How effective seller verification underpins successful marketplace growth.

Nov 9, 2023
Jan 20, 2024
min read
Ben Ainslie

It is easy to relate to searching for a product you want, finding it at a good price but as your research deepens you start to notice the telltale signs of an illegitimate seller: very few ratings and reviews, no contact information, generic stock photos and what caught your eye in the first place - a price which was too good to be true.

An increase in fraudulent sellers has been damaging consumer trust and has added increasing pressure on marketplaces to ensure that their merchants are verified. Without verification, customers are at risk of losing their money and the marketplace could be subjected to fines while also tarnishing their reputation.

A marketplace’s reputation is critical in achieving sustained success. It builds trust among users, which encourages repeat business and attracts new customers which ultimately leads to long term growth.

However, a marketplace cannot afford to spend hours upon hours reviewing their sellers and genuine traders are eager to be approved and start selling. If the application process becomes a blocker to revenue they will seek alternative platforms. The marketplace needs to balance quick but effective verification.

How verification impacts growth:

  • Improved reputation: A marketplace wants to create a safe platform for their customers. Verifying a business seller reassures the customer that they are dealing with a legitimate and credible merchant - removing the need for them to perform additional KYB checks.
    How does this impact growth? Simple, it leads to purchases being made quicker, and reducing time-to-revenue for the marketplace.

  • Legal & Regulatory Compliance: In some industries verification is a necessity due to specific regulations. This includes industries which handle hazardous substances or sophisticated machinery.
    How does this impact growth? Adhering to these regulations protects the marketplace from legal liabilities and penalties. The time and resource savings made here can be channelled into revenue generation instead.

  • Quality Assurance: Fraudulent sellers who are trying to make a quick sale with low quality products can be exposed by a thorough product inspection during the verification process.
    How does this impact growth? Higher quality products from reliable sellers strengthen the marketplace’s reputation and generate more customers.

  • Data Security: A genuine vendor will be more compliant with data security, privacy and safeguarding standards. This is important when handling sensitive customer data and ensuring there are no data breaches.
    How does this impact growth? Monetary penalties for data breaches and the impact it has on consumer trust can be incredibly damaging and costly to amend.

  • Supplier Diversity: A verification process improves insight into each seller. As a result the marketplace can have more control over their active sellers - potentially leading to a more diverse platform.
    How does this impact growth? More diversity will attract a wider audience which will generate new revenue streams.

So, what does a typical verification process look like and where are its flaws:

  1. Registration - Submitting generic information including company name, email addresses, business type, details on key individuals and trading addresses via a sign-up form or email.
    Flaw - Already at this early stage if the information isn’t verified and checked against data sources then fraudulent sellers can progress.

  2. Document Uploads - Uploading documents including business licences, certificates and finance/tax documents to verify the legitimacy of the business.
    Flaw - This is a very time consuming and frustrating process that can lead to high applicant churn. Furthermore counterfeit documents can be supplied so they need to be verified against something e.g. Does the certificate of incorporation match the addresses and dates found in a database?

  3. Financial Checks - Checking credit history and financial statements to understand the seller’s financial stability.
    Flaw - Similar to document uploads, there needs to be a way to validate the information supplied.

  4. Product or Service Verification - The seller provides detailed product descriptions and images. The marketplace will have a quality threshold that needs to be met.
    Flaw - Generic product descriptions and stock images can be easily used by a seller especially in a second hand marketplace. The marketplace needs to find ways to prove authenticity without making the process too lengthy. If not organised well this stage can also be very frustrating for the consumer if they are being requested for information that doesn’t apply to them.

  5. Background checks on the company and the key individuals - The marketplace conducts searches for any adverse media, PEPs or sanctions on the company and their individuals through a screening software or search engine.
    Flaw - Another disjointed part to the application. The applicant may receive no oversight or timeframe while this goes on. Additionally, if the search engine approach is used there are clearly many flaws e.g. which trigger words do you use? Or when do you stop your search?

  6. Final Steps - Accepting T&Cs, policies, rules, and paying platform fee.This is followed by a final review of the application and the ultimate decision.
    Flaw - At this stage the information obtained about the seller will be fragmented across different team members and no one will have a complete picture to make a sound decision. It is likely that if a fraudulent seller reaches this stage they will be approved.

  7. Ongoing Monitoring - Monitoring sellers to ensure continued compliance with marketplace policies and standards.
    Flaw - If a proper cadence of monitoring is not set and the checks are not sufficient then bad actors who managed to sign up will continue to operate. This needs to be approached in an efficient and effective manner so as not to disrupt genuine sellers.

5 areas that could improve the above verification process:

One consolidated platform for the whole process - Traditionally each of the above stages take place across different mediums and times. This confuses the onboarding customer who receives multiple communications and has no oversight of the process.

Instead an end-to-end KYB solution can provide one consolidated platform for the whole onboarding process. All the information required including document uploads, financial checks and product verification can be clearly signposted and collected.

As a result, the applicant is less likely to churn and the marketplace can build a complete picture of the company being onboarded. This makes fraudulent cases easier to spot while genuine sellers progress quicker.

Pre-configured & customisable onboarding flows - Onboarding forms are often long with large sections irrelevant to the applicant. Documents that don’t exist in their country or industry may be requested and non applicable questions asked. This one size fits all approach generates frustration but also fails to obtain specific information from clients that would help combat fraud.
A software that allows for pre-configured customised onboarding flows would stop this from occurring. Applicants can be channelled by company type, country and product type so that they arrive at the relevant onboarding flow. This reduces the confusion when obtaining documents because the specific country/industry variations will be requested automatically.

Integration to data sources - A common flaw observed is the lack of verification for the data obtained. Integrations with national company registries, credit data and screening providers can provide the necessary detail to verify a prospective seller quickly and accurately.
With these integrations bad actors can be highlighted quickly; the availability and completeness of the data from the data sources help indicate the company’s trustworthiness.
Integrations can also streamline the onboarding process by reducing the required manual input e.g. a user would no longer input all the basic information to confirm their business; instead the user inputs key variables and an algorithm locating the correct company automatically.

Built in ongoing monitoring - Poor ongoing monitoring can allow for fraudulent sellers to remain active. However, a KYB solution would provide ongoing monitoring as part of the core offering. The company profile generated would act as the single source of truth for that merchant with all profiles stored in a dashboard accessed by the compliance and review team.
Custom data refresh rates and profile alerts would show any changes in company status, adverse media and changes in key individuals. This provides a structured approach to ongoing monitoring and a defined cadence while also benefiting genuine sellers who don’t need to be disturbed if all is well.

Additional functionality - Integration with ID providers allow for key individuals to be verified during the application process. No additional links need to be sent, the onboarding merchant simply completes a face scan alongside taking a picture of their ID document. This confirms that the person acting on behalf of the company is who they say there are, which is essential for stopping potential fraud.

Other features include online presence data sources to insights on the merchant’s website, profile review statuses which help the review team have better oversight of the current applications and the ability to request further information from specific clients which is essential for more complex cases.

These would all be part of a complete KYB solution.

Final Thought:

Without effective verification, fraudulent sellers can disrupt the smooth functioning of a marketplace. This inhibits any prospect of sustainable and reputable growth. There are many loopholes in the traditional lengthy processes but these can be combated with a complete end-to-end KYB software that integrates streamlines onboarding but also provides a more comprehensive overview of the merchant. 

Detected offers true end-to-end KYB, starting with white-labelled and configurable onboarding flows and a KYB dashboard which includes the ability for ongoing monitoring and requesting information from onboarding merchants in one click. After the application process the merchant profile generated creates a single source of truth made up of user-entered data, utilising the business owner as a direct data source, and is supplemented further with a range of global data providers.

With Detected, a typical merchant verification process is streamlined into one efficient process, accessed easily from one link at any point. A merchant would enter onto a fully branded and customised onboarding flow which can be completed in minutes. The completed profile is visible to the compliance team.

To keep up to date with Detected and the developments in the KYB space sign up to our mailing list or book a demo today to understand how Detected can bring value to your company.

Article by
Ben Ainslie

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