The advent of the Internet has made it possible even for small businesses to reach potential customers almost anywhere in the world. It does, however, bring along some risks due to the nature of online transactions as card-not-present transactions (i.e., a transaction in which neither the card nor the cardholder is physically present at the time of the transaction), the greater susceptibility to having private information intercepted at some point between the customer and the merchant, the difficulty of taking legal action when necessary, and other factors, some of which are specific to the country in question.
Despite the risks, doing business internationally can be great for your business. It is necessary, however, to understand the risks and implement measures to prevent those risks from becoming actual incidents, or at least reduce the potential, and to minimize the damage in the event that something does happen. International transactions are one of the factors that often earn a merchant the label “high-risk business.”
That alone can make it difficult to open a merchant account at a bank, and even if you are able to open an account, subsequent incidents or changes that banks perceive as increasing the level of risk may earn you a swift termination of your processing agreement and cancelation of your account. A leading factor both in making it hard to open an account and in getting your account closed is, of course, chargebacks.
The bad news is that orders placed with merchants in the U.S. from outside the country are about three times more likely to be fraudulent than those placed from inside the country. That means not only an increase in legitimate chargebacks, but in fraudulent or malicious chargebacks. So, when making the decision to go global, spend the time and effort to gain a good understanding of the risks and implement wise measures to protect your business. It really is possible to take advantage of the global market without undue or uncontrolled risk.
Some countries have a higher incidence of—and, accordingly, a higher probability of—fraud than other countries. For example, about a third of all transactions initiated from Venezuela and Indonesia are found to be fraudulent. Other countries such as Romania, South Africa, and Brazil also have double-digit fraud rates. (The countries of Scandinavia, New Zealand, and Switzerland are considered to pose the lowest risk of e-commerce fraud for U.S. online retailers.) It’s important for you to do a bit of research and understand which countries tend to pose a higher risk.
This does not necessarily mean that you can’t do business with customers in high-risk countries. It just means that you need to exercise a higher degree of caution. Always approach orders from those countries a bit skeptically. One problem that we encounter at this point is determining where the order is being placed from. The address given by the person placing the order may not be the same as the order placer’s actual location. So, how do you find out where the order is coming from?
The typical way to do that is to check the IP address from which the order was placed. If the geographic location indicated for the IP address is not consistent with the credit card billing address, you will need to do a bit more investigating, so it would be best to wait to formally confirm the order until you can review the matter manually. If the mismatched IP address is in a high-risk country, you can assume that there is a greater probability of fraud and a higher potential for illegitimate chargebacks.
There are, of course, ways for scammers to get around that, such as using proxy servers, so examining the IP address isn’t necessarily a comprehensive or foolproof solution. However, you should include it in your set of “tools” to protect your business against fraud. It also may require you to increase your computer knowledge and learn the fundamentals of IP addresses and such. Although not particularly difficult, it does require a little studying.
Ultimately, you may decide that the potential gains aren’t worth the risk, time, effort, and expense involved to accept orders from high-risk countries. You have the option of blocking IP addresses from high-risk areas and the scammers won’t see your website, to begin with. There are plenty of countries that don’t pose an unreasonable level of risk.
Another measure that can be implemented to protect yourself from international chargebacks and fraud it to be very cautious with special orders. Customized products are susceptible to chargebacks, since you’re not merely providing the customer with standard-specification products. The customer has a specific idea of what he wants, but may not communicate it well, particularly if language differences are an issue. In the midst of his frustration at some minor difference, it’s unlikely that he’ll think “You know, I really didn’t communicate what I wanted very well.” You’re expending resources to create the customized product, and if it’s not something that another customer will purchase, it’s a straight loss for you.
Customized products also make it easier for people to initiate unreasonable, illegitimate, or fraudulent chargebacks. That minor difference (real or not) could be used to justify a forced refund. In such cases, you could lose the income from the sale of a product that has already shipped and may not be recoverable. Adding insult to injury, you will likely also be responsible for paying any resulting fees and penalties.
A great skill to develop whether you do business with people in high-risk countries or not is the ability to identify the signs of fraud. Scammers with no “tell” or who perform so flawlessly that there is never any evidence of their fraud are confined to the world of thriller movies and novels. Real scammers are fallible humans, and even the best will give themselves away at some point. The signs are even more evident with common, run-of-the-mill scammers. There are patterns of behavior and certain practices that are fairly reliable indications that something isn’t quite right.
Some questions you can ask as part of your examination of the situation are as follows:
While these are not necessarily sure signs of fraud, they are worthy of caution. If there are more than one such sign, alarms and flashing lights should be going off in your head.
Of course, extra caution and good preventive measures are not a guarantee of no international chargebacks. The reality is that, regardless of what you do, there will be chargebacks. It’s important to work within the context of that reality to minimize risks and mitigate the negative impact of chargebacks as much as possible.
If you are using a high-risk payment processor, you have an excellent resource to help you address these issues and implement the most effective measures efficiently. Talk with them about aspects of their system that help reduce chargebacks and fraud, what your business can do, and how you can work together to protect your business.