Top 5 Marketplace Fraud Examples You Should Know

The popularity of marketplaces is skyrocketing, but with more companies switching to the digital realm, both buyers and sellers encounter new risks related to different types of fraud and scams. So learning about the risks behind anonymity and determining which sellers are legitimate is crucial. Here, we talk more about how to stay safe from marketplace fraud from the buyer’s and the seller’s side.

The sad truth is that many online marketplaces don’t prioritize anti-fraud measures until it’s too late or there’s a serious security issue already emerging. On top of that, the issue with fast scaling usually is that businesses don’t invest enough time into implementing proper fraud prevention protocols. 

In this article, we’ll discuss what kind of fraud prevention measures marketplaces should use and how customers can avoid scams while browsing online.

What is an Online Marketplace?

An online marketplace is a digital platform, such as an e-commerce website or app, that brings together buyers and sellers in a single space to facilitate commercial transactions. Unlike a traditional retailer, the marketplace itself does not sell items. Instead, it provides a virtual space where sellers can present their products or services, while buyers can easily browse and make purchases. This arrangement offers convenience and accessibility for buyers, enabling sellers to showcase and sell their offerings to a broader audience.

Online marketplaces play a role in facilitating various types of transactions. They can support business-to-customer (B2C) interactions, such as Vinted, as well as business-to-business (B2B) transactions. Consequently, some marketplaces can be two-sided, like Amazon, or one-sided, like Walmart. Other famous marketplaces that you’ve probably heard of are AliExpress, eBay, or Etsy. 

What is Marketplace Fraud?

Marketplace fraud is a term used to describe various illegal activities that take place within online marketplaces. Marketplace fraud can involve individuals or businesses that engage in fraudulent schemes to exploit and deceive both buyers and sellers or the platform itself.

There are different types of deceptive scams on marketplaces, such as fake listings, account takeover, chargeback fraud, or identity theft.

Types of Marketplace Fraud

What are the main Red Flags for Marketplace Fraud?

Whether we like it or not, the most effective way to start preventing fraud is to know how to detect the red flags. That’s why remaining vigilant and using common sense while conducting transactions in online marketplaces is crucial to detect and avoid potential fraud.

If you suspect that the person you’re interacting with is a fraudster, what signs should you be alert for? Here’s a short list of things that might indicate fraudulent behavior: 

  • The seller has poor reviews. Always make sure to check the feedback and ratings. A high number of negative reviews or suspiciously positive ratings can indicate unreliable sellers.
  • The buyer or seller insists on taking the conversation outside the marketplace. Be very careful if they want to chat through unofficial channels or avoid direct communication within the marketplace’s messaging system. This could indicate an attempt to carry out fraud outside the platform’s monitoring.
  • The seller asks to pay outside the marketplace payment system. This can be an attempt to bypass security measures and engage in fraudulent transactions.
  • The seller pressures the buyer to make a transaction ASAP. Fraudsters create a sense of urgency or pressure to complete transactions quickly, preventing buyers from thoroughly assessing the legitimacy of the seller or the product.
  • The buyer sends a prepaid shipping label to the seller. By providing the seller with a prepaid label, fraudsters attempt to deceive the seller into believing that the shipping costs have been covered. Additionally, by requesting the seller’s address or other sensitive details to generate the label, they can exploit the information for fraud.

How do Marketplaces Generate Profit?

Marketplaces earn money using business models that have different types of fees. Common examples include membership fees, listing fees, transaction fees, commission fees, or payment processing fees. The more transactions are on the marketplace, the higher revenue goes to the online platform. Of course, to attract more buyers and sellers, marketplaces must ensure security and safe transactions, which ultimately boils down to having a proper fraud prevention system in place. 

While some business owners may argue that addressing marketplace fraud can be expensive due to the need to invest in fraud prevention measures and hire compliance specialists, the reality is that the costs of not taking action can be far greater. Marketplaces that fail to combat fraud may deal with the repercussions of data breaches or face significant fines for non-compliance, leading to substantially higher expenses in the long run.

Why do Fraudsters Target Marketplaces?

It’s much easier for fraudsters to hide under a fake identity online, not to mention hide their true location. Other factors, such as a wide audience, also contribute to the fact that scammers choose online marketplaces as an easy channel to commit fraud. These platforms attract a large number of users who are actively seeking products, services, or deals, making it easier for scammers to find targets.

Common reasons why marketplaces often become the go-to channels for fraud include:

Large Transaction Volumes

More popular online marketplaces are known to have a high volume of transactions, making it easier for fraudsters to blend in and go unnoticed. They can exploit the sheer number of transactions occurring simultaneously to carry out fraudulent activities without attracting immediate attention.

Payment Processing Options

For the buyers’ convenience, marketplaces provide different payment processing systems, which fraudsters can use to their advantage. They employ techniques like phishing, fake payment requests, or chargeback fraud to deceive buyers as well as sellers and exploit the payment infrastructure of the marketplace.

Limited Identity Verification Measures

Some online marketplaces can have ineffective identity verification processes, which opens the green light for scammers to exploit such weaknesses. Fraudsters tend to create fake profiles, use stolen identities, or misrepresent themselves to gain the trust of their targets. Overall, the lack of verification measures can lead to a higher number of unreliable transactions, damaging the marketplace’s reputation and discouraging potential users from using the platform.

The Most Common Examples of Marketplace Fraud

We’ve established that marketplace fraud involves various types of fraud, including selling fake or non-existent items and purchasing stolen credit cards. However, there are also more sophisticated fraudulent attacks to be aware of.

Below, we provide examples of 5 types of fraudulent attacks in marketplaces involving both buyers and sellers.

1. Chargeback Fraud

Chargeback fraud occurs when a buyer completes a purchase using a legitimate credit card. However, after they receive the item or service, they open a dispute with the card company with the goal of getting their money back, claiming they didn’t authorize the transaction and it was fraudulent. In this scenario, the seller can lose both their payment and their item. Chargeback fraud is also sometimes referred to as friendly fraud

Chargeback fraud happens for several reasons, such as when the buyer misunderstands the transaction, regrets their purchase, or deliberately deceives the seller. Fraudulent buyers often employ tactics like falsely stating that they never received the product, insisting that the product was not as described, or claiming that their credit card was stolen and used without their consent.

Marketplace fraud type: Conducted by the buyer

2. Account Takeover (ATO) Fraud

An account takeover is a form of identity theft that happens when a fraudster accesses an account without permission. Criminals use ATO to access sensitive data, such as credit card details, to make further fraudulent transactions later. Naturally, unauthorized access to a user’s account can have severe consequences, including privacy breaches and financial losses for the victim, and the responsible marketplace’s entire system, including other users. 

Both fraudulent buyers and sellers can be involved in ATO fraud. Here are some examples:

  • Seller account hijacking. Fraudsters gain access to a seller’s account and modify product listings, pricing, or shipping information to divert funds or goods to their own benefit.
  • Identity theft. Fraudsters steal a seller’s personal information and use it to create fraudulent accounts, posing as legitimate sellers and conducting fraudulent transactions.
  • Account compromise. A buyer’s account credentials are compromised, allowing fraudsters to make unauthorized purchases using the buyer’s stored payment information or loyalty rewards.
  • Delivery interception. Fraudsters take over a buyer’s account and modify shipping addresses, redirecting deliveries to their own locations or accomplices, depriving the genuine buyer of their purchased items.

Marketplace fraud type: Conducted by the buyer and the seller

3. Triangulation Fraud

Triangulation fraud is a challenging-to-detect form of online fraud. It exploits communication channels external to the marketplace, preventing the platform from uncovering fraudulent activity. In general, it’s dangerous because scammers capitalize on the absence of robust security measures, particularly when the marketplace lacks identity verification procedures.

Here’s how this scheme works. The fraudster acts as the buyer and targets a legitimate seller on the online marketplace. By leveraging communication channels outside the platform, the fraudster deceives the seller and manipulates the transaction to their advantage. The fraudster may use a stolen credit card, provide false information, or use a different address for the purchase. 

Example of Triangulation Fraud

In some cases, the fraudster who received the item through triangulation fraud may even go as far as leaving a positive review to maintain the appearance of a legitimate transaction. However, behind the scenes, the real cardholder of the stolen credit card initiates a chargeback request. That’s why the legitimate business is left to keep up with the financial burden of the chargeback.

Marketplace fraud type: Conducted by the buyer

4. Listing Fraud

Listing fraud, sometimes also called product fraud, refers to the fraudulent practices employed by sellers when creating product listings on online marketplaces. Typically, fraudsters intentionally misrepresent the products they sell. They use inaccurate descriptions, images, or details that don’t actually reflect the actual item being sold. Fraudsters also upload counterfeit product listings, often using genuine products found elsewhere in the marketplace.

The main objective of these fraudsters is to deceive customers into making purchases while having no intention of actually delivering the items. On top of that, listing fraud sometimes involves the sale of replicas and fake items. Such sellers always falsely claim their products are authentic or authorized by reputable brands, pushing the buyers into purchasing low-quality or illegal items. 

Marketplace fraud type: Conducted by the seller

5. Phishing for Sensitive Data

Phishing attackers lure users into providing personal information by sending fake emails, messages, or phishing links that appear genuine.

They often use a pushy tone, create a fake customer support profile with the actual marketplace logos and style of writing, claim that there are issues with the user’s account, payment, or security, and request immediate action. Sometimes, they even create fake authentication procedures, claiming that users must verify their account information and upload photos of their ID documents; otherwise, their accounts will be blocked. 

Fraudsters also employ a tactic where they contact a seller on an online marketplace, proposing to personally pick up the item instead of opting for delivery. They run a scheme by requesting the seller’s home address, email, phone number, and full name as part of the pickup confirmation process. Accessing this information helps the fraudsters steal identities for various malicious intentions, such as creating new synthetic identities or taking out a loan at the bank. 

Marketplace fraud type: Conducted by the buyer and the seller

How to Avoid Marketplace Fraud

How to Stop Fraud on Your Marketplace?

The number one security rule that actually helps overcome ATO attacks, duplicate accounts, and fake identities on online marketplaces is implementing identity verification. Oftentimes, platforms face fraud for one simple reason —  users can create accounts too easily. 

And since fraudsters spread like wildfire, marketplaces’ Trust and Safety teams are struggling to monitor every little detail manually, such as gathering and reviewing similar IP addresses, suspicious locations, same devices, email accounts, etc. 

iDenfy prepared a simple action plan that will help your marketplace remain fraud-free and save time with automated tools that collect and verify multiple data points in seconds:

Have any questions? Book a free demo to find out more about seamless, user-friendly, frictionless verification solutions for your marketplace. 

Read our customer stories to check actual results and see how our fraud prevention tools work. 

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