Marketplace: how can you effectively counter payment refusals and fraud?

28 June 2023

Business Insight

Marketplaces are quickly attracting interest from fraudsters. By acting as an intermediary between a seller and a buyer to market products or services, marketplaces are particularly vulnerable to identity theft, theft of commercial information and payment fraud. At the same time, some transactions are refused by banks who consider the risk too high for the end user: today, these unsuccessful transactions account for between 10% and 60% of failed payments on marketplaces, most of which are classified under the “Do not honour” code. How can you protect yourself against fraud while increasing your authorisation rate when processing a high volume of payments? We’ll tell you all about it right here!

Fraud and refused payment: what are the challenges for marketplaces?

An ideal prey for cybercriminals and other modern-day scammers, marketplaces face several significant challenges regarding their payment systems.

The first challenge is regulatory. It is essential to meet the requirements of European Directive 2015/849 on using financial systems for terrorist financing and money laundering. This requires marketplaces established within the European Union to implement a KYC procedure to collect and verify information about the identity and integrity of their operators (i.e., marketplace sellers) and partners. The aim? To prevent and fight fraud, particularly money laundering and the financing of terrorism.

As well as fighting illegal practices, limiting access to its platform to cybercriminals also helps to reassure potential customers: it’s a way of gaining the trust of buyers and sellers who are likely to jump ship and turn to the competition if they have a bad experience. The marketplace’s reputation is also at stake, as an article in the press reporting fraud problems on a platform can sometimes lead to the site’s permanent closure.

Last but not least, the fight against fraud addresses a final major issue: financial balance! While fraud can cause financial loss for sellers and buyers whose accounts have been hacked, the amounts involved are often so substantial that it’s virtually vital for a marketplace to ensure that its buyers are traceable and trustworthy.

It, therefore, seems essential for marketplaces to think ahead and determine how to check the identity of buyers (and not just sellers, as provided for under KYC).


How can you effectively prevent payment refusals and fraud?

The global pandemic has sparked a wave of exponential growth for the e-commerce sector, the opportunities for fraudsters have also multiplied. As a result, many marketplaces have been affected, not just newborn platforms. Even well-known marketplaces have had to deal with new, more complex types of fraud, leading to increased payment refusals. What can you do to protect yourself better?

Identify fraud attempts upstream of transactions by carrying out buyer KYC.

In addition to the mandatory seller KYC, it is possible to design a streamlined  KYC system to verify and check the identity of marketplace buyers, particularly in case of a pay-out to the buyer for a refund.

Many platforms, particularly in B2B, already have effective verification processes in place: buyer registration with verification of identity and residence, sending of a letter with codes to be validated for authentication, listing as a B2B buyer or even validation of the buyer profile by the sellers themselves, etc. These solutions make securing transactions possible and ensure that the B2B customer is not a showcase company. This is all the more reassuring when you consider that some marketplaces boast an average shopping basket in 5 figures and that fraud, even on 0.1% of transactions, can be catastrophic.

Our advice: take the time to talk to your platform’s IT team to identify the number of layers of security you need to put in place when your customers log on and get in touch with technical service providers to find possible solutions.

Credit insurance

The second way to combat fraud and protect against unpaid customers is to take out credit insurance. This solution, which has already been widely developed – or even systematised – on leading B2B platforms, avoids non-payment while offering buyers advantageous payment terms. How does it work? Credit insurance involves scoring buyers to determine their level of reliability. If the buyer appears “reliable”, the credit insurer offers a payment term.

Conversely, if the buyer does not appear “reliable”, cash payment is requested. For the marketplace, this solution is a way of taking as little risk as possible. If the buyer does not honour his payments, the credit insurance takes over by collecting any outstanding debts, providing the seller with a guarantee.

The result is more secure sales, better-recruited sellers who are more confident and more involved in the marketplace because their cash flow is protected, and more and more buyers!

Payment agent status

The final solution, which can complement the previous two to make your marketplace as secure as possible, is to become a payment institution agent so that you have control over all transactions and operations. What are the advantages of this status? Controlling payment orders, supervising payment frequency, maintaining a high level of compliance and managing emergencies.

But to become a payment institution agent, you need to obtain authorisation from the ACPR (Autorité de Contrôle Prudentiel de Résolution), and that can take a long time… sometimes more than a year! The solution? Get support from a PSP (payment service provider) with sufficient experience in this process, like Lemonway. In just 2 months, Lemonway’s experts will guide you through the regulatory procedures and steps required to obtain the famous “sesame”: to date, more than 160 platforms have already been successfully covered right up to ACPR application validation.

Lemonway is the ideal partner for managing and securing payments on your marketplace.

Specialised in complex payment management for digital platforms, Lemonway has developed an all-in-one solution that adapts easily to all marketplaces. Secure and efficient payment account management via KYC-compliant procedures, document control using OCR (Optical Character Recognition), and additional checks carried out by our KYC experts if necessary… Everything is designed to combat fraud, limit non-payment risk, and guarantee an optimal user experience thanks to a comprehensive and ergonomic dashboard.

Would you like to learn more about all the features of the Lemonway solution? Contact us now!