How BaaS Reduces Risk for DTC eCommerce
BaaS can also significantly reduce the risks associated with scaling an eCommerce shop. Growing your brand exposes your company to more potential customer fraud, regulatory fines and data protection to worry about. Almost every brand faces at least one of these risks, and almost every brand can reduce the threat with the help of BaaS.
BaaS Helps Brands Scale Quickly Without Overheads
Growing quickly comes with inherent risks. Typically, selling more products will require more warehousing space and more staff, both of which significantly increase overhead costs.
At the same time, growth can complicate cash flow, writes MOMeo Magazine.com’s Carla Young. “It doesn’t take much growth before your monthly expenses exceed your operating credit, and suddenly one bad sales month takes on a whole new meaning.” That can spell disaster if you have huge warehousing bills to pay for, no products to store in those warehouses and no subsequent income.
These risks are eliminated by working with a BaaS provider with expertise in logistics and fulfillment. “By outsourcing fulfillment, your business benefits without incurring those capital expenditures,” says the team at Floship. That’s because you can leverage the fulfillment company’s warehousing space and staff. This lowers overheads and keeps costs predictable. Brands know exactly what they will pay each month, allowing them to budget more effectively.
It’s not just the cost of warehouse space that brands have to account for when growing their business. There’s also the cost of creating the technology to handle large fulfillment volumes. This is where partnering with a BaaS provider that combines human expertise with software really pays off.
Rather than spending the time and money to create your own version, you can partner with a company that already has that software in place, writes the team at MAI Solutions. Look for technology that is able to integrate with your own eCommerce platform to deliver a seamless logistics experience.
BaaS Protects Brands From Fraud
Online fraud is a major risk for eCommerce brands. Levels of digital fraud have surged in recent years, according to eCommerce Guide. From fraudulent chargebacks to stolen identities, brands need to be aware of common tactics and integrate solutions to prevent them.
That’s because eCommerce companies lose more than just the cost of the transaction when fraud strikes, writes the Chargeback Gurus team. “The costs of acquiring the customer, marketing, and shipping the product are casualties as well, along with payment processing fees and overhead expenses.”
Research shows that outsourcing fraud protection is the favored choice for brands. A Javelin study found that almost two-thirds of physical goods merchants believe outsourcing fraud mitigation and chargeback management is a cost-effective solution. Not only does it reduce operational costs, but third-party vendors are able to adapt quickly and implement better, more proactive security measures faster.
Software alone isn’t enough, however. It’s important to combine machine learning with human ingenuity to deliver the most effective protection, advises digital marketing consultant Bradley Shaw.
Ideally, DTC brands should be working with a merchant and seller of record to completely eliminate risk. A merchant of record is held financially liable for all transactions, while a seller of record takes responsibility for all chargebacks and sales-related penalties.
BaaS Improves Cybersecurity
Every time your brand sells something online it collects personal data about customers. This makes eCommerce websites “reservoirs of sensitive customer information,” writes Howard Goldstein, CEO at Priceless Funding. All that data needs to be securely protected, and very often brands are required to do so by law.
It’s not just the law you need to be concerned about. eCommerce websites are prime targets for attack, and these kinds of attacks are becoming more common, says Pratik Dholakiya, Founder of The 20 Media. “Failing to prioritize web security is one of the biggest blunders you can make when you’re running an eCommerce store. The risks can be fatal to your operation.”
Protecting your customers and your brand reputation starts with using a secure eCommerce platform, writes Saud Razzak, the WordPress Community Manager at Cloudways. The platform must have a high level of base security with regular automatic updates to remain as secure as possible.
Ideally, your eCommerce platform partner will also have a team of cybersecurity experts on hand. In addition to ensuring that the platform remains secure, they can provide tailored advice to specific brands.
“A modern IT security team of cyber-security experts will consist of threat hunters and data analysts to predict how the most valuable data could be stolen and constantly look for signs that an intruder has gained access,” says Dan Pitman, Principal Security Architect at Alert Logic Inc. These experts are typically hard to come by, he adds, which is why brands should take a “buy-not-build” approach.
BaaS Ensures Tax Compliance
Tax compliance is an essential part of eCommerce. Unfortunately, tax regulations, even in the U.S. alone, are a minefield. For starters, every state and territory has a different sales tax, says Wayne Rash at PC Magazine. It’s not just a different rate overall, either; rates change depending on the product sold. Each state also has different exemptions and different rules on when you are required to pay and when you aren’t.
The consequences of failing to comply are severe. Audits are common, write Vertex’s Chris Livingston and David Deputy, and so are penalties that can impact cash flow. You also risk ruining customer experience if you present inaccurate tax calculations at checkout, warns Vertex’s Brian Wilchusky.
The best way for any eCommerce company to navigate these tax risks is to partner with expert external resources, writes the team at Avalara. “Just as companies outsource and automate payroll management and other requirements that are extraneous to their core business, automating sales tax is an affordable, efficient way to meet the increasingly complex challenges associated with multi-jurisdictional and remote seller sales tax compliance.”
Again, working with a BaaS partner that provides automated software and acts as a merchant of record is the best solution. They will be responsible for complying with all local tax laws and for declaring taxes in each state.
BaaS Simplifies Cross-Border eCommerce
International expansion increases common domestic risk and brings its own unique set of challenges. Hendrik Laubscher, Founder and Chief Analyst at global eCommerce research company Blue Cape Ventures, notes that fraud is one of the biggest risks for brands opening up payment to consumers outside their home countries. Logistics and reverse logistics also present their own set of problems; additionally, there is a maze of local tax and import regulations that will need to be navigated.
In every respect, partnering with an internationally-focused BaaS provider can help. Getting expert advice from consultants is essential if you want to successfully expand your horizons, says designer and marketing consultant Amber Leigh Turner. “While expert advice isn’t cheap, it pales in comparison to the costs, missed opportunities and damage to the corporate psyche and reputation caused by failed first attempts or other possible debacles.”
Having boots on the ground and access to an existing business network is of particular importance when it comes to fulfillment and logistics. Your brand lives and dies on its ability to deliver products to new customers. Failure to navigate fulfillment in a new country will result in failure, period. This can be avoided by partnering with a BaaS provider that has an existing integrated and proven network of warehouses and shipping partners.
With a BaaS partner, you don’t lose control of your business, but you do lose a lot of the risk associated with growing and running a successful DTC eCommerce brand. A monthly subscription ends up being a very small price to pay.