CNP Fraud: The Obstacle Chinese Merchants Need to Overcome

The Golden Age of China’s eCommerce export boom has been ushered mostly via popular marketplaces like Ali Express and JD. China’s success, and its appeal for global eCommerce merchants is a no-brainer: it’s the largest eCommerce market in the world, backed by a rapidly growing economy, a state-of-the-art manufacturing sector, and a new generation of tech-savvy consumers with significant spending power.

But now, Chinese brands are confident and ready to offer their goods directly to consumers outside of China, wooing cross-border shoppers with value for money, efficiency and speed.

One company helping fuel this revolution is iPayLinks, a fintech firm based in Shanghai, offering Chinese eCommerce merchants an end-to-end global payments solution to help them expand and succeed in overseas markets. Riskified and iPayLinks have recently formed a partnership, utilising Riskified’s advanced machine learning technology combined with iPayLinks’ global financial capabilities, to ensure that Chinese eCommerce merchants maximise sales and prevent payment fraud to safely expand overseas. 

We had a chance to speak with Ms. Li Qiao, iPayLinks Head of Product, about the Chinese market, Chinese consumers, cross-border challenges, and the recent Coronavirus pandemic. Qiao has 10 years of experience in the payments sector, having worked for an innovative Chinese startup, and then managing relationships with online merchants for French provider of technology and financial services, Ingenico, in Singapore.

According to Qiao, one of the biggest challenges Chinese merchants face as they expand their business outside of China is Card Not Present fraud. “CNP fraud doesn’t really exist in local Chinese transactions, so it has never been an issue,” she said. “And when Chinese merchants start selling cross-border, they’re suddenly inundated with a new phenomenon they’re unaware of, and unprepared to handle, in the form of chargebacks.”

One of the reasons CNP fraud is less prevalent in China, is the unique local payments landscape. The vast majority of local transactions in China are made via alternative payment methods. According to Qiao, only 16% of local online transactions last year in China were made using credit cards, with the rest conducted via products like Ali Pay or WeChat Pay. “For Chinese merchants selling locally, the advantages of alternative payment methods are clear,” Qiao explained. “They’re easier on the margins than credit cards, and success rates are higher.” 

And that ties in to one of the biggest values iPayLinks’ offers their merchants as they expand abroad: localization, and ensuring that local business partners facilitate local shopping and payment habits. “We’ve forged partnerships and established local presence in key markets, across Asia, Australia, North America, Europe and the Middle East, which means we are in tune with local payment culture, and our merchants can offer their end customers the widest range of familiar services” Qiao told us, adding that “a seamless payment funnel is critical for acing cross-border sales.” 

And from a merchant perspective, iPayLinks handles banking payments and integrates with local acquirers to lower fees and optimize currency exchange. They offer customized solutions to match specific business needs, so shops with market-specific sales channels can connect with local acquirers across regions using a single integration. iPayLinks also helps comply with local regulations, with the ultimate goal of reducing costs and allowing merchants to focus strictly on what they do best: selling.

We asked Ms Qiao about the Coronavirus pandemic, and how it impacted iPayLinks’ business, and business in China in general. “We’re back in the office now and our service has not been overtly affected” she told us. However, some of their merchants did take a hit from the pandemic, and Qiao and her team were quick to offer additional services and promotions. The goal was to help their partners reduce costs and maintain capital flows to get through these trying times. 

“Throughout the entire ordeal, none of our merchants panicked or froze,” Qiao noted. “OTAs and Airlines that we work with shifted their mindset – mitigating the present, while thinking forward and promoting future packages that were not confined by specific dates.” And that makes sense, with domestic air travel showing signs of recovery and providing confidence for an eventual rebound.

We asked Qiao what lessons were learned as a result of the pandemic, to help prepare for any future disruptions. She told us that “one of the obvious takeaways is the importance of planning ahead and being prepared: having a framework that supports remote employment, being prepared financially for enduring events.” She also addressed some technical takeaways, like never partnering with one single supplier, to ensure that logistics channels are malleable enough to withstand inevitable shortcomings.  But one of the most important takeaways related to making good use of time. “For us, it was a perfect opportunity to audit our internal processes, and to find areas for improvement,” Qiao said. “Our team was extremely creative in adjusting to a new reality, and we wanted to tap into some of that creativeness and to leverage it not only for COVID-19 matters, but also thinking ahead to the day after.”

Qiao concluded with some tips for merchants. “Foreign brands that want to penetrate the Chinese market will have to master and offer alternative payment methods, mainly eWallets.” She added that “these need to be integral to the payment funnel, but also a sales channel on their own.” As for Chinese merchants looking to expand their offering overseas, Qiao had this to say: “Make sure you know the local payment landscape, and deliver a checkout that is in tune with what the end customers expect, appreciate and like. But most of all – merchants need to be aware of CNP fraud and partner with a good fraud management solution.”