What is Collusion Fraud in Marketplace Businesses? - Ekata
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What is Collusion Fraud and why is it so Prevalent in Marketplace Businesses?

Collusion fraud was once a team-effort event that took place in brick-and-mortar stores; someone buys an item with a stolen credit card and a second person returns the item in exchange for a store gift card. This small-time crime has since evolved into a major online industry with one major target: ecommerce marketplace businesses.

Let’s explore what marketplaces are, how they’re impacted by fraud, and what can be done to stop collusion fraud in its tracks.

What are marketplace businesses?

Marketplace businesses are two-sided, and facilitate the exchange of goods and/or services between the sellers and buyers on their site. They then charge a small fee on each transaction processed; this is generally their main source of revenue. Therefore, in order to grow their business, they need to increase the number of transactions they process, which means attracting new buyers and sellers to the platform.

Collusion fraud in marketplaces

Because of this reliance on both buyers and sellers, marketplace businesses are the perfect setting for online collusion fraud. Collusion fraud happens when two entities (in this case the buyer and the seller) conspire to launder and/or steal money.

In the case of money laundering, a fraudulent seller posts a fake item or service on the marketplace’s site which the fraudulent buyer can then order using illegally obtained or otherwise ‘unclean’ funds. Once the transaction is processed, the seller cashes out their funds, which are then ‘cleaned’ and usable. Marketplaces must address this type of fraud because it can damage trust and their reputation.

Ultimately, the type of fraud that most directly impacts the marketplace’s bottom line is theft. Again, this starts with a fraudulent seller posting a fake item or service on the site. The fraudulent buyer then uses a stolen credit card to pay for the item or service. Assuming the marketplace doesn’t catch this before the transaction is processed, the fraudulent seller will cash out those funds before they are marked as stolen. The marketplace business is then responsible not just for paying back the funds to the credit card’s rightful owner, but also are charged a fee by the payment processor. This type of fraud can be devastating to a marketplace since it directly impacts revenue and has reputational costs.

How to prevent collusion fraud

There are two places where collusion fraud can be prevented: at the transaction level and/or at the account sign up level. Ideally, there are measures taken at both of these points in the workflow to prevent as much fraud as possible.

Ekata’s identity graph and identity network give marketplaces more information about the identities of people doing business with each other on their site. The additional information provided by Ekata can be leveraged to make decisions at any point in the workflow to help prevent collusion fraud.

In summary, collusion fraud is growing rapidly. Fraudsters can commit collusion fraud at scale to launder money or outright steal from marketplaces, with devastating impact – both financially, and reputational. Preventing collusion fraud is critical to the success of any marketplace business. This means that measures should be taken both at account sign up and at the moment of transaction to catch fraudsters in their tracks.


elisa ahern

Elisa Ahern

Lead Field Data Scientist - eCommerce and Marketplaces

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