An Expert’s View on the Current Scenario of Online Payment Fraud in Latin America
A challenging, but not impossible, market. Marcelo Palú and Maria Estela, from EBANX, hosted a webinar on how to shield businesses with an effective fraud prevention strategy in Latin America.
You can also read this article in Portuguese, click here.
The world economy is expected to grow by 3.7% in 2019, according to estimates by the International Monetary Fund (IMF). Emerging countries with developing economies are seen as key players in maintaining such growth.
Under such a scenario, Latin America is one of the regions worth highlighting. Overall, Latin American countries are responsible for one of the fastest e-commerce growth rates in the world. It is also the third largest region in the world in terms of Internet penetration, behind Asia and the Middle East/Africa.
According to eMarketer, Latin America reported a 17.9% growth in 2018 compared to the same period in 2017 and Brazil is one of the best performing countries, having expanded by 12% in the segment.
Numbers show that investment opportunities in Latin America are undeniable. Still, many companies postpone their plans to expand into the region for one main reason: fear of fraud.
This is not a groundless idea, considering that only in the first half of 2018, 4.5 billion records were compromised by payment frauds, according to Gemalto’s Breach Level Index.
How to overcome such an obstacle? How to implement an efficient fraud prevention system for the Latin American market? Is a single system capable of preventing fraud all around Latin American countries? Is it worth investing in the region considering such high fraud rates?
The experts Marcelo Palú, Fraud Prevention Coordinator at EBANX, and Maria Estela Soto, Fraud Prevention Analyst at EBANX, answered all these questions in an exclusive webinar.
In this article, you will find their main insights.
Opportunities are greater than risks
One of the major points highlighted by the hosts of the webinar was the importance of learning the differences between each country and only then choosing the most appropriate strategy to combat fraud.
Replicating actions from other regions is one of the most common mistakes and also one of the main reasons why some e-commerce businesses are unable to maintain sustainable operations in Latin American countries.
Therefore, the experts stressed that dealing with each country according to its specific reality is also the first step towards an efficient fraud prevention system.
As it is a really promising market, one can see that a balance is possible after considering what can be generated from sales versus what can come from fraud. The market is accessible and businesses can surviveMarcelo Pal'u
According to DEI LAC survey, Latin America and Caribbean’s e-commerce has grown from a market for 126 million people in 2016 to 156 million people in 2019.
In addition, revenues rose from US$ 40 billion to US$ 80 billion, doubling in less than 3 years.
In a larger market, risks are enhanced, but also is profitability.
Both the growth of e-commerce and the need to prevent fraud are undeniable, the difference is that it is possible to fight against fraud, while failing to invest in a growing market as it is still not saturated can take a costly toll on businesses in the long run.
Prevention rules: How to deal with them
“The key to surviving (in Latin America) is to know how those who commit frauds behave in each of these places and, from there, to create tailored strategies for each country”, said Maria Estela Soto.
Take Brazil and Mexico as examples: fraudsters are familiar with advanced strategies to achieve their goals, yet they behave differently when it comes to taking action. In Argentina, in turn, they are not as organized as in other countries.
According to Palú and Soto, Mexican fraudsters often insist on trying to defraud one same system, while Brazilians will soon give up if the first attempts are not successful and the level of complexity is higher.
To protect e-commerce businesses from these different profiles and behaviors, experts recommended during the webinar that companies deploy protection systems with more than one level of performance.
According to the experts, ideally, protection systems with multiple barriers should be created. Among the options available in the market, three security levels can be highlighted:
1. Tougher rules
Even in markets in which frauds are dynamic, according to Maria Estela Soto, rules are important first shields that impede fraudulent behavior, according to the history of each location.
That is, they work as a “screening test” to understand this initial model of fraudster behavior.
2. Machine Learning
Rules, in turn, are static and do not learn with new behaviors. “A criminal who continuously tries to commit fraud will, sooner or later, understand your behavior and your rules”, this is when, according to Palú, Machine Learning becomes essential.
Machine learning needs to be curated. It can be a very good path to follow, but it can bring even greater benefits when there is someone behind it also looking at what is happening. Supervised learning works as a complement to machine learning Marcelo Palú
The system combines a number of factors and crosses information to find signs of fraud or profiles of people who pose risks to e-commerce.
In addition, such technology enables pinpointing important data insights to identify investment opportunities and purchase histories, to enhance marketing strategies.
According to magazine Época Negócios, among Brazilian banks, half of those in the list of the most innovative financial institutions already use machine learning systems. Biometrics technology is used by 39% of the banks, digital portfolios by 17% and blockchain by 13%.
3. Supervised learning
The third point is to rely on a specialized professional to carry out supervised learning and assessments aimed at making the whole process more assertive.
This person will manually analyze behavior patterns and provide machine learning with faster information about certain actions.
The three points used as barriers complement each other and make up a major shield against fraud, as emphasized by Palú and Soto.
Merchant’s essential role in combating fraud
A fourth element greatly impacts the challenge of reducing fraud rates and chargebacks: the active engagement of the e-commerce management teams in the process.
For Maria Estela Soto and Marcelo Palú, there are two factors in which such engagement is determinant for the success of a fraud prevention strategy:
1.Providing data for learning
“Machine Learning is an incredible technology, but as such, it needs to be populated with data or information to work properly” says Soto.
While a machine learning system activated only with email and card number data, for example, is demonstrably much more vulnerable, since the amount of information for data crossing is insufficient, technology coupled with complete information from the user on the site is attestably much more efficient.
So, the first step is to understand that the more data you feed into the system, the better and more assertive your machine learning system can become.
“Finding the balance between not damaging a good user experience but providing as much information as possible” is the key to success, according to Marcelo Palú. Thus, technology can use data to become more mature as fast as possible and consequently make your e-commerce more secure.
2. User experience adapted to the local market
One of the greatest difficulties of global e-commerce businesses is the chargebacks and the best way to decrease such rate is to reduce cases that are not fraud.
It is mission-critical to be as clear as possible and have the best communication with your clients... If they can’t find good answers, they are likely to ask for chargebacksMaria Estela Soto
But how to prevent a chargeback that is not a fraud if the system is set up to identify fraudulent operations? The answer is simpler than it seems: user experience.
Some of the problems and complaints by Latin American consumers related to international transactions have to do with the fact that processes are not always completely clear at the time of purchase, for example, in terms of delivery deadlines and product prices in reais.
Prevention is not an impossible mission
When it comes to fraud in Latin America, the first impression should not be the one to last. Much on the contrary.
Fraud rates in Latin American countries may seem daunting at first, but it surely is possible to maintain healthy rates of fraud risk. Not to mention opportunities that are much greater than risks.
A report released by Wordpay’s payment company reveals that over the next five years, the global e-commerce market is expected to grow by an average of 11%. And within this context, Latin America will be the growth leader, with an expansion of 19% and revenues of up to US$ 110 billion by 2021.
There are also elements that favor this scenario, such as the convenience of language and the economic power of the countries, which, together, made up the world’s third largest economy with a Gross Domestic Product (GDP) of more than US$ 5.2 trillion in 2015.
Also, companies such as EBANX offer solutions for lower chargeback rates, directly influencing customer satisfaction and investor earnings.
There are many tools that work well in certain regions but end up not delivering a good performance in Latin America, because they simply replicate strategies. That doesn't work! At EBANX, we are able to create a general/global strategy, but with targeted actions for each country, so businesses can also target their approach Maria Estela Soto
E-commerce can be fully shielded from fraud, but this requires the technology, structure and expertise of tools and professionals with market knowledge that are trained to create strategies for this purpose.