Differentiating Genuine Sellers from Fraudsters in Online Marketplaces

Online marketplaces must be equipped with strategic, data-driven solutions to protect themselves from various forms of seller fraud

Online retail marketplaces are making it possible for smaller businesses to showcase and sell their goods and services to a global customer-base. Ability to leverage a ready-to-use infrastructure and a large existing customer base provide an attractive proposition for sellers to benefit from the opportunities provided by online retail marketplaces.

The benefits are mutual, as retail marketplaces, too, benefit from a thriving seller ecosystem on their platform. The biggest benefit is in the form of an additional revenue stream (commission or fees) from third-party sellers. In addition, customers can order products that the marketplace doesn’t stock, which further adds to the revenues. Competitive prices help gain and expand customer base, while inventory management is taken care of by the sellers, themselves.


Attractive Target for Fraud

A thriving global business is a win-win for both online marketplaces and the sellers. However, it is also an attractive target for fraudulent sellers, looking to monetize the opportunities that online marketplaces present. As a result, online marketplaces are fraught with various forms of seller fraud. From fake accounts where fraudsters create fraudulent seller accounts in bulk, to account takeover where fraudsters take over seller accounts and use them to sell fictitious items, and fake seller fraud, where fraudsters copy profiles of genuine sellers and use them to con customers, marketplaces are witnessing greater sophistication of frauds. Clone fraud refers to fraudsters copying genuine posts from a seller and posting it either on the same platform or other marketplace or social media to double sell.

Besides exploiting the marketplace credit system by creating fake sellers and buyers, fraudsters have moved a step further to exploit the delivery schedules. Fraudsters ask customers for instant payments for goods promising scheduled delivery in about two weeks. During this duration, fraudulent sellers accept numerous payments and disappear, leaving customers waiting endlessly for their goods to arrive.

Another grievous form of seller fraud is where accounts are created using real data but used for transaction laundering to sell illegal products. Fraudulent sellers easily circumvent the system by ensuring they look legitimate at the time of underwriting. They easily comply with know your customer and credit requirements, while hiding any linkages with illegal content. These links can be detected only once the transaction starts.

Data-driven Solutions to Fight Fraud

Online marketplaces are a hotbed for fraud and since third-party sellers form an integral component of an online retail marketplace ecosystem, it is the responsibility of the marketplace to ensure a safe business environment for these sellers. As a measure to build trust, online marketplaces are allowing users to rate the sellers based on their transaction experience. These ratings denote the trust a seller enjoys among the customers. However, some marketplaces allow anyone to post reviews, which results in skewed seller ratings. In the absence of adequate checks, paid and fake reviews are being used to tarnish the online identity of sellers. Therefore, online marketplaces need efficient review mechanisms to ensure genuine sellers and its customers do not bear the brunt of unfair practices.

It is clear that online marketplaces have a difficult task at hand when it comes to fighting fraud to ensure its reputation as a trustworthy marketplace. In the wake of multiple fraud types, online marketplaces need data-driven, risk-based payment solution to help differentiate between genuine and fake sellers. This allows only authorized sellers to operate their accounts. Online marketplace providers have tremendous amounts of technical data—device ID, seller rating, transaction details, payout details, and credits—that can be harnessed efficiently to identify anomalies and prevent fraud.

Technologies such as artificial intelligence and machine learning are particularly helpful in busting fraud by providing a 360-degree view of sellers’ attributes, which enables online marketplaces to spot and block fraud early in its track. Moreover, third-party integration that allows combining data collected from marketplaces with digital identity can help evaluate the sellers operating on the marketplace and prevent fraud.

Maintaining Trust with Simility

Online retailers are working tirelessly to foster trust in their online marketplace. In their effort, they need support from a partner with proven expertise in data-driven fraud prevention. PayPal through Simility’s omnichannel fraud prevention Adaptive Decisioning Platform leverages artificial intelligence and machine learning to make the online marketplace trustworthy by detecting and preventing seller fraud in real-time.

The Adaptive Decisioning Platform can track a range of behavioral patterns of fraudulent sellers in online marketplaces, allowing marketplaces to automatically spot and block fraud before any chargebacks can occur. This reduces the time and money spent on manual reviews and attempts to recover funds, apart from preserving trust of its users.

To learn how Simility, a PayPal service, can help fortify your online marketplace against seller fraud and offer a trustworthy business environment for everyone in the ecosystem, schedule a demo today.

Arthi Rajan

Arthi Rajan

Arthi Rajan, Engineering & Product leader in the Risk Platform team at PayPal, has built a brand over 12 years at PayPal as a fearless leader with a passion for building and leading high performing global teams and cutting edge platform adoption. Her team builds innovative risk experiences that utilize the strengths of PayPal in machine learning in a unique ecosystem of a 2 sided global network. These solutions and experiences span across consumer, seller fraud and credit underwriting challenges. She and her team thrive on solving complex business problems and enabling world class customer experiences using the intersection of technology and data.
Arthi Rajan