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Marketplace Fraud Types

Ecommerce is booming and, as a result, fraudsters and scammers are targeting lucrative online marketplaces. The range of online fraud that can happen puts the risk on both marketplace leaders and customers. 

Good security starts with understanding the problem, so we’re here to explain online marketplace fraud in simple terms and describe the different types out there. 

Many of the fraud types we touch on below have technology that can help. About-Fraud is a Global Community of Fraud Fighters and is happy to provide a curated list of Fraud Solution Providers that can help protect marketplaces. In addition, About-Fraud has resources, education and content that can help inform fraud prevention strategies. 

What is marketplace fraud?

Fraud is a risk in every marketplace, from local farmer’s market to Amazon products.  Marketplace fraud can span a variety of different types of deception, abuse and/or illegal activity. At a high level it can be broken down into fraud occurring at the onboarding stage, content, accounts, communications and transactions.

The risk depends on the industry, vertical and fraud controls that the marketplace has deployed. It is important for each marketplace to understand their unique fraud exposure and define the appropriate fraud mitigation strategy that fits them.

For a high level view of industry fraud trends, check out the developments and trends for 2021 here.

Marketplace fraud in the onboarding phase

Fake account

Online marketplaces often need customers to create accounts to use. Fake accounts can be used to scam vendors or initiate cyber-attacks, so there must be a ways to verify accounts in the creation phase.

Multiple accounts

A single marketplace user having multiple accounts can disrupt data analytics for managers and opens up the marketplace to customer fraud. If transactions happen in your marketplace, the easiest way to prevent this is to limit users to one account verified by their credit information.

Wrong data

Customers or vendors giving inaccurate data while on boarding can remove transparency and open up issues of identity fraud. To avoid liability, marketplaces should put up a disclaimer in the account creation phase that states that all provided information is accurate. Whether or not inaccuracies are subject to punishment depends on the marketplace.

Bots

reCAPTCHA plugins continue to be a popular way to stop bots when creating accounts. Having a way for customers and vendors to report bots that get through is important too, even if managers will only be able to take down bot accounts manually.

Marketplace fraud through content

Fake advertising

Most reputable marketplaces have policies that require vendors to advertise truthfully. Depending on the country the marketplace is based in, there will also be laws against providing false testimony in ads.

Fake content

Content here refers to everything from the information on the packaging, to the product description on the website. Any public facing information about products should be verified by the marketplace to a reasonable standard.

Fake reviews

Review fraud is damaging for all involved. Fake reviews are unethical at best and illegal at worst. Ideally, your online marketplace should only allow reviews from verified accounts. Some marketplaces, like Amazon, will only allow reviews from accounts that have spent a certain amount of money in the last six months to prove that the account belongs to an active customer.

Marketplace fraud with accounts

Loyalty abuse

In a marketplace with a rewards points system, an unusually high rate of points accumulation can be an indication of fraud. Customer activity should be fairly monitored to ensure that they aren’t exploiting the points system, and amendments to the rewards policy should be made accordingly.

Account takeover (ATO)

When fraudsters get their hands on sensitive log-in information, ATO’s become a large risk for marketplaces. There is a variety of technology that can help at this stage of the journey, including device intelligence and behavioral analytics. A popular approach is to leverage risk-based analytics and only step-up authentication for risky customers.

Marketplace fraud in communications

Spam

Spam should be avoided at all cost, as it opens up customer emails to cyber scams like phishing and identity theft. We go into more detail about identity theft and managing the risk in our blog here

Third party contacts

If third parties want to contact your customers, it should only be through approved messages or completely separate from your platform. Whether they’re hired for logistics or your marketplace’s platform provider, any communication third parties have with your customers should always be authorized by you.

Marketplace fraud in transactions

Payment fraud

Fraudulent payments can occur through stolen payment and/or identity data. There are a number of technologies available to analyze data (both customer, payment and digital) to assess the risk of the payment. This analysis can be done at scale and most effectively by leveraging machine learning, as opposed to a rules based system. 

Friendly fraud

Friendly fraud occurs when a customer makes a purchase with the intent of disputing that purchase for financial gain. Friendly fraud is very challenging to detect, but there are methodologies and processes that can help you understand your disputes and proactively mitigate a portion of friendly fraud. 

Call center fraud

Scammers often gain access to customer accounts by pretending to be them in support calls. Ideally, your marketplace’s call center staff should be trained to not give out any information that hasn’t been verified by the caller, and there should be verification policies like reference numbers and one-time pins (OTPs) in place to assist in this. In addition, there are a number of technology vendors who analyze voice biometrics and can help with call center fraud.

Marketplace fraud is preventable, with the right strategies

This isn’t about distrusting your managers and operators, but protecting the entire system from individual and group fraud.

A multi-level protection system needs to be in place to protect a marketplace throughout the customer journey and against all types of marketplace fraud. A strong anti-fraud approach makes a marketplace more reliable, encouraging consumer trust and vendor support. Those are the kinds of secure, mutually-beneficial engagements About-Fraud always wants to foster between a marketplace and its customers. We love to hear from our community on how we can help, so feel free to reach out to us with any inquiries!

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Author: Ronald Praetsch
Managing director and co-founder of About-Fraud. Ronald leverages his extensive experience in payments & fraud to inform the structure and content of the site. Outside of About-Fraud, Ronald consults regularly with merchants, payment service providers and fraud solution vendors. Before About-Fraud, he spent close to a decade in various payments and fraud prevention roles at Sift Science, Fareportal, Booking.com and Pay.On in both Europe and North America.