E-Commerce Fraud Risk: Latin America
Latin America’s e-commerce market is bursting at the seams.
With the projected e-commerce market to reach nearly $80 billion by the end of 2019, $30 billion larger than just three years ago, there’s rarely been a more promising opportunity for international merchants to expand online. As one of the fastest growing e-commerce regions in the world, it’s no wonder online merchants are intrigued.
But success in Latin America doesn’t always come easy and isn’t without its own set of unique challenges. Here’s what you need to know to safely expand your e-commerce presence into Latin America.
E-commerce merchants expanding to Latin America experience many of the same fraud risks and payment challenges that they do elsewhere.
But they’re also finding that Latin America’s growing online environment is attracting more fraudsters than normal. If you’re considering expanding into this unique market, here’s what you need to keep in mind.
An Unbanked Population
With nearly half of the population unbanked in Latin America, it can be difficult for e-commerce merchants to sell their products online. Much of the current e-commerce payment infrastructure is relatively new, and there are numerous providers trying to serve the population.
What makes this even more difficult is that 70% of online sales can be transacted by using only locally issued cards — and only approximately 30% of consumers in the region even have credit cards to begin with (compared with roughly 80% in the United States).
Limited Access to Local Payment Currencies
Currently, nearly 58% of U.S. merchants engaging in cross-border selling offer their customers one price in one currency — regardless of the market in which they’re selling. And that’s a problem in Latin America, where fewer than a third of shoppers have payment cards that can process foreign currencies. Instead, most countries here use payment methods that are native to the region.
E-commerce merchants who don’t offer the region’s popular payment methods end up missing out when they try to sell in the region: Offering local payment methods can deliver three times the revenue increase from consumers. But it also opens merchants to risk. Thanks to the multiple payment methods, fraudsters find unique ways to compromise this e-commerce market, its customers and its merchants.
Thanks to multiple regulatory landscapes and tax arrangements, many online merchants find it challenging to navigate the Latin American e-commerce market. As a result, many merchants simply opt to instead focus their sales and marketing efforts on Canada and Europe — markets with which these merchants are more familiar.
Account Creation Fraud
Latin America experienced an outbreak of new account fraud in 2018. In fact, nearly 25% of new account registrations from Latin America were rejected as fraudulent. Synthetic identity fraud is also on the rise in Latin America, with fraudsters profiting off of reselling fake accounts being used for free trials.
Fraud and Chargebacks
Fraud is common in the region, resulting in merchants needing to constantly be on high alert. According to the Online Fraud Report for Latin America 2015, 1.4% of sales in Latin America turn in to chargebacks, compared with 0.6% in the United States and Canada. In addition, 6.8% of orders in Latin America are rejected because of fraud suspicion, which happens to only 2.3% of orders in the United States and Canada.
To avoid expensive chargeback costs, merchants are looking to implement fraud prevention programs that include chargeback alerts, allowing merchants to resolve transaction disputes before they become chargebacks.
Implementing Fraud Protection for Future Growth
It’s understandable for e-commerce merchants to be wary of new markets — especially those with an increased fraud risk and complex regulatory arrangements. But with the rapid growth in the Latin American market, e-commerce merchants are finding increased demand for their products and services there. So how can they protect themselves while they grow their business?
Many merchants are turning toward static rules to prevent fraud. While this approach is inexpensive and simple, it’s not always effective. Layering simple fraud filters can often prevent legitimate customers from completing transactions and are easy for fraudsters to circumnavigate — defeating the benefit of expanding into new markets.
Using a combination of fraud detection solutions — including an expert team of analysts and advanced artificial intelligence — merchants can begin to confidently expand into new markets and build a new, loyal following of customers. ClearSale uses this exact solution with its more than 2,500 customers worldwide and helps them safely grow revenue and protect against fraud, chargebacks and false declines. If you’re interested in learning how our approach can help you take your business to the next level, contact us today.