Chinese consumers purchased $589.6 billion worth of goods online in 2015, around 70% more than their US counterparts. In 2019, it’s anticipated that this figure will rise to an annual expenditure of $2 trillion – almost 4 times more than what Americans are expected to spend.

Unfortunately, international eCommerce merchants continue to miss out on some serious revenue from this burgeoning customer segment due to a fear of Card-Not-Present (CNP) fraud. As China celebrates the beginning of a new lunar year, I thought I’d take the opportunity to discuss some of the ways online retailers can increase their chances of successfully tapping into the most lucrative eCommerce market in the world.

 

eCommerce trade is booming in China – don’t get left behind

The domestic Chinese online market is flourishing, but it’s far from saturated – there’s plenty of room for international businesses to capitalize on China’s love of ‘wanggou’, or Internet shopping. Global online retailers are starting to take note of how profitable their affinity for it really is. In 2015 Chinese shoppers spent approximately $55 million on US sites over the major Western holiday season, and that’s just a small example of the spending power that makes Chinese Singles Day the biggest annual online shopping day worldwide.

Big overseas brands such as Macy’s and Woolworths are turning to Chinese cross-border online platforms (such as TMall Global), where they’re able to test their products on the Chinese market while taking advantage of reduced tariffs and lower regulatory requirements. However, many online merchants are failing to make the most of Chinese buying power. Despite an awareness of their potential value, overseas retailers are turning away good shoppers – especially during the holidays. Many either don’t accept international credit cards, or neglect to adapt their fraud management processes to account for this specific market.

The truth is that transactions made with Chinese credit cards are overwhelmingly safe for most key industries. According to our data, retailers should approve between 90-95% of cosmetic, travel, jewelry, and fashion orders, and 75%-85% of orders in riskier industries, like electronics and gift cards.

 

Opportunity [mostly] knocks at the door only once

Turning away legitimate Chinese shoppers in any of the verticals mentioned above is a costly mistake. Not only are these consumers very comfortable making cross-border online purchases, but they also tend to be more trusting of international sellers where they know they can get high-quality, authentic goods. The need to offer a positive customer experience and instill a sense of loyalty and confidence in this customer segment shouldn’t be downplayed.

According to a recent survey, the two main concerns of Chinese online shoppers are ‘security’, and the ‘complexity of the shopping process’. US shoppers on the other hand, still hold concerns regarding the fundamental idea of online shopping, specifically not being able to ‘speak with a salesperson’ or ‘see the products’. Indeed, high-friction identity verification processes have already proven to negatively impact eCommerce in China, where the customer drop-off rate for 3-D Secure is in excess of 45%. In short, to meet the expectations of savvy Chinese shoppers, eCommerce enterprises don’t need to convince them to go online, but they do need to provide a smooth shopping experience.

Optimize multichannel shopping
The most striking demonstration of the difference between Chinese and US online shoppers lies in the formers’ distinct preference for making online purchases via mobile. Spending across the mobile channel grew by over 100% in 2015. And with 43% of China’s huge population aged between 10-39, it’s set to soar over the coming years. While Western shoppers are slowly getting used to the idea of buying on their phones, 90% of Chinese consumers have already made a purchase via mobile! This is good news for retailers, who, based on Riskified’s data, should be able to safely approve 92% of mobile purchases made using a Chinese credit card.

Mobile optimization is critical to customer retention, but desktop users shouldn’t be left behind either. In fact, multi device owners in China spend more on eCommerce than those who only shop via mobile. They also engage with businesses more via social networks.

Ecommerce retailers are already leveraging China’s love for mobile, digital shopping, and social media, by integrating their shopfronts with Chinese social platforms. A recent survey revealed that almost a third of Chinese consumers initiate purchases via social media. This integration allows customers to simultaneously shop and chat with friends, while retailers can more readily reach consumers (e.g. through contextual targeting). This move also assists fraud teams, as linking customer activity across a number of mediums can provide an additional layer of assurance as to a buyer’s true identity.

Familiarise yourself with cross-border shopping patterns
Chinese online shoppers behave differently from Western shoppers, and this is not only reflected by their higher rates of mobile use. Accordingly, fraud teams need to familiarize themselves with local shopping trends to deliver a seamless, and mostly invisible process for reviewing orders.

For example, the use of reshipping companies is frequently flagged as ‘risky’ because it makes little sense for North American consumers shopping domestically.  But when it comes to cross-border shopping, reshipping services can benefit consumers trying to overcome high shipping costs or other constraints. Riskified’s data reveals that only 1.25% of orders made with a Chinese credit card that utilise reshipping services are actually fraudulent. Similarly, a proxy server connection may be considered a sign of trouble in domestic orders, but it is commonly observed in genuine Chinese transactions as it provides access to international websites otherwise blocked.

Fraud systems that automatically reject orders containing a billing/shipping mismatch will also negatively impact profits derived from the Chinese market. Chinese cross-border shoppers are often highly educated, young, and have disposable income. They travel, work, and study around the world, making this type of mismatch common. Relying on these sorts of mismatches to sift the good orders from the bad will ultimately lead merchants to turn away some of China’s biggest online spenders.  

 

The future’s looking bright

As merchants adapt their strategies to cater to international markets, and as competition grows, online businesses need to understand the important role fraud management plays in expansion. A smart solution can maximize growth, while an inefficient and outdated one will stifle it. In 2016 almost a fifth of online Chinese consumers purchased goods from overseas retailers, and as we enter a new year, there is no reason why you shouldn’t tap into this opportunity. If you have any questions about managing fraud in cross-border orders, feel free to reach out and contact us.