Examining the State of eCommerce Fraud Management in China Through 2025
When discussing eCommerce trends, there’s a tendency to focus primarily on North America and Europe. After all, these are both massive consumer markets with discerning and plugged-in consumer bases. Merchants can’t afford to overlook other regions, though.
The Asia-Pacific market—and China, in particular—presents a massive opportunity for those operating in the eCommerce space. By 2025, consumers in the Asia-Pacific region will complete more payment card transactions than consumers in the US and Europe combined. Much of this activity is already taking place in China; in fact, the Chinese payment card market saw an average annual growth rate of around 50% between 2013 and 2017.
Just like in any other market, however, greater opportunities go hand-in-hand with greater challenges. The surge in online shopping activity in the Chinese market correlates with a comparable uptick in fraud activity.
Global Fraud Threats on the Rise
Recent data from Juniper finds that global losses due to eCommerce fraud will increase significantly this year, from $17.5 billion in 2020 to over $20 billion by 2021. That’s an uptick of 18% over the course of a single year.
It can be tempting to see this as an outlier resulting from Covid-19. Without a doubt, shifting consumer habits resulting from the virus caused a massive surge in fraud, as well as more general chargeback activity. However, this was just an anomaly in a trend that was already underway.
We’d already been tracking an upward trajectory in online fraud for years. The virus aggravated the problem but did not reinvent it. That said, current projections indicate that fraud will continue to grow at an accelerated pace through 2025, at least.
This is going to be a global issue, affecting merchants and consumers in every region. However, it will be especially problematic for anyone operating in the Chinese market, given the current state of eCommerce operations there.
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3 Leading Challenges Facing the Chinese eCommerce Market
When it comes to fraud tactics and threat sources, China sees many of the same threats that will be familiar to merchants in any other region.
Account takeover fraud is cited as a major threat in the Chinese market. Social engineering is also a significant problem, which compounds threats such as account takeover. So, if the tactics are the same, then what’s unique about the Chinese market?
There are three primary factors that present specific challenges for countering eCommerce fraud in China:
China’s eCommerce market is currently valued at $1.7 trillion. The pace of growth does not show any signs of slowing: according to a report published by JP Morgan last year, the market “has grown rapidly in recent years, leaping by 17% in 2019 alone.” The report further explained that China’s business-to-consumer eCommerce market will grow “at a compound annual growth rate (CAGR) of 11.2% between 2019 and 2023.”
Lagging Deployment of Fraud Detection Technologies
Despite the massive scale of the Chinese eCommerce market, there’s still a relative lack of fraud detection and prevention platform deployment among merchants. This is likely due to multiple factors. For instance, the fast-moving nature of the eCommerce space in the country means there is not as much time to develop mature strategies for fraud management.
Rapid Technology Change
Technological change comes at a fast pace in every modern market. However, the range of technology-driven change occurring in China is a much broader and more dramatic phenomenon. Rapid and widespread adoption of social media has helped fraudsters collect personal data to fuel fraud attacks. The boom in eCommerce, which drove the quick expansion of online payments, resulted in uneven and inconsistent adoption and development of the market.
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These trends in combination do not bode well for retailers in the Chinese market. The data suggests that China will be the largest single market for eCommerce fraud in the world by 2025. The country will account for over 40% of eCommerce criminal fraud losses globally by that point, or roughly $12 billion each year.
3 Possible Solutions for Merchant Fraud Concerns
The Chinese eCommerce market presents incredible opportunity for merchants. However, businesses operating there must be careful. Merchants based in China, as well as international sellers hoping to accept business from Chinese customers, must take precautions to prevent fraud.
Analysts at Chargebacks911® identified the following as three things that should play an important part in fraud risk management for businesses looking to expand in the Chinese eCommerce market:
Remember: no solution is foolproof, and no single tool or tactic can contain fraud on its own. Effective fraud management demands a dynamic, holistic approach.