of both hardware and the Internet, explains the mystery. The fact that Romania is close to countries whose citizens are comparatively wealthy probably doesn’t help matters, as the awareness of what could be is never too far away. Put into context, the high fraud rate starts to make sense—and even be predictable.

In the same way, though from the other extreme, the fact that three out of the top five least fraudulent countries are in Scandinavia also fits what we know about these countries. It shouldn’t be surprising that low fraud rates correlate to high quality of life.

Denmark, which was number one on the least fraudulent list, also got the highest score from Transparency International last year, due to its anti-corruption policies and reputation. Stability, high levels of overall satisfaction and a general opposition to corruption are all likely to combine to create an environment in which fraud is relatively rare.

Engaging in e-Commerce around the World

So what does all this mean for online retailers? Well, although we spent the article discussing the rates and risks of fraud, the message is definitely not that international e-commerce is too risky to be worthwhile. On the contrary—even in countries with high fraud rates, there are overwhelmingly more genuine transactions than fraudulent ones, and far more real customers wanting to purchase goods online and even develop long-term buying patterns with sites they like than there are fraudsters out there looking to make a quick buck.

What e-commerce merchants need to remember is that, in order to mitigate the risks associated with global online retail, they need to fully investigate and understand the nature of countries they don’t already know.

It’s not enough to promote a website in a new country, research the preferred payment methods there and take steps to make the site comfortable on an international level (through adding more languages, for example). Those things are all important, but they must be placed within the context of the wider picture.

The More You Know, the More You Grow

The more you know about the social, economic and political situation in countries outside your domestic sphere, the more accurately you can guard against fraud, protect your business and ensure that you’re truly reaping the benefits of global commerce.

There is no reason that this should be intimidating. There’s nothing wrong with outsourcing this kind of expertise, and seeking advice from or even turning the challenge over to companies who specialize in global fraud prevention. In many cases, this kind of knowledge and an appreciation of its consequences in a practical sense are difficult for retailers to achieve without losing focus on their core business goals, and bringing in the experts may well be the best approach.

What does matter is that you take responsibility for ensuring that your company is benefiting from an understanding of both the big picture and the fine detail of global fraud trends. In this way, you can leverage fraud prevention so that it not only prevents fraud effectively, but also contributes to promoting your company’s growth on a global level.