In 1865, New-York Tribune journalist Horace Greeley famously told Americans seeking their fortunes to “Go West.” A century and a half later, an updated version of that prescient pronouncement would implore retailers looking for new customers to keep going west — right over the Pacific!
With cyberspace reducing the distance between consumers and your store, cross-border e-commerce presents an enormous opportunity. Forrester estimates cross-border e-commerce sales will reach $627 billion in 2022.
For merchants who face increasing pressure from Amazon and agile digital natives, the rapid growth is a chance to expand into new and lucrative markets. But here’s the catch: While consumers are eager to do more cross-border buying, many retailers aren’t taking full advantage of the opportunity to sell to them.
It Ain’t Easy
There are several reasons. Selling cross-border means merchants have to tackle a slew of new issues when it comes to culture, currencies and consumer preferences. The new challenges include taxes and customs, languages, payment instruments and fulfillment. And, they need to have the right product fit for the right markets — or find someone who can manage all those considerations on their behalf.
OK, it’s not easy, but there’s another reason many merchants hesitate to go global: fear. Every day seems to bring news of yet another big data breach exposing troves of identities for fraudsters to buy on the dark web. Five billion records were stolen in breaches in 2018 alone. Cybercrime has become professionalized, with organized crime syndicates operating large-scale rings.
Fear of fraud is an outsized revenue-killer when it comes to selling internationally. Pitney Bowes surveyed cross-border merchants in 2018 and found that fraud was the No. 1 worry when it came to selling beyond domestic markets. In fact, it had moved up from worry No. 9 in the previous year’s polling.
On the surface, that reluctance is understandable. Orders from outside a merchant’s home country arrive with the fear of the unknown. These are customers an individual merchant is not likely to have seen before. Sometimes merchants blacklist whole regions for fear of fraud. In fact, a 2017 study found that fraud in domestic and cross-border orders is virtually the same — just under 1%. Still, merchants turn away 6.8% of cross-border orders for fear of fraud, compared to 2.9% of domestic orders.
At Signifyd, we find that this hypervigilance is a major contributor to revenue leakage — the loss of sales throughout the buying journey. The loss can be attributed to misguided rules at a merchant’s payment gateway and card processor, or to outdated fraud-screening efforts. Returns and chargebacks after delivery continue to erode revenue. That’s why we work to help our customers avoid these types of losses through the solutions we offer.
While the immediate sales loss hurts, even worse is the ongoing reputational damage of a retailer who declined a customer’s legitimate order.
Develop Your Cross-Border E-Commerce Strategies
The key for retailers thinking about cross-border e-commerce turns on how they respond to the challenge. Overreacting is a natural response, but it’s also a destructive one. In fact, I’ve found that fear is one of the biggest barriers to optimizing retail revenue, and those wrongly declined orders add up quickly.
Capturing those sales requires a new kind of thinking that embraces the idea of fearless commerce. One approach retailers can take is to focus on what they do best — serving their markets and their customers — while finding third-party experts to handle e-commerce operations that aren’t core to their mission. These tasks include regionally relevant marketing, localizing payments, fulfillment and delivery, and, yes, fraud review and protection.
In fact, in a study of cross-border retailers, Pitney Bowes found those that were the most successful shared certain characteristics that distinguished them from those less successful. For the purpose of comparing cross-border practices, retailers were divided into two categories. The high-growth companies posted year-over-year cross-border sales increases of 25% or more. The low-growth companies achieved year-over-year increases of 10% or less.
In looking at the two groups’ cross-border practices, the study found that:
• Eighty-three percent of high-growth cross-border retailers diversified their carrier network (using three or more), compared to only 52% of low-growth retailers.
• Eighty-three percent of high-growth retailers leveraged marketing programs offered by vendors, while only half of low-growth retailers did so.
• Forty-one percent of the high-growth retailers outsourced their fraud management, compared to only 30% of the low-growth retailers.
• Eighty percent of high-growth retailers processed payments in the shopper’s country, while only 69% of low-growth retailers did the same.
Selecting third-party vendors to go international is no different from finding partners for domestic operations. Conduct the due diligence you’re accustomed to. Ask prospective partners for references from customers with similar characteristics to yours. Have a bias for models that tie their success to your success. When looking at artificial intelligence (AI) solutions, consider the amount of data the vendor works with to train its learning machines. Pay attention to the pedigree of the data science team at the core of the company.
Set goals, including return on investment, and be ready to part ways if those goals are not met. Most of all, preserve flexibility so you can swap out an underperforming partner for something better.
Sparing yourself the need to directly manage those operational tasks means you and your team can turn to higher-level thinking about how to constantly capitalize on the new and bigger opportunities that your international expansion provides.
In the end, there’s too much upside here to not join the retailers that are expanding internationally. I believe cross-border is the future growth engine for e-commerce, and no retailer can afford to ignore it.
