Companies that have international customers are exposed to numerous financial risks that they must consider. Cross-border payments, international suppliers, and customers from different jurisdictions provide additional revenue, but also introduce additional risks.
These risks range from something outside of your control, like currency fluctuations, to security measures imposed on users. In short, cyber threats are found in multiple aspects of your operations, and they need to be addressed properly.
Preventing risks helps you both stabilize revenue and protect your reputation. In this article, we’ll explore the different financial risks that you’re exposed to, as well as some of the best ways to mitigate them.
Common Financial Risks
International transactions can range from your girlfriend purchasing trinkets and clothes on Temu to someone’s monthly payment. Regardless of the transaction amount, it’s absolutely necessary to protect each user.
Transaction Frauds
One of the most common forms of fraud is identity theft. In this example, bad actors find leaked credentials of the user and use them to either create an account or access an existing one on your platform. There’s also another level of this fraud, which includes piecing together data from different sources in order to create a synthetic identity.
In case of an identity fraud or an account takeover, you’ll recognize unusual behavior of the user. For example, their location would be vastly different from their address, or they’re starting to make unusual purchases or transactions.
You can learn more with SEON on how to recognize these types of fraudulent transactions. But in short, there will be signs that the user isn’t who they say they are.
Chargeback Fraud
Chargeback fraud doesn’t pose a risk for users themselves, but it does for the business. This type of fraud includes customers refunding the purchases they’ve made, even though they either don’t return the product, or the returned product wasn’t faulty to begin with. This leads to unnecessary shipping costs for the business, often costing more than the item itself.
Currency-Associated Risks
Although the majority of payment providers allow customers to use dollars, there are many exceptions across the world. If the customers are using different currencies in order to make payments, there’s a chance that you won’t get your money’s worth.
If you’re operating in volatile markets, you can often lose significant amounts of profit overnight. This is why it’s important to either accept only dollars or euros, which might restrict some regions from leveraging your platform, or increase the prices for the said region.
Both solutions have their downsides, but they can be good at preventing exchange rate risks. It’s also important to mention cryptocurrencies, as they’re the most volatile option for making payments. 30$ in Bitcoin can be worth 90$ tonight, and 20$ the next morning.
While cryptocurrencies are a great way of providing payment options for those in underbanked regions or who want to stay anonymous, it’s best to consider the risks associated with them. The best solution for this would be to support only stablecoins, rather than Bitcoin or altcoins.
Regulatory And Compliance Risk
Obviously, different countries enforce different rules that are associated with payments, data protection, taxes, etc. However, before we even talk about compliance risks associated with global transactions, let’s focus on the local first.
Staying compliant with regulations is one of the most important tasks for any company that processes any sort of transactions. This includes considering regulations related to data security, anti-money laundering, and politically exposed persons.
Various platforms can help you stay compliant by providing you with ways to encrypt your data or integrate processes, such as know-your-customer, into your workload. Having a strong legal department that will keep up with the latest regulatory changes is crucial.
When we consider global transactions, we need to consider all of these complex problems, but on a greater level. If you’re operating in California, you’ll need to comply with the CCPA. If you’re approaching European companies, you’ll also need to ensure you’re compliant with GDPR.
Fintech companies also need to consider anti-money laundering and PEP laws. While this might seem complex, it’s a much better alternative to non-compliance. If you violate any of these regulations, you may be subject to fines, frozen funds, or outright blocked market access.
Counterparty Risk
Do you consider yourself responsible and reliable? So do I, but it’s crucial that you can say the same compliments for every vendor, customer, and intermediary that you’re working with. All third parties that are part of your ecosystem provide additional risk.
For example, you integrate a lesser-known project management tool in your workflow. There’s a chance that it gets compromised, and someone from outside can now access various documents that have been posted throughout your board.
Of course, this is an extreme example, but it’s not impossible to happen on a different scale. While you can’t take a thorough examination of all of your associates’ cybersecurity measures, it’s quite necessary that you pick software and partners carefully.
Technology Tools That Reduce Financial Risk
Fraud prevention software, like antivirus software, won’t protect you 100% of the time. However, it will take a significant amount of time to analyze hundreds or thousands of transactions a day. This software works by analyzing behavior signals, device signatures, and transaction patterns in real time.
Options like SEON allow you to analyze each transaction in significant detail. They’re often rule-based but also include AI-powered capabilities, making them effective at identifying risks that humans might not otherwise recognize.
Besides this, it’s valuable to implement automated compliance screening for sanctions, watchlists, and politically exposed persons. If you’re wondering what the latter is, they’re users who are associated with political structures worldwide.
For example, if a person who’s on an international watchlist for corruption makes an account on your platform, it would be necessary to carefully approach the transactions they make. Depending on the regulations you adhere to, you’ll either have to pay attention to high-value transactions they make or prevent them from making an account altogether.
Regardless, manually screening each user to determine whether they’re associated with governments or political parties is likely impossible as you scale.
For both of these tools, the best way to approach fraud prevention is to have automated systems in place, along with expert personnel who are going to check each individual and transaction that’s flagged as high-risk manually.
This way, you’ll be able to prevent false positives and provide services for the individuals who deserve them. Recently, a co-worker of mine had her account banned from a notable payment provider due to her full name matching a known scammer.
Situations like this lower your reputation, which is crucial to carefully approach how tight and sensitive your automated systems are going to be.
Ideal Practices for Businesses
As mentioned, software isn’t enough for fraud prevention. You’ll need to implement the right policies and systems throughout your company’s workflow. To prevent some of the more notable fraud types like account takeover, implementing necessary 2FA can save both users and employees from a lot of headaches.
Similarly, your employees should take a cybersecurity course that will teach them the basics. Not all of your personnel need to be cybersecurity experts, but tasks like creating passwords or spotting phishing emails are absolutely essential for overall security.
Preventing Financial Risk is Crucial for Businesses
There aren’t magical solutions that could solve, let’s say, all of your regulatory risks with a click of a button. Instead, security is a matter of implementing a number of different tools and policies that cover the whole attack surface.
Even then, the risk might still persist, but it’s crucial that you do everything in your power in order to comply with regulations and protect your users and employees. As mentioned, the right measures not only protect your revenue but also your long-term reputation and potential for growth.
The earlier you invest in risk prevention, the higher the chances of scaling without any issues are. Companies that have never had notable problems with hacks, data leaks, and fraud will undoubtedly position themselves better in the market.
Whether you’re a fintech startup or a global gaming corporation, investing in your fraud prevention capacities is a must. By doing regular audits and finding the right software, you’re off to a great start.
Veljko Petrović
Veljko is an IT student who has successfully combined his passion for technology with his exceptional writing skills. As an emerging specialist in cybersecurity, he has completed several courses and has been published in notable blogs in the industry. In his free time, Veljko enjoys weightlifting, reading, and programming.
LinkedIn: https://www.linkedin.com/in/veljko-petrović-699ab0201/
Website: www.writerveljko.com
