A recent study from PPRO and Edgar, Dunn & Co. found that while about 40 percent of online sales in European countries are made to customers abroad, just 11 percent of U.S. eCommerce sales are purchases made from foreign countries. This lopsided figure underscores the difficulty of facilitating cross-border transactions, but there are many factors likely contributing to this large discrepancy.
It should first be noted that geographical and policy factors are likely an influence. The European Union’s Electronic Commerce Directive enforces one set of cross-border eCommerce regulations that apply to all buyers and sellers in EU member states. A consumer in France knows they have these protections when purchasing from a merchant in Germany, for example. Additionally, goods shipping within the EU are considerably less costly and take much less time to deliver than goods purchased from a U.S. merchant that require shipment overseas. The majority of cross-border eCommerce sales in the U.S. are going to Canada, as shipping costs are less of a burden compared to transatlantic shipments.
Cross-border eCommerce is a two-way street, but traffic doesn’t flow evenly across the two directions. While just 11 percent of U.S. eCommerce sales originate outside of the United States, more than one-third of U.S. consumers shop online from brands and websites outside of the U.S. This is comparable to the share of consumers participating in cross-border eCommerce from Germany (32 percent) and the United Kingdom (38 percent).
Shipping goods overseas takes more time and costs more money, often making it more cost-effective and convenient for European online shoppers to purchase from other European vendors rather than the merchants in the U.S. This has led to businesses specifically serving eCommerce shoppers overseas, with companies like Shipito who serve as a freight forwarder and eCommerce locker. Consumers pay a fee for services like this to receive multiple packages from many different U.S. retailers, then have all of the purchased goods shipped overseas at one time. This provides value to the EU customer who enjoys cost savings relative to having each purchase from a different U.S. e-retailer require its own overseas shipment, as well as allowing the EU customer to provide a U.S. address for retailers who may not ship directly to their country.
The concept of freight forwarders brings up another point that tilts the scales. Fraudsters use freight forwarding services too, although primarily less reputable ones. As a result, many online organizations utilize freight forwarder checks and assign higher risk to these orders. Additionally, a customer coming from a UK IP address and payment card issued in the UK, for example, will often raise red flags when purchasing and shipping to a U.S. address.
U.S. merchants seem to apply more scrutiny to orders coming from foreign countries. According to the most recent North American Fraud Benchmark Report from CyberSource, the order reject rate is 6.8 percent for cross-border transactions, more than double the 2.9 percent decline rate for domestic transactions suspected of fraud. This same study found the eCommerce fraud loss rate to be equal across domestic and cross-border transactions at 0.9 percent.
These figures imply a much a higher sales insult or false positives rate for cross-border versus domestic eCommerce transactions. While factors like higher shipping costs and delivery times are out of a merchant’s control, U.S. eCommerce organizations may be shooting themselves in the foot as well, contributing to this significant disparity in cross-border eCommerce sales between U.S. and European merchants operating in the Card Not Present channel.
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