Voice of the Industry

Are risk and fraud management easy tasks for marketplaces?

Monday 25 January 2021 08:43 CET | Editor: Stefana Ivan | Voice of the industry

Masha Cilliers, Specialist Partner at Be | Shaping the Future, elaborates on managing risk exposure, protecting against online fraud, and other challenges that marketplaces might face

What are marketplaces? 

The past decade has seen a vast growth in this relatively new sector. In fact, the marketplace concept has become so wide and all-embracing that there are many varying definitions of what the term actually means: there are pure-player marketplaces, there are retailers opening their websites to third-party sellers, there are gig economies, shared economies, franchises, business-to-business platforms, and new-age procurement platforms – to name just the main models. 

But the term is also used for a ‘yellow pages’ type of services, checkout platforms, and even international retailers. For the purposes of this discussion, let us focus on the following definition: marketplaces are online platforms which enable purchases of goods or services by multiple buyers, from multiple sellers, from marketing to facilitating the payment. 

By the nature of acting as a platform and processing the payment for goods and services, marketplaces are usually in scope for seller risk and transaction fraud. And because of the longer ‘value chain’, or the number of parties involved in these payment transactions, there can be ambiguity as to whose responsibilities lie where.

The fact is that both the marketplaces and their payment providers need to be aware of the risks involved. Let us consider these in more detail under the following two headings. 

Managing risk of sellers 

The marketplace will have a process for onboarding sellers, including a range of tools to help assess potential risks. Some platforms will build their own systems with a comprehensive KYC (Know Your Customer) process. This can be done by collecting required personal information and then sending it via an API to an identity verification company, of which there are many. Others may choose to leverage onboarding tools provided by their payment provider instead, or they may do a combination of both. 

Identity verification is a legal requirement for whomever is providing the payments for the platform – it helps ensure that the seller (or any of its main shareholders and directors) is not laundering money or using the platform for illegal purposes. Anti-money laundering regulations are increasingly applicable to a broader range of companies, therefore marketplaces must regularly check their compliance with rules and regulations relevant to them. 

For the identity checks, it is generally recommended to use a ‘risk-based approach’, which means heightening the level of checks as the transaction volume or its amount, and thus risk exposure, increases.

The challenge with marketplaces using a payment provider’s tools is that the level of KYC might not be equally appropriate for different types of platforms and sellers, and it may be disproportionate to those with small exposure – or insufficient for those with high exposure. 

Seller settlement schedule may also need to reflect the risks related to the types of products and services the seller vends: a book is less likely to be damaged in shipping than a crystal vase, so allowing customer time to receive and check the product before settling to the seller may be a sensible policy. The marketplace must also be clear about what type of products or services it allows sellers to sell and what is prohibited. Normally this information would be presented to the seller in legal terms and conditions that they sign as part of onboarding. It may be worth ensuring that these are very visible and do not get lost in the ‘small print’. 

Managing transaction fraud 

Any online merchant is potentially a target for a fraudster and it is important to take precautions to identify and protect against them. There are multiple ways to fight online fraud, and there is a great choice of providers whose entire businesses are built on helping to manage fraud. In a standard ecommerce scenario, the merchant would be responsible for sourcing such a solution, however, with marketplaces, this can be also a service that the platform provides to all the sellers. 

There are clear benefits from using a fraud management tool for multiple merchants; from economies of scale in terms of costs to the valuable insights into threats and fraud attempts, which the larger amount of data provides. Marketplaces can employ fraud manage ment experts, which smaller sellers would not be able to do if they handled this directly. But such a system must be very flexible to allow for different business models of different sellers – be that different trans action values, geographies served, or the type of product or service sold. 

Conclusion and recommendations 

Building a marketplace platform is a complex task with the added challenges of understanding compliance requirements, managing risk exposure, and protecting against online fraud. Marketplaces should consider the two separate areas of exposure – seller onboarding and transactional fraud management – as part of the overall platform service and think about offering tools for managing these risks for the sellers. This added value will help cut losses, as well as contribute to the return on investment in such tools. And with compliance require-ments getting increasingly strict, it might be a good idea to include these features on the roadmap soon.

This editorial was first published in our Cross-Border Payments and Ecommerce Report 2020–2021, which assesses the change of pace that occurred in 2020 and provides a comprehensive overview of the major trends driving growth in this space, being the ultimate source of information for players interested in selling across borders. 

About Masha Cilliers

Masha is a Specialist Partner at Be | Shaping the Future as well as a Board Advisor to Limonetik, Principal Consultant at Payment Options Ltd, and a Non Executive Director at two UK fintechs, PaySME and Trust Payments. She brings over two decades of experience of working within the payments industry, and prior to consulting she held a number of senior appointments within the payments industry – including at Mastercard, Visa, Microsoft, Cybersource, and Ingenico. Her core focus is within online and mobile commerce, and she has a track record in delivering complex payment solutions for payment facilitators and marketplaces.

About Be | Shaping the Future

Be Shaping the Future, listed in the STAR segment of Borsa Italiana, is a management consultancy and transformational digital engagement and solutions firm dedicated to the ever evolving financial services ecosystem. We serve our clients by helping them to shape their journey through offering specialist content advice, digital services and innovatively orchestrating end to end solutions. Our people stand out for their domain knowledge, can do attitude and commitment to live by client pace and culture.


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Keywords: Masha Cilliers, Be Shaping the Future, Marketplaces, risk management, online fraud, checkout, retailers, ecommerce, KYC, customer onboarding, merchants
Categories: Securing Transactions | Digital Identity, Security & Online Fraud
Countries: World
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Securing Transactions






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