Marketplace Fraud: Where the Crook Can Be Anyone

gathering a minimal amount of know your customer data for both buyers and sellers during registration

Online marketplaces are big business. In 2020, marketplaces accounted for 62 percent of global online consumer sales, according to Digital Commerce 360. Altogether, the top 100 online marketplaces facilitated the sale of $2.67 trillion in gross merchandise last year. Small fry it’s not.

marketplaces accounted for 62 percent of global online consumer sales, according to Digital Commerce 360

However, this booming marketplace economy doesn’t come without its own particular fraud challenges. There are four characteristics that make marketplace fraud risk difficult to counteract: diverse product offerings, a global audience, complex logistics and the two-sided nature of marketplace transactions.

  • Diverse product offerings – Fraudsters tailor their strategies and tactics to the type of goods they target. For an eCommerce brand that sells a product within a specific price range and to a defined demographic, this means anti-fraud teams will be on the lookout for a specific set of behaviors. For a marketplace that deals in thousands or more products at a variety of price points and catering to a diverse demographic, pinpointing behavior that is likely fraudulent is much harder.
  • Global audience – Selling cross-border increases the complexity of fraud detection efforts by adding a whole other dimension to consider. Every country has its own unique eCommerce buying patterns, which influences fraud methods and rates. Finding fraud across different countries will require learning these different patterns.
  • Complex logistics and fulfillment flows – Some marketplaces handle shipping and warehouse logistics for sellers. Others only involve themselves in the payment part of the transaction and leave fulfillment up to the seller. This can lead to snafus that cause service-related chargebacks, as customers fail to receive their goods in a timely manner.
  • Two-sided risk in transactions – In traditional eCommerce fraud, the seller is just dealing with fraud originating on the buyer’s side. However, marketplaces are two-sided, with the marketplace bringing together a buyer and a seller. Therefore, fraud can be encountered on both the buyer and seller’s sides. This makes the challenge of fighting fraud on marketplaces more complex.

Fighting two-sided risk

On the seller side, the marketplace must worry about merchant impersonation, product and listing fraud, collusion (between seller and buyer) and content abuse (i.e. spam and fake reviews). On the buyer side, the marketplace has to worry about new account fraud using stolen credit card data, account takeover and chargeback fraud.

gathering a minimal amount of know your customer data for both buyers and sellers during registration

Part of the problem marketplaces have with fraud on both the seller and buyer sides is that they are designed to encourage quick and frictionless onboarding of customers and merchants. This translates to gathering a minimal amount of know your customer (KYC) data for both buyers and sellers during registration. Without much identity data it can be hard for marketplaces to identify fraudulent transactions. Sometimes marketplaces will hire third-party data providers to augment the identity data they have on customers just based on a limited set of starting data.

Pushing back on seller fraud

Dealing with seller fraud usually entails working with a unique set of solution vendors since the problem is significantly different in nature than buyer fraud. A lot of the problem is content related. Some examples include detecting product listings that have been cloned from another merchant, abuse of customer reviews to lower competitors ranking and raise one’s own, posting spam on other merchant’s listings. All these activities don’t just harm the marketplace by reducing buyer trust, but also by driving away your best sellers.

best sellers on a marketplace gets most spam

Say for example that you were one of the best sellers on a marketplace and were posting the most items. You would get the most spam as a result, with your visibility on the site exactly what leads to someone damaging your brand.

And in the case of seller fraud, there are quite a lot of repeat offenders. A historical analysis of Payoneer’s marketplace seller data from 2018 found that 67 percent of seller fraud cases were connected to earlier cases. Seller fraud is something that if you ignore is likely to spread on your marketplace as well as others.

Taking on buyer fraud

Chargebacks are a significant problem for marketplaces, whether they are caused by true fraud or friendly fraud (AKA chargeback fraud). Often it is the marketplace that is considered the merchant of record when a chargeback occurs. This means it is on the hook for the money that is lost when the sale is reversed and chargeback fees are levied.

A marketplace can always institute a cash reserve or delay payouts to its sellers to cover chargebacks costs when they occur. However, overuse of either tactic will discourage existing sellers and prevent new sellers from onboarding. Moreover, in the case that an existing seller is fraudulent and disappears after they are found out, the marketplace still has to cover the chargeback if it is listed as the merchant of record.

Using the AcroCharge solution

For situations like these, you want to employ a chargeback mitigation company that will fight on your behalf to recover the money without adding to the complexity of your operations. AcroCharge is a hands-off solution that relies on a success fee model. That means you assume no financial risk by partnering with us – we can only help your bottom line.

Contact us to learn more about marketplace fraud and how chargeback mitigation can help.

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