December 1, 2016
This week, the European Council agreed on a draft regulation to ban “unjustified” geoblocking between member states. The agreement is the most recent action in the European Union’s effort to establish a Single Digital Market making e-commerce easier between EU countries. Geoblocking enables online providers to deny access to transactions coming from certain IP addresses. The practice has been used to restrict access to premium content, enforce licensing agreements and control online gambling in jurisdictions where it is illegal. The EU has focused, however, on geoblocking that enables price discrimination (certain countries paying more or less for the same product) or simply turning off certain countries—a tactic that gained some prevalence as a way to control fraud in the earliest days of cross-border e-commerce.
“The new rules to stop unjustified geoblocking will improve considerably the e-commerce economy and give citizens access to a wider choice of goods and services,” said Peter Žiga, president of the Council and Slovakia’s minister of the economy. “This can only happen if there is a guarantee of safety and trust for both buyers and sellers. With our decision today, which was reached just a few months after the proposal was tabled, we have paved the way for a rapid opening of negotiations with the Parliament and a potential close next year.”
While the decision does take away one measure e-commerce retailers have resorted to, the sophistication of fraud prevention technology has grown to the point that turning off high-fraud countries completely does nothing more than limit revenue. One fraud prevention expert called geoblocking “an abysmal, rudimentary way to reduce fraud” and pointed out it is extremely easy for bad actors to get an IP proxy in another country. Companies that are still geoblocking as a fraud prevention measure are simply “inept at determining legitimate transactions” and are leaving a significant number of legitimate sales on the table.