3D Secure: How to minimize fraud while maximizing conversion
In this second post from our Revenue Optimization series, Xinying Teo discusses different local payment cultures around Asia Pacific and how this diversity affects risk management strategies, fraud protection and revenue optimization.
By Xinying Teo, APAC Team Lead, Risk Management
With almost 60% of the world’s population in APAC, it leads the global ecommerce boom by sheer force of numbers. But it’s a fragmented region, especially when it comes to payment cultures and behaviour. Understanding these differences, and how they can impact payment risk management strategies, is key to businesses that intend to expand their footprint here.
The diversity of payment cultures in APAC is a reflection of broader differences between markets and countries. We may be able to broadly categorize the markets three ways in terms of payment preferences:
First of all, card-dominant markets. These are markets in which credit card usage is relatively high. They include Australia, Hong Kong, Japan, Korea, Taiwan, Singapore and New Zealand. Then there are the markets in which local payment methods like digital wallets predominate. We include Malaysia, China and Korea in this group, though increasingly, digital wallets are becoming more popular in markets across the world. Finally, there are the markets in which cash is still in heavy rotation. These include Japan, Indonesia, Thailand and Vietnam.
Payment preferences vary across markets in Asia Pacific
It’s worth noting that the preference for cash is not quite an indication of ecommerce growth. In fact, in cash-dominant Indonesia and Thailand, smartphone penetration rates are high and ecommerce is booming. How does that all work? Perhaps understanding the non-card payment methods in Southeast Asia can give you a glimpse of payments in these markets.
There are also nuances within transactions that could lead to potential revenue losses if mistaken for fraud or be exposed to more risk than needed. I’ll give you a few examples.
1. Sharing credit and debit cards
In Thailand and Vietnam, for instance, it’s not uncommon for small communities to share credit or debit cards such that multiple individuals may use the same card or account for different transactions. This sharing behaviour can appear fraudulent to payment platforms that have not been calibrated to recognize it.
2. Seemingly risky email addresses
In China, on the other hand, popular email domains like qq.com and 163.com are issued by mobile phone carriers. That means addresses are typically a phone number + @qq.com. This is in contrast to the majority of email addresses in other parts of the world that include some variant of the user’s name, a number + domain. For example, firstname.lastname@example.org. Many Chinese email addresses may then be deemed suspicious by risk management systems.
3. Frictionless checkouts vs fraud
Other markets face challenges of their own too. In places like Japan and Korea, where high credit card penetration meets a service-oriented mindset, there’s a commercial imperative to massively reduce friction at checkout. Leaving out certain checks and balances such as authentication can expose businesses to fraud. The challenge then, is to strike the right balance between sufficient risk management settings and smooth transactions.
Businesses often see authentication as friction along the shopper journey
APAC is one of the fastest-growing regions in the world. The high growth in online payments and ecommerce has been attractive to international and regional businesses. Fraudsters, particularly, are also drawn to the large transaction volumes because:
• More transactions means a larger target pool for fraudsters.
• Merchants using static fraud tools that don’t adjust to market changes, or change in commerce patterns, become easy prey.
• Businesses prioritizing growth may choose to minimize friction in favor of smoother checkouts at the expense of increased fraud.
High growth, new opportunities plus businesses that are eager to appeal to new audiences – these may all be factors that draw fraudsters. And with so much more online activity happening in a post-Covid world, it’s more important than ever for businesses to remain vigilant.
So, what can a business that is based in APAC do to stay ahead when it comes to risk management? One of the first steps is to understand the two typical risk management systems: rules-based and machine learning.
A rules-based system depends on human input to establish limits and make updates in response to market changes and evolving threats. Whereas a system that relies on machine learning uses integrated data to optimize automatically.
Adyen’s RevenueProtect offers the best of rules-based and machine learning risk management systems
Each has its merits – which is why RevenueProtect, Adyen’s risk management engine, incorporates both. Machine learning leverages Adyen’s vast merchant network and global market presence to optimize authorization rates, while a rules-based component enables timely, specific localization and customization according to each merchant’s business needs. In combination, this ensures that there are no black boxes and you will have maximum transparency and control over your risk management strategies.
In a region as diverse as APAC, businesses that want to make the most of the accelerated shift to online should implement risk management strategies that recognize the different payment cultures. That way, not only will you be able to keep fraud at bay, but also have a better strategy to increase authorization rates and continually optimize revenue.
Don't forget to check out Revenue Optimization 3: Why APAC businesses need to pay attention to strong customer authentication (SCA).
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