Marketplaces are amazing digital spaces that bring like-minded buyers and sellers together. These sites are mutually beneficial for all parties. Buyers can purchase products or services from independent sellers, paving the way to higher-quality goods and better customer service. Meanwhile, sellers can grow their business while tapping into a large, dedicated pool of interested buyers. Marketplace platforms win, too! It's a lucrative business model that allows you to create an entire ecommerce ecosystem.
Of course, there are also some risks. Marketplace sites are a magnet for fraud, impacting platforms, buyers, and sellers. Recent data shows that online payment losses amounted to over $44 billion in 2024. Meanwhile, a Barclays survey shows that over two-fifths of all consumers fell prey to or knew someone who became a target of an online marketplace scam.
As marketplace platforms continue to grow in popularity, fraudsters will continue employing schemes that harm all parties. Keep reading to learn more about marketplace fraud, common tactics bad actors use, and what you can do to protect your platform.
What is Marketplace Fraud?
Marketplace fraud is an umbrella term for many illegal activities aimed at taking advantage of marketplace sellers, buyers, and platforms. This type of fraud can take many forms, but the goal is often the same: To steal money or sensitive data. Scammers can act dishonestly to siphon money while defrauding buyers. Alternatively, they can manipulate platforms to work in their favor, padding bank accounts while skirting the site's rules.
Consumers and sellers alike flock to marketplaces for many reasons. These platforms are convenient, easy to use, and often provide access to goods/services unavailable elsewhere. Unfortunately, fraud schemes make marketplaces less than welcoming. Platforms can't afford to ignore potential fraud risks.
Allowing fraud to happen can not only lead to substantial financial losses but it can also harm your marketplace's reputation, expose your business to legal liabilities, and put users at risk. There are many fraud schemes, but three in particular can substantially impact your marketplace operation.
1. Fake Seller Profiles & Non-Delivery Scams
Fake seller accounts are among the most common forms of marketplace fraud, particularly for platforms that lack adequate protection measures and mitigation procedures. If anyone can create an account without proper verification, your marketplace can become a free-for-all for scammers. These schemes work like this:
Fraudsters create fake seller profiles and offer goods they do not intend to deliver. Typically, scammers create fraudulent posts promising products that people want. In many cases, they'll offer those supposed goods at impressive prices. The best scammers will offer lower prices than any other source while keeping them realistic enough not to raise any red flags among buyers.
When a buyer makes a purchase, the scammer takes the money and runs! But how can fraudsters keep up that scheme? Naturally, complaints from buyers will attract some attention and encourage platforms to shut down their operations. Unfortunately, platforms that don't have anti-fraud measures can't do anything to stop bad actors from creating brand-new fake seller profiles and repeating the process! It's scam, steal, rinse, and repeat.
2. Chargeback Abuse
Here's a scheme that affects sellers, not buyers. Chargeback fraud is a widespread issue that affects all online retailers. Known as "friendly fraud," it's anything but. According to Mastercard, chargebacks cause merchants a whopping $132 billion a year!
This scheme exploits a legitimate process that helps protect consumers. If a buyer believes a charge on their card is fraudulent or unauthorized, they can request a chargeback to get a refund from their financial institution.
Chargeback fraud occurs when buyers abuse the system. They purchase a product through legitimate means on your marketplace. But after they receive their goods, they request a chargeback and claim it was never delivered. In the end, they get a refund and keep the goods, essentially stealing from sellers.
What's frustrating about chargeback fraud is that it can be challenging to fight. The funds get tied up, and sellers must spend time countering the fraudster's claims. In most cases, sellers lose, and scammers win.
Chargeback fraud is costly. It can also harm the seller's reputation and impact the platform. A high chargeback ratio can lead to fees, higher processing costs, and more.
3. Platform Manipulation
Finally, we have platform manipulation. This fraud scheme is damaging to platforms, rival sellers, and buyers because it creates deception across the entire marketplace.
Marketplace sites are competitive, so fraudsters will try to manipulate the platform to work in their favor. There are many ways to do this. Bad actors can create fake buyer accounts, leaving high reviews to artificially inflate seller profiles. Another modern tactic is to use bots to automate the deception. For example, sellers may use bots to compete against legitimate buyers during an auction, raising the final price of an item.
Fraudsters can also spam content on marketplaces, creating countless duplicate listings to increase visibility or send messages to buyers en masse. A more egregious scheme is to spread information about competitors or use bots to sway search algorithms.
The possibilities are endless, and bad actors are getting smarter about manipulating platforms to their benefit while harming others.
Tips to Avoid Becoming a Target
Marketplaces are ripe with opportunities for scammers. As a platform owner or operator, you must be vigilant about the schemes that fraudsters employ. Every marketplace is a potential target; failing to protect yourself can risk your bottom line, reputation, and users. Fortunately, there's much you can do to stay safe.
Strengthen Your Security Measures
Security should be a top priority when handling sales transactions and payouts. Weak setups can create more vulnerabilities that hackers and scam artists are eager to exploit. It's a platform's responsibility to safeguard data.
Use bank-level security, encryption, multi-factor user authentication, OFAC-compliant payout processes, and more.
Verify Identities
When onboarding new users, do your due diligence. Sellers should undergo comprehensive Know Your Customer (KYC) procedures. Additionally, you must verify identities to ensure you're not working with those looking to defraud other users. Identity verification alone can be a game-changer in stopping fake profiles.
Monitor Transactions
Keeping an eye on transactions is a great way to spot fraudulent activity. Whether it's a fake seller not delivering or a buyer who does frequent chargebacks, you should have monitoring tools to alert you to suspicious activity on your platform.
Fraud detection tools make all the difference, spotting bad actors before they can do substantial harm.
How Dots Can Help
Dots is the ultimate payout platform for marketplace sites like yours. We can transform your entire approach to accepting payments and sending payouts to sellers. The Dots API unifies the payout process, allowing you to send payments to anyone in the world while offering several different payout options that meet your users' needs.
Beyond all that, Dots has fraud management and mitigation tools that can keep your marketplace safe. With Dots, you can create a custom onboarding flow that's easy for new users. Comprehensive KYC features and identity verification procedures help you cover your bases. The same applies to complying with AML, OFAC, BSA, and other applicable regulations.
Dots doesn't stop with onboarding. Holistic fraud management and algorithmic protection protect you long-term. Dots continually monitors incoming and outgoing transactions, flagging suspicious activity. Personalize your fraud mitigation strategies to your business, and Dots will take care of the rest.
Get Started With Dots Today!
Dots is a match made in heaven for marketplaces needing a solid payout platform. In addition to streamlining how you send and receive funds, Dots protects your business from fraudulent activity and criminals. Keep your bottom line in check while creating an ecosystem your users will love to use.
Check out Dots today by booking your demo. See how Dots can protect your marketplace from fraud while improving how you collect funds from buyers and manage payouts to sellers.