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The keys to protecting your marketplace

(Image credit: Image Credit: Megaflopp / Shutterstock)

Marketplaces are expanding quickly and show no signs of slowing down. By 2021, Amazon is predicted to control 50 percent of ecommerce market share, growing 16 percent and holding a majority in the online retail space. Unfortunately, this trend has been met by an increase in fraudulent activity on popular marketplace websites. Dishonest sellers will often list products at low prices to drum up consumer orders quickly—with no intention of ever fulfilling their end of the transaction.        

For consumers, the frustration of having to seek out refunds for fraudulent sales can leave a lasting impression—and in the age of social media, a single negative user experience can wreak havoc on a marketplace’s brand. There’s no shortage of options when it comes to online shopping, and if consumers can’t trust a marketplace, they take their business elsewhere. For marketplaces, that means loss of revenues, departing sellers, and low consumer retention. 

To prevent fraudulent activity on their platforms, marketplaces should be investing in processes that incorporate technology to validate the seller and safeguard seller account access. By doing so, marketplaces can attract legitimate sellers while keeping consumers safe from fraud. 

Here are some of the steps that marketplaces can take to protect their platform:

1. Take the Time to Know Your Customer 

According to a report (opens in new tab) from receipt mining company, Slice, Amazon accounted for 53 percent of U.S. ecommerce growth in 2016. While that number is certainly appealing to Amazon, it also poses a problem. The steady rise in transactions makes Amazon—and other major and fast-growing ecommerce marketplaces—an attractive medium for fraudsters who want to sneak in, steal consumer funds, and move on. This infiltration can be difficult to detect, and global marketplaces often have trouble keeping pace with fraudsters’ ever-evolving techniques.    

Even those marketplaces that introduce customer verification steps will have trouble stopping fraudulent sellers unless they continue to invest in technology and resources to combat them. Most marketplaces implement basic customer verification procedures that are enough to deter the unsophisticated fraudsters, but seasoned cyber criminals are often one step ahead and capable of far greater damage. As a result, marketplaces might choose to integrate new verification methods as a reactionary step without fully considering how those procedures will impact the onboarding experience.     

Partnering with payments providers that have the technology to address such issues can help free up marketplaces to focus on their core goal: meeting the needs of their customers and sellers. A comprehensive payment platform can provide the customer identification, transaction monitoring, and sanctions screening components needed to help keep marketplaces safe—without creating unnecessary friction in the onboarding process. 

2. Go that Extra Step 

In many cases, once a marketplace has onboarded a seller, they feel their responsibilities have been completed. Unfortunately, with the rise of email and data compromises, account takeovers and new account origination fraud are quick to follow. One method to address this is by implementing a two-factor authentication solution. This adds another layer of protection for you and your customer by requiring users to identify themselves with more than one component in the verification process. While the technology has already made its way onto smartphones, other applications of two-factor authentication are still in their infancy. Still, that hasn’t tempered expectations: according to market research firm Technavio (opens in new tab), the global two-factor authentication market will see a compound annual growth rate of 24 percent by 2021. 

Marketplaces that adopt two-factor authentication will be better positioned to combat fraudulent sellers and account takeovers. Most marketplaces only require sellers to provide basic contact information before transacting on their platforms. While important, this information isn’t enough to determine whether a seller is legitimate. That’s where two-factor authentication could make a difference: from driver’s licenses to passports, an extra form of identification creates greater separation between potential customers and fraudsters interested in making a quick buck. 

Before pulling the trigger on a purchase, consumers are asked for a whole slew of personal information, including their name, phone number, address, and credit card number. Marketplaces should consider holding sellers to the similar standard. By implementing two-factor authentication, these platforms will be better equipped to weed out fraudulent sellers and—as a result—maintain consumer trust by mitigating illegitimate activity up-front. 

3. Trust but Verify 

When it comes to online marketplaces, what you see isn’t always what you get. Fraudulent sellers often claim to be located in a different country than they really are. This past holiday season was no different: in some cases, fraudulent sellers listed their shipping origin as the U.S. and Canada, only to provide fake China Post tracking information later on. Tactics like this one are used to deceive consumers who might otherwise feel uncomfortable buying from an international seller just days before the conclusion of the holiday season. 

Still, fraudulent sellers haven’t deterred the majority of consumers from shopping internationally. A report from DHL Express (opens in new tab) found that cross-border retail volumes are expected to increase at an annual average rate of 25 percent between 2015 and 2020—twice the pace of domestic ecommerce growth. Marketplaces looking to take advantage of this surge in sales and build trust with consumers must weed out fraudulent international sellers faster than the competition. 

This is where delivery verification comes in. By confirming ahead of time which fulfillment method a seller intends to use for their sales, marketplaces can put an end to suspicious country codes or tracking numbers designed to trick customers. Not only will verifying the method of delivery help marketplaces identify questionable sellers—it will also foster a greater sense of security among customers who have been left empty-handed before. 

4. Mind Your Reach   

Many marketplaces are scaling their core business offerings, leaving little time to closely examine all aspects of their sellers’ activity. From monitoring complaints and ratings to mystery shopping, engaging in quality assurance activities can help marketplaces identify fraudulent sellers sooner rather than later. 

Marketplaces may get tunnel vision on expanding their reach, forgetting that poor user experiences can more significantly disrupt a marketplace’s growth than high shipping costs or lengthy delivery times. Implementing an infrastructure that can detect fraudulent sellers is a key way to improve their overall platform experience. By using services and tools to sort the real from the fake, marketplaces can make the seller experience better and preserve buyer confidence, leading to repeat purchases down the line. 

 Nearly every marketplace has been infiltrated by at least a few fraudulent sellers. By adopting some of the best practices discussed above, online marketplaces can protect their relationships with consumers and reduce the headaches that come with fraudulent activity. 

Matt Odirakallumkal, Risk Management Leader, Hyperwallet   

Image Credit: Megaflopp / Shutterstock

Matt Odirakallumkal is the Risk Management Leader at Hyperwallet. He has nearly 25 years of experience in the financial services industries.