Author: Roberto Valerio, Founder and CEO Risk Ident
With a population of more than 81 million, around 50 million1 of whom are digital buyers, Germany is already the world’s fifth largest ecommerce market and consumers there are increasingly willing to shop cross-border from merchants in the UK, US and France as they search for wider product availability.
Retailers should, however, be sensitive to the local cultural nuances that drive consumer behaviour in Germany. The payments market, for instance, differs from other countries as it is dominated by alternative payments and eWallets (PayPal), rather than credit card transactions. Open Invoice is still the number one payment method in Germany across all transactions. In 2015, 29% of eCommerce turnover was generated via open invoice according to EHI Retail Institute2, followed by Paypal (19.6%), direct debit (19.3%) and credit card (12%). Consequently, open invoice is a clear challenge to every fraud prevention effort, since the customer pays only after receiving the goods via bank transfer.
So, with this in mind, what do you need to know about building an eCommerce fraud prevention strategy for Germany?
Trust is essential to success
More consumers in Germany are becoming digitally savvy and choosing to shop securely in a way convenient for them. But retailers should also be reactive to local sensitivities. One such sensitivity is data. In 2015, Harvard Business Review conducted a survey3 in five leading ecommerce markets, finding that 97% of respondents expressed concern that businesses might misuse their personal data.
Consumers in Germany proved to be the most concerned over privacy, with 80% reluctant to share information with businesses because they “just want to maintain privacy”. Offering control and transparency in why and how personal information is stored will help boost trust and improve your customer relationships in Germany.
In general, German consumers tend to been more cautious when shopping online, particularly cross-border. According to the Royal Mail4, a third (32%) of German shoppers consider it a risk to purchase goods online from the UK. One in five (23%) cite unfamiliarity or lack of trust with the website being a barrier to buying from a UK retailer.
Establishing trust also involves tailoring the web layout and payment system to create a familiar customer experience. Being upfront about delivery costs, returns policies and product availability will help establish a lasting relationship with German consumers. Clearly displaying seals of quality and technical security like verified encrypted connections will, of course, help resolve concerns about security when purchasing from a foreign merchant.
Fighting off new fraud threats
New markets will present new, less familiar fraud threats that will exploit new weaknesses. Germany is no different. If a customer experiences fraud on a website, they tend not to blame the payment gateway, instead deciding it was the fault of the retailer. After demanding full reimbursement from their bank, they also lose the vital trust element needed to conduct a faceless transaction online. This means the merchant loses a customer, while the bank may also lose favour to a competitor.
The same, however, is true in reverse. Customers turned away on suspicion of fraud are likely to become highly frustrated (no one likes to be told ‘no’), and may not return to the site. If merchants are to capture vital sales in the German market, keep customers happy and maintain high security standards, they must, above all else, be accurate in identifying and preventing fraud. Accuracy will improve with better communication within the business.
It’s important, for instance, that eCommerce marketing managers communicate well with their fraud managers. If the marketing team is launching a new campaign of discounts on certain products, fraud managers can modify their fraud prevention to factor in increased demand or multiple methods of payments, including vouchers.
Flexibility and speed of response are also critical. Fraud threats are undergoing constant evolution, and eCommerce businesses must be equal to that. Last year, Risk Ident conducted a survey5 of German eCommerce merchants which found that they have established a rather long cycle when it comes to adjusting their fraud prevention rules: 42% change them once a quarter, 26% once every six months and 22% only readjust them once every year. This is dangerous, as fraudsters don’t sit still or only update their tactics every quarter or year; they evolve their methods constantly, probing for weaknesses to exploit.
The best response is to fight flexibility with flexibility. Using data science and machine learning, online merchants can create intelligent algorithms capable of detecting connections between individual transactions as well as unidentified fraud scenarios. Fraudsters work hard to cover their tracks and mask their identities when they trade bank card details or other personal information online. Machine learning technology is able to find patterns, calculate risks and halt their activities — in real-time.
Fraud managers with years of experience in fighting fraud are indispensable in this process and can never be replaced by a machine, but a combination of brains, biological and mechanical, can produce exceptionally accurate results. Domain experts know their fraud problems best but feeding the machine allows it to develop intelligent algorithms capable of detecting connections between individual transactions and unidentified fraud scenarios. Fraud managers can therefore access a more complete view of their fraud landscape and prevent the development of illegal activities.
The opportunities to sell online in Germany are great but to be successful, merchants must be sensitive to the local threats and cultures they encounter.
For more information on the German eCommerce Market, download the Germany Country Guide.