As China loosens restrictions on international commerce, foreign merchants bringing their operations to China may be unprepared for the types of fraud they encounter.
"The potential fraud that can occur as [merchants] start selling into countries they haven't sold into before and seeing payment methods they haven't seen before is significant," said Bill Zielke, chief marketing officer at Forter, a fraud management provider.
Forter has worked with Jomashop, a luxury watch retailer, to start selling into the Chinese market without getting overwhelmed by fraud. Luxury items are a high-risk business since the products fetch high prices and can be resold quickly. For example, Forter could flag a transaction if it sees someone having goods shipped to a different address than the one they registered with their credit card, said Zielke.
If fraud management is done correctly and good customers are allowed to transact, the Asia-Pacific region becomes an even more attractive place to be. The population is exploding and e-commerce is growing tremendously, Zielke said. "And Chinese buyers have a huge demand for U.S. products," he added.
Because the Chinese government has decided to allow U.S. retailers to set up shop in China's tax-free zones, large and small merchants will likely establish a presence in the country.
These retailers are not only faced with managing the new fraud but also the new payment types. Plus the technologies used in China are different than in the U.S. For example, when moving into any Asian market, the penetration of mobile will be much higher.
And according to Forter's Global Fraud Study, fraud instances on mobile devices were three times higher than instances on the Web. And for U.S. merchants, when selling internationally, they had three times as many instances of fraud than when selling to U.S. consumers.
"You have to have increased levels of sophistication when moving globally, Zielke said.
Forter's system makes decisions about transactions in 300 milliseconds to 500 milliseconds, a speed that is essential for scaling a business globally, said Zielke. The company offers a chargeback guarantee also, so Forter takes the hit if it's wrong about a decision. Forter launched its product in the fourth quarter of 2014 and has signed 15 clients so far.
China, and more generally the Asia-Pacific region, is drawing considerable attention from the payments industry this year. Almost on a weekly basis, payment providers are opening offices in the area to be closer to a customer base that wants relationships to be forged in-person. Western acquirers are also taking more notice of Asia's micro-merchants, which are starting to enter the commercial framework by supporting digital payment types and building e-commerce websites.
"Everyone is looking for a large addressable market," said Mike Massaro, chief executive at peerTransfer, a cross-border payment provider that focuses on the large dollar amount transfers for higher education tuition.
PeerTransfer, which launched four and a half years ago, opened up an office in Shanghai, China this week.
Students from China represent 28% of all international students living abroad, the highest proportion, said Massaro. Not only will the office be a headquarters for customer and partner service in the Asia-Pacific region but its sale force will also play a role in signing up schools to accept payments from other countries via the peerTransfer platform, he said.
Since its launch, peerTransfer has started working with 700 educational institutions and supports payment in 75 different currencies. Last year, the company handled $1 billion in tuition payments and estimates it'll handle $2 billion in 2015.
While education has typically gotten a pass from the restrictions levied on cross-border payments in countries like China, India and Korea, Massaro said, the company is encouraged by the recent easing of restrictions for the offshore settlement of renminbi. These moves by the Chinese government "are part of the reason why we're looking to further invest in the region," Massaro said.
Now peerTransfer is looking to expand its service to other verticals outside education but still within the company's niche of high dollar value transfers. For example, it sees opportunities in real estate purchases and rentals, tax payments and medical bills, Massaro said.