The Impact of Geo-Blocking on eCommerce
Global retail eCommerce keeps on clicking with no signs of slowing down. Retail eCommerce sales worldwide are expected to more than double from $1.7 trillion in 2015 to $3.6 trillion by 2019. In particular, the number of cross-border online shoppers is steadily increasing. This is due in large part to competitive pricing, where a report on eCommerce trends found that 67 percent of consumers who shop abroad are doing so because prices are lower outside of their own country.
Despite the growing popularity of cross-border commerce, some online retailers are facing challenges when it comes to dealing with customers from other countries. In the European Union (EU), where a unified single market is defined under the Services Directive, shoppers in member states are guaranteed equal access to products and services from businesses within the EU. However, when it comes to eCommerce, many Europeans have found that they cannot always buy what they want.
What is Geo-blocking?
Geo-blocking is a practice used by online retailers that prevents access to products and services to consumers based on geographic location. Some examples of geo-blocking include:
- Blocking website access to other countries;
- Preventing the completion of an online order when a website is accessed from another country;
- Denying delivery or shipment to another country;
- Listing different prices and conditions based on nationality, country of residence, or location of the customer.
The results of a public consultation that finished at the end of December 2015 and held by the European Commission (EC) reported some revealing numbers. Over 80 percent of consumers consulted had experienced geo-blocking, and the vast majority of this group support introducing laws to prevent unfair geo-blocking.
What is the EC doing to deal with geo-blocking?
The Digital Single Market Strategy
In order to promote greater business opportunities within the EU and to address issues such as geo-blocking, the EC adopted the Digital Single Market Strategy in May 2015. This strategy includes 16 initiatives that are to be delivered by the end of 2016.
The EC has said that there are many benefits to the Digital Single Market Strategy. For consumers, they will have a wider selection of products and services to choose from throughout the EU as well as lower delivery prices and better eCommerce consumer protection. For businesses, they can have greater confidence in engaging in cross-border commerce with clear rules for all players in EU, and there will be a level playing field thanks to a unified taxation system that will set the same tax rate for all goods purchased online internationally or domestically.
Reducing Fraud Without Alienating Customers
On the other side of the argument on geo-blocking, Ecommerce Europe, a trade group based in Brussels, has expressed concerns about forcibly requiring EU online merchants to sell to consumers in all members states.
“It is crucial that online merchants can rely on their right to economic and contractual freedom and freedom of entrepreneurial activity based on reasonable grounds,” said a statement from Ecommerce Europe. “This also means that an individual company may decide not to sell to a consumer from another Member State.”
The trade group cites Article 20.2 of the Services Directive as providing online retailers the necessary latitude to practice geo-differentiation versus geo-blocking. It goes on to say that based on these “reasonable grounds”, the decision not to sell to a consumer from another EU country should be considered differentiation rather than discrimination. One of the possible reasonable grounds for differentiation could be to reduce the risk of fraud where certain countries are known to have higher rates of online fraud.
To reduce fraud risk, it is not necessary to completely exclude an entire country’s population, which risks shutting out legitimate consumers as a source of revenue. A more strategic approach by online businesses should include carrying out due diligence on customers and implementing a comprehensive fraud prevention program.
Financial technology, big data analytics and interoperability provide eCommerce merchants with robust solutions to address logistical issues such as address verification, shipping, and risk scoring. In order for the world’s economy to be truly global, businesses need to keep step with the pace of technological advances.
What alternatives to geo-blocking do you think are effective at preventing fraud?