Since the expansion of the Internet is always growing and reaching more and more countries around the world, businesses have to adapt to the global demands of their potential customers and launch e-commerce departments. Despite the variety of benefits such as convenience and the reach of customers worldwide, there is a list of challenges associated with e-commerce. In particular, payments across international borders cause some disruptions in business processes.
To explore the challenges associated with global payments, it is first important to determine whether all e-commerce companies sell their products internationally. While it is hard to analyze whether each online business operates worldwide, it is noteworthy that certain factors influence the likelihood of electronic commerce businesses venturing into the territory of global retailing. Such factors include improving infrastructure, consumer demand, and the popularity of large brands. Thus, to stay relevant and capture the largest audience possible, the majority of relatively big e-commerce businesses are trying to offer worldwide delivery options.
When dealing with international payments and contracts, e-commerce businesses may risk encountering repudiations and other attacks on the integrity of the company based on the tracking of third parties’ actions. Data breaches are of particular concern for e-commerce due to the lack of control of the actions taken by individuals in international locations. For this reason, it is important to explain how fraud can affect merchants. In case of chargebacks (requests to cancel a credit card transaction that occurs after the customer’s dispute of a charge), card providers will take action to determine whether an e-commerce company was responsible for fraud. As a result, the merchant could be debited for the total cost of the transaction and possibly additional fees. E-commerce companies are especially at risk of financial losses associated with fraud because EMV chip cards possess enhanced security for making purchases in-store though making it more complicated for criminals to replicate customer data and create fake bank cards. Despite the innovative security measures for in-store payments, online shopping cannot provide the same level of customer data protection, which pushes fraudsters to steal customer data, leading both merchants and their local or international customers to lose money.
While there is a variety of types of online fraud, the two main categories that affect international transactions are the following:
- Account takeover. Because almost every e-commerce store that sells its products internationally provides customers with accounts for storing personal information, purchase history, and financial data for shopping, fraudsters can hack into accounts by sending e-mails to customers to trick them into revealing passwords and usernames. As a result, hackers can log into their personal accounts, change passwords and make purchases without customers knowing about it.
- Identity theft. Despite the fact that the majority of businesses take precautions to prevent customers’ identities from being stolen, it is still possible for hackers to steal data such as usernames, credit card numbers, and passwords for making unauthorized purchases, which is considered a violation of Federal law (Clough, 2015).
Financial security is high on the agenda for e-commerce businesses; companies should invest in complying with PCI Security Standards for the maintenance of security standards for protecting payment accounts. Many businesses meet the standards of security through the use of such methods as tokenization, a toll that allows replacing digits in credit card numbers with non-sensitive information that cannot be determined. Such a method of financial data encryption is effective due to the extreme security: the information that has been tokenized can only be detokenized under strict security controls. Furthermore, payment card data and tokens are required to comply with the PCI Standards, including secure cryptography use.
Apart from compliance with PCI Security Standards, financial security departments of e-commerce businesses should also take concrete steps for confirming customer identity through using Address Verification Service (AVS), including requiring customers to enter cards’ CVV as well as provide a signature upon delivery. Thus, e-commerce companies are expected to invest a lot of funds into financial security to protect themselves and their customers, which means that only businesses with relatively large budgets can afford to avoid fraud and repudiation. As online commerce continues to evolve and expand, more and more fraudsters continue to come up with new methods for a data breach (Rana, 2015). It remains imperative for companies to educate themselves on the importance of securing customer information online, especially when it comes to international transactions.
To conclude, an essential step for e-commerce businesses to protect themselves against fraud is keeping their online platforms and software up to date since developers tend to update their new versions of software with increased security capabilities to account for the newly-discovered vulnerabilities, malware, and other viruses. For large businesses that sell their products worldwide, free, limited-feature antivirus software is not enough; it is always a good idea to collaborate with reputable security software providers on contracts to ensure that their customers are protected to the highest possible level.
Impact of Exchange Rates
The price of the currency of one country may get either weaker or stronger against another country’s currency daily, thus affecting the flow of e-commerce at relatively high rates. Currency exchange influences shipping costs, prices of products available for online purchase, the likelihood of products being sold, and many other factors. Therefore, despite the fact that electronic commerce offers customers easy access to billions of customers, it also presents the following challenges:
- Being able to use stable and competitive exchange rates to product prices in a foreign currency at the same time with protecting margins through rates’ hedging.
- Controlling costs of sales in foreign currencies regardless of the fluctuations in the exchange rate in order to protect margins.
- Implementing efficient currency conversion methods in order to reduce service provider payments and high fees associated with currency conversion.
- Paying suppliers in an effective manner for maintaining healthy relationships with them.
For e-commerce businesses that operate worldwide, it is recommended to automate foreign currency needs, introduce effective FX and payment platforms, and use international transfers. Automation of foreign currency needs can be achieved through the use of API plug-ins integrated into the platform that the e-commerce business is using. This is likely to allow companies to automatically hedge the foreign exchange rates for ensuring more effective and stable policies of pricing that will positively impact revenues and conversions. The introduction of efficient FX and payment platforms will allow businesses to access benchmark exchange rates with transparent pricing. This can be achieved through the centralization of payments to service providers and easier hedging of sales costs. In the long term, it is expected that lower foreign exchange costs and more efficient processes would transform into an increased competitive advantage for the company. Lastly, the usage of international transfers becomes an effective tool for companies when they include SWIFT messages as proof of payment. This tool can improve the process of shipping, reduce delivery times, and offer a reliable system for controlling funds. As to shipping costs, they are of particular concern for international e-commerce businesses since the majority of customers want their product delivered for free in the shortest time period possible, which is not always achievable when shipping worldwide. Cutting shipping costs can be possible through negotiating rates with carriers and developing agreements for worldwide shipping.
In conclusion, it is important to differentiate between foreign and US customers that make purchases in US e-commerce stores. The first difference and challenge is language, which requires US businesses to add more language options to their websites. Another challenge is that foreign customers (predominantly in developed countries) do not rely on credit cards as much as US customers, increasing the need for debit and invoice payment alternatives (Laudon & Traver, 2017). Moreover, international customers may find it difficult to assess the exact prices of products due to the relatively small list of currency conversions. Also, many foreign countries can impose fees on products purchased outside the borders, which contributes to the increase of the price and thus influences the final decision of whether the purchase transaction should be completed. Thus, foreign shoppers that plan to buy products in US e-commerce stores have different needs compared to local shoppers, which means that businesses need to account for their requirements to become truly successful.
Clough, J. (2015). Towards a common identity? The harmonization of identity theft laws. Journal of Financial Crime, 22(4), 492-512.
Laudon, K., & Traver, C. (2017). E-commerce (13th ed.). London, UK: Pearson Education.
Rana, P. (2015). A survey of fraud detection techniques in ecommerce. International Journal of Computer Applications, 113(14), 5-7.