More merchants are ignoring high card-not-present fraud rates to pursue untapped international markets for online sales.
Fraudsters target smaller merchants in particular because those merchants typically have fewer protections against cybercrime, Phil Levy, vice president of e-commerce systems for First Data Corp., tells PaymentsSource.
"Initially they ignore fraud risk, and by the time it catches up with them, it can have serious consequences," Levy says.
Card-not-present fraud has declined recently in some markets, but overall it remains the fastest-growing form of card fraud worldwide, experts say (see story).
First Data's anecdotal evidence suggests that within the last year, more criminals are aiming their attacks on smaller merchants' sites, Levy says.
The growing threat of fraud for online transactions and the challenge of creating secure payment channels for international customers were among the top questions Levy fielded during presentations at the Card Not Present Expo in Orlando, Fla., this week.
"E-commerce marketers see their growth rates surpassing brick-and-mortar stores and that trend is only going to increase as mobile commerce takes off during the next three to five years," Levy says.
And as mobile commerce expands, so does the need for e-commerce merchants to accept more alternative payment types, he says.
Credit and signature-debit cards account for about 75% of purchases from U.S. e-commerce sites, First Data's research suggests. Cards' dominance is on track to decline as more alternative payment types take hold, experts say.
"PayPal has some measurable share with most major online merchants, and then each merchant has some combination of two or three other payment forms," Levy says. Those might include e-checks, PIN-debit cards, PayPal's Bill Me Later or another one of many niche online payment services.
Merchants struggle to determine which methods provide the most effective combination of efficiency, security and value, he says, suggesting there is still a great deal of room for growth from alternatives that may take share away from cards.
Tapping international markets is "a huge lure" for U.S. e-commerce merchants, Levy says.
"Increasingly merchants are asking us for help in expanding online payment options to new markets, from adjacent countries like Canada and Mexico to high-growth markets like Brazil," he says. Western Europe, India and Russia are also drawing strong interest from U.S. merchants.
In each market, different regulatory and security concerns prevail.
For example, in Germany credit card penetration is relatively low, and U.S. merchants targeting customers there would need to set up systems to accept direct debit transactions, Levy says.
"There's a huge amount of opportunity but merchants have a lot of questions about how to tackle each separate market," he says.
All e-commerce merchants, including those eyeing overseas markets, need to step up their website monitoring for fraud, Levy says.
First Data markets an array of tools through partners that may help merchants block fraud, and increasingly such services are adaptable even to the smallest merchants, he says.
Small merchants may not realize that a variety of tools exist to analyze fraud risk from routine website visitors, including those associated with suspicious transactions originating in specific locations or from systems that raise a red flag, he says.
"Every e-commerce merchant needs to have some kind of system to monitor the behavior of those coming to their sites, which can help screen out a lot of potential fraud," Levy says.