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The Unique Challenges of Marketplace Risk Assessment & Management



Digital commerce has evolved into much more than just buying and selling on a website. Marketplaces—platforms that directly connect buyers and sellers—are springing up in nearly every industry.

Marketplace startups like Etsy, Airbnb and Lyft have built their businesses around the marketplace model, and even traditional e-commerce stores like Amazon are shifting in that direction. Their success relies on users joining their platforms, both as buyers and sellers. In order to create the right incentives for users to join their platforms, marketplaces must create trust within their ecosystem. Users must trust that their transactions will be protected, and that the experience will be better and more convenient than the old ways. Without trust, consumers will return to the alternatives.

Unlike in traditional e-commerce, where fraud prevention efforts focus on mitigating risk at an order level, marketplace companies allow suppliers access their platform to sell their goods and services direct to customers—whether those goods and services are then fulfilled by the marketplace company (think Fulfillment by Amazon) or fulfillment is handled directly by the seller.

That means they need to manage risk on both sides of the supply chain: ensuring that customers receive the goods and services they’ve paid for, and protecting sellers against fraud and chargebacks. Beyond transaction risk, marketplace companies also need to manage promo abuse, fake accounts, and offline events like safety incidents.

This creates several unique risk management challenges for marketplace companies.

Delays in the fraud feedback loop

Because fraudulent payments and chargebacks are generally calculated with the normal payment cycles, the fraud feedback loop for marketplaces is often delayed from the actual sign-up. This makes it easier for fraudsters to strike multiple times before getting placed on a blocked/banned list. Additionally, growth-oriented marketplaces often provide promotions for users to join the platform, but often never receive feedback as to whether a new account was legitimate or created solely to take advantage of a promotion.

Because of this, it’s more critical than ever for marketplace companies to employ identity data and a robust rules engine or machine learning model to flag—and identify—potential fraudulent accounts during the sign-up phase.

Preventing fraud vs building trust

While transaction-related fraud prevention is obviously still critical, marketplace companies are often also responsible for ensuring the physical safety of their users, as high-profile trust and safety issues can cause PR nightmares.

That’s one reason many marketplace companies are reorganizing the traditional fraud prevention team into a trust and safety (T&S) team. While both work within the risk organization, the former tends to focus more on preventing fraud and chargebacks, while the latter is focused on maintaining and building trust by managing offline risk, compliance, and onboarding.

It’s more imperative than ever for marketplace companies to build trust and safety into the fabric of the platform. In both cases, access to robust user identity data is critical to helping maintain a secure platform that users can trust.

Speedy account creation vs vetting users

As marketplaces grow in popularity, the main differentiators are trust and convenience. Trust means vetting users on both sides—the supply side (seller, rider, host) and demand side (buyer, driver, guest)—while achieving the growth needed to remain competitive. This means making it easy for users to sign up for an account.

Getting that balance right is critical. The more friction introduced during account creation, the fewer sign-ups they’ll get—resulting in reduced user growth, and therefore stagnation as fewer suppliers and buyers enter the ecosystem. But forgoing vetting during the initial sign-up creates a long list of problems: fake accounts, promo abuse and chargebacks, and platform reputation issues as users find the marketplace less trustworthy.

Marketplaces need to equip their trust and safety teams with tools to quickly sort through accounts in order to reduce friction for high-scoring accounts, block high-risk accounts, and use friction to weed out those accounts that fall in the gray area.

Managing marketplace risk with identity data

Even within the marketplace industry, risk tolerance can vary. Suppliers shipping products to buyers may only experience financial fraud, while those inviting strangers into their home or vehicle inherently take on greater risk. But all along the risk spectrum, the perceived integrity of a company’s marketplace platform means the difference between staying in business or not.

Building robust identity data into a marketplace platform is the key to mitigating the unique risk challenges of the industry.

Learn how Ekata can help marketplaces get ahead of the fraud feedback loop, build trust with your users, and remove friction in the account creation process—while still preventing fraudulent sign-ups.

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