E-commerce platforms have provided vendors with the opportunity to sell products worldwide. However, these platforms can be abused by fraudulent vendors operating large networks of illegitimate sites, putting platforms in legal, financial and reputational risk.
In this blog, we delve into how these networks operate and the repercussions for e-commerce and social media platforms that host these fraudsters.
E-commerce platforms provide small businesses the opportunity to reach large audiences and sell their products and services worldwide. In doing so, they have democratized commerce and facilitated record levels of consumer choice. However, the sheer number of vendors operating across multiple platforms and geo-locations has led to fraud and intellectual property infringement, which is increasingly becoming a common feature of online life.
The Problem: Networks of Fraud
The sophistication of fraudulent practices and scams targeting consumers is growing.
Fraudsters are developing large, organized networks of online stores that act in parallel to target consumers. These stores, which present as independent outlets, are in reality duplicates. They operate from one basic template, implementing identical product and store descriptions, using the same photography and products. The sites use the same contact details, and act in unison, in terms of prices and listings. These inauthentic outlets are not only active on a variety of e-commerce platforms, but also utilize social media platforms to maximize their reach.
The extent of this crisis has become more evident in recent years. According to a US Federal Trade Commission (FTC) report, US consumers reported losing over $3.3 billion to fraud in 2020, an 83% increase on the previous year. The FTC reported that online shopping scams accounted for about $246 million of consumer losses due to fraud in 2020. The European Union released a similar report on Scams and Fraud Experienced By Consumers where 23% of consumers responded that they had been the victim of ‘buying scams’ in the past two years.
The FTC reported that online shopping scams accounted for about $246 million of consumer losses due to fraud in 2020.
Policy Makers Take Action
On both sides of the Atlantic, legislators are taking action to protect vulnerable consumers. In Europe, the Digital Services Act has been proposed, which will require online platforms to vet the credentials of third party suppliers. If the law passes, they will need to verify the identify of their business users, to know who is selling what, and to take action to remove counterfeit or dangerous products.
Meanwhile, in the US, the bipartisan Shop Safe Act was recently reintroduced to Congress. If passed, this act would amend the Trademark Act of 1946 to extend contributory liability to e-commerce platforms, unless they take measures to identify vendors and stop counterfeit sales.
Reputation Risk as Commercial Risk
Online shopping platforms that are exploited by fraudsters are not only at risk of regulatory requirements. Beyond the fraud itself is the erosion of trust in smaller online retailers operating and advertising online. Fraudsters target platforms that engender trust from consumers, but this trust, which takes years to build, can be lost quickly.
In a 2020 report by Mastercard, 65% of respondents said that “they worry about becoming a victim of online fraud or ‘scamming,’” and as a direct consequence, the report found that 81% of Europeans tend to stick to familiar retailers to be safe.
Because of this, small businesses and the platforms that they use may lose potential business. But the damage of e-commerce fraud doesn’t just stop there.
Risk to Social Media Platforms
As many of these inauthentic websites do not have organic traffic, they utilize social media platforms. Promotional advertisements and dedicated social media pages drive consumers to their online stores. Capitalizing on the reputation of these platforms, consumers trust the integrity of these platforms and are quick to make purchases.
However, when consumers purchase an item through a social media platform that did not arrive, or came in a condition that was below described standards, not only do e-commerce platforms lose integrity, but social media platforms’ reputation as a dependable marketplace is harmed too.
Risk to Third Party Vendors
Additional victims of e-commerce fraud, though less obvious, are third party vendors. Companies that offer payment infrastructure are also at risk of reputational damage when their services are exploited by these fraudulent networks. For instance, despite e-commerce platforms offering multiple options for vendors to collect payments, fraudulent networks of websites often advertise just one payment platform as their payment gateway. This enables fraudsters to harness the reputation of the payment company to leverage trust with their customers.
Keeping Marketplaces Safe From Online Evil
Inauthentic vendors risk significant damage to e-commerce platforms and their legitimate consumers. While consumer vulnerability to online fraud is vast, and the threat to smaller retailers and their platform providers cannot be understated, it is not insurmountable.
Platform providers have the ability to detect e-commerce fraudsters and protect their platform and brand integrity. This is possible by identifying problematic actors, and then mapping their suspicious metadata’s occurrences across the internet.
ActiveFence uncovered a network of over 50 fraudulent online stores operating across both e-commerce and social media platforms to demonstrate how these networks operate, and how to combat this threat. Read our exclusive research below.