Navigating The Final Frontier (Of Payments)

Payments professionals today must be part risk manager, part technology innovator and part Cirque du Soleil performer given the balancing act of sorts that they must do given the ever widening, global customer base at the same time they navigate the risk of financial fraud, itself a pitfall that will only grow as international payments and new types of transactions increase.

PPRO Financial lays out its framework for how to do that in a new e-book entitled “The Final Frontier: Fighting Fraud and Reducing Risk in International Payments.” They do that against the backdrop of a number of evolving general trends, such as cash trending downward in usage, while credit cards, smartphones, smart watches and the like are gaining in currency.

In a rather bold and sure to be controversial proclamation that many might dispute, PPRO posits that cash may eventually become obsolete within a decade, with the convenience of contactless payments giving rise to a real need to safeguard transactions. The inexorable movement to the internationalization of eCommerce will touch an ever growing number of merchants, with strong upticks in addressable target markets. In fact, as estimated by OC&C Strategy Consultants, cross-border trade will increase by fivefold within only the next few years, to $130 billion in 2020.

As international sales grow, merchants must prepare for an attendant growth in mobile transactions, and that means they need to familiarize themselves with foreign rules, regulations and legal systems. But, according to PPRO, only one in five merchants surveyed by the firm said they feel ready to embrace those additional considerations – and those who indeed found growth in new and foreign sales channels noted significant growth in fraud attempts. The locales sporting the highest incidences of fraud? The United States, India, Canada, Japan and Russia.

One key risk stands with the lack of integration across disparate systems located in different countries, said PPRO, which tends to be “accepted” as a cost of doing business as merchants begin to see their sales take off in different regions. As merchants move into new countries, they must accept an ever growing number of payment options across new currencies and, with that, the administrative and safety burden becomes huge.

The growth of mobile platforms — and the transactions made across them — also brings new challenges in risk management tied to mobile malware, said PPRO. The solution, according to the e-book, is to adopt partnerships with fraud protection vendors that prove homogenous across varying countries, payment types and channels.

Merchants themselves are becoming the chief choice of the would-be cyber thief, especially as financial institutions have beefed up their own security efforts. Conversely, many merchants are ill-equipped to turn back concerted and sophisticated fraud efforts. Identity theft and account theft have proven to be the dominant methods at work today, especially on an international scale. Again, mobile becomes, perhaps, an unwitting accomplice here, as users can “stumble” upon malicious sites even under the most innocuous circumstances. In 2014, noted PPRO, there were roughly 400,000 new viruses for mobile devices, and by 2017 that number could be as high as 12 million. Malware is also getting “smarter,” as viruses can be cloned or modified to fit a certain situation.

In this environment, said PPRO, security should always be a “multi-step” process, which could, for example, include a behavioral recognition technology alongside encryption.

Late payments present another challenge to merchants, one that has been in part addressed by legislation, such as the “Late Payments Directive” adopted by the European Union, which levies fees on those who do not pay up or deliver goods on time. The rise of e-invoicing can also act as a salve, said PPRO – and if cash flow is adversely and continuously affected, collection efforts can of course be outsourced.

Looking a bit deeper at eCommerce, PPRO stated that Internet fraud is of course slated to rise beyond card payments and within the two aforementioned movements toward identity theft and account theft. But there can also be incidences of other, perhaps lesser known, classifications, stretching across “friendly fraud,” wherein goods are paid for — but then the claims come that account details were stolen. Fraud types, stated the reported, can be as varied as the channels through which they are conducted.

As a result of all these possible pitfalls, PPRO recommended that when choosing an eCommerce platform, merchants consider security, in addition to cost and performance, and, for example, two-factor authentication. Merchants should also take care to meet (or exceed) security standards such as PCI DSS. Knowing the behavioral patterns, payment types favored and used by customers can also be an effective form of risk management, stated PPRO.