The market for cross-border ecommerce is exploding, growing 25 percent year over year. Ecommerce merchants shipped $300 billion of goods to foreign clients in 2015, according to DHL – that’s 15% of total global ecommerce.
Over 20 percent of these goods are worth more than $200 according to the same research, higher than the average ticket price for ecommerce goods sold domestically. The clear implication is that cross-border fraud is not only growing, but should be more costly than domestic ecommerce fraud.
Traditionally merchants have relied on address verification services (AVS) provided by the credit card networks to block fraudulent credit card purchases. AVS checks the address used for the purchase order against the address for the credit cardholder on file with the issuing bank and blocks the transaction if they do not match. However, the credit card networks do not protect with AVS credit cards issues by banks located outside the U.S., Canada and the U.K. Unfortunately, even within North America and the U.K. the AVS system does not work well for people who have multiple residences during the year but only one address on file with their bank, such as college students.
This doesn’t mean that merchants must ignore address verification entirely for orders received from customers outside the U.S., Canada and the U.K. Instead, merchants can use Pipl’s search technology to verify that the delivery location for an ecommerce order is also a location associated with the credit cardholder.
Pipl’s results are superior to traditional AVS in a number of ways. For example, a large and growing number of people work part of the year outside their home country. This category spans groups as diverse as the millions of migrant workers from the Indian subcontinent working in the Persian Gulf to high-earning European professional living the digital nomad lifestyle and working the winter months in locations like Bali. 1980s AVS technology that is tied to just one location to authenticate ecommerce orders is obsolete for these and other groups of consumers. An ecommerce purchase by one of these people to their secondary residence would typically be flagged for fraud by the credit card networks’ AVS systems.
Using Pipl’s search technology, fraud analysts can easily see that these people legitimately spend the year in more than one location and the order will be processed. Pipl does this by providing a list with multiple geographic locations where a person has worked and lived in its search results. It also does this automatically by searching the surface and deep web for information across publicly accessible databases and information from social media networks. This should prevent the occurrence of false declines when a customer fails to notify their bank of a change in address.
Another major benefit of shifting from AVS to Pipl’s search technology is that merchants can check ecommerce orders against a phone number and/or email address in addition to the shipping address.
Many rapidly developing countries important for exploding ecommerce growth have entire neighborhoods in major cities that lack standardized street addresses. What they lack in street addresses, however, they make up with high mobile phone subscriber rates. Take a look at the graph below.
For example, in the booming Latin American ecommerce markets of Brazil and Mexico, 69% of the population already owns a mobile phone number, according to data provided by GSMA Intelligence. Meanwhile, Argentina’s mobile phone penetration rate at 91% is actually higher those of either the U.S. or Canada. In the world’s largest developing countries, China and India, half of the population will soon have a mobile phone numbers associated with their identity even if they live in rural villages, unplanned shanty towns or other areas without formal addresses.
Phone-based identity verification data coverage is set to rapidly improve as well. The GSMA predicts that by 2020, 70% of people in the developing world will have their own mobile phone number. Within the next few years, mobile phone numbers will become the best contact information for identity verification in Mumbai, Lagos, Shenzhen or Sao Paolo. The spread of cheap mobile Internet connections will also make email address data increasingly valuable in preventing fraud, long before the developing world fully adopts standardized street addresses.
At the same time, global cross-border ecommerce is expected to grow to 22% of global ecommerce by 2020, or $900 billion of merchandise ordered online. Merchants can continue to rely on the credit card networks to roll-out fraud prevention mechanisms like AVS, 3-D Secure and EMV chips if they are prepared to throw away $1 out of every $5 in ecommerce orders while they wait.
In all the above instances, the credit card networks took an incredibly long amount of time to adopt new technology and managed to implement it in a way that benefited them and at the expense of merchants. Given the poor recent experience merchants had with the EMV chip rollout in the U.S., how many want to wait until the credit card companies provide another solution?
Original blog post written by former Pipl Technology Evangelist Ronen Shnidman. Ronen is now Managing Editor @ about-fraud.com