S1 Ep 17
Managing E-commerce Marketplace Losses - Dealing With Online Fraud and More
This week Professor Adrian Beck joins Colin Peacock to discuss the challenges retailers face managing e-commerce marketplace losses because of fraudulent claims i.
In the context of e-commerce loss prevention they explore issues like reduced visibility, limited control, and how collaboration can help combat marketplace fraud.
And learn how retailers are facing a combination of new and old challenges when it comes to managing the problem of online fraud and losses.
Alongside new techniques to address the issue.
Podcast summary
Cleaned transcript
Introduction
COLIN:
Managing E‑commerce marketplace losses is a new area for ECR Retail Loss.
Our working group has probably been going only now for three years.
In this episode, I’m joined by Professor Adrian Beck.
We’ll be discussing a new area of loss prevention in the digital world: the losses and risks associated with trading through online marketplaces.
For example, the TikTok or Facebook marketplaces.
It’s a very intriguing episode and certainly something that we hadn’t covered before.
You’ll hear a bit more about why it is so interesting in this podcast.
Setting the scene: the e-commerce marketplace losses. A focused meeting
COLIN:
Yesterday we had our e‑commerce loss prevention meeting.
We were focusing on marketplaces.
Both the old established ones – the Amazons and eBays and Facebooks to a certain extent – and then the new ones, the TikToks, etc.
We were looking at the loss prevention challenges when you’re selling on these marketplaces.
We had a retailer who had maybe 50 percent of their business going through marketplace operations.
She was sharing some of the challenges that she was facing, and some of the opportunities perhaps for improvements.
It was a really interesting session.
We had about 30 people there, 30 retailers.
What were some of your takeaways that other retailers might want to benefit from?
A different lens on e-commerce marketplace losses
ADRIAN:
Yes, it was interesting.
We’ve spent a lot of our sessions on e‑commerce just thinking about retailers that supply directly to their customers.
We’ve tried to understand the problems they face, but also some of the opportunities they have around the data they can collect about their customers, to help them manage the problems they experience through e‑commerce.
This was a really interesting different lens for us.
We were thinking about retailers working through a third party to get to their customers.
The retailer gave a very frank discussion about some of the challenges this introduces when trying to manage the problems of loss associated with their e‑commerce operations.
I think I took away three things that really struck me.
Takeaway 1: Limited customer data
ADRIAN:
The first was that they have far fewer data points about their customers than those who supply directly.
The marketplace provider limited their vision of who their customers were.
That reduced their opportunities to stop those who are high risk.
They simply couldn’t collect the data points they might want to, to try and limit their exposure to what could be regarded as very regular fraudsters taking opportunities in that way.
Takeaway 2: Refund policies and control
ADRIAN:
Secondly, it was interesting to hear about the challenges of being at the mercy of the marketplace’s policies and practices, particularly around how they deal with refunds and the payment of refunds.
You want to have control over this because, ultimately, these are your products.
You want to get them to customers and, vice versa, handle products coming back.
But the marketplace provider can impose their policies and practices that can really affect your ability to manage that process well.
They felt quite exposed when the marketplace provider was saying, “Yes, we’ll give you a refund because that’s our policy.”
That exposed the retailer to a lot more fraud, because customers were really taking liberties given the exposure that they were getting through that marketplace provider.
That was another very interesting challenge.
Takeaway 3: Access to people at the marketplace
ADRIAN:
The third thing was the challenge of making contact and having a link with the marketplace.
Who can I talk to within the marketplace to work through some of these issues that we’re experiencing?
We know some of these marketplace providers are huge organisations.
It can be very difficult to have a human contact there.
It was refreshing to hear the retailer talking through how they had to work to get that link, to begin to have an opportunity to explain what was going on for them around these issues of fraud.
So it was a really interesting lens to think through e‑commerce that perhaps we haven’t had before.
E-commerce marketplace losses – blind spots and moral hazard
COLIN:
You get a certain sense that marketplace providers almost have a bit of a blind spot to possible fraud and risk.
We did hear some examples of that blind spot being played out, recounted by one of the presenters, or a couple of the presenters, in fact.
It also showed the power of engagement.
One of the retailers shared a story about someone who ordered a £3,000 Microsoft laptop or something and said it never came.
Then they did it again, and it “never came” again.
Eventually the retailer did get in contact with the marketplace and did get a successful reduction in the refund.
So it can be done.
But you’re right, it’s one of those interesting ones.
We’ve talked in another setting about whether retailers want to go to a pay‑on‑scan approach to dealing with loss.
You say, “We’ll only pay the manufacturer of this product when we sell the product. If we lose it, that’s their problem because we’ll only pay them on scan.”
It felt a little bit like this with the marketplace.
If they give a refund, it’s not costing them anything, is it?
It’s the retailer who’s paying for the refund, not the marketplace provider.
So there’s this sense of, “Yes, we’ll do this because it makes our customers happy.”
ADRIAN:
Moral hazard is the term we would use.
For the marketplace, they can make very happy customers because they have a really loose, easy‑going refund policy.
But they’re not picking up the bill.
It’s the poor old retailer who’s picking up the bill.
So there’s this sense of moral hazard.
For the retailer, it’s about trying to get that across to the marketplace provider.
Saying, “It’s great that you want your customers to have a good experience, but we’re also part of this as well. You need to think about the consequences for us as well as the consequences for customers.”
That was very interesting.
COLIN:
You can see how marketplaces could have a gap in their capability and their knowledge in this space.
So that was really fascinating.
The “Wild West” of new platforms
COLIN:
We also got to talk about the Wild West, didn’t we?
Some of the new marketplace platforms, and I think TikTok was called out as one example.
Extraordinary.
ADRIAN:
Yes.
These companies can see the potential profit.
They’ve got such a huge user base and say, “Let’s just open up a marketplace and we can take a percentage of this, and it’ll all be fantastic.”
But as we’ve learned from others, you need a whole infrastructure behind this to make sure that people don’t just do wholesale fraud.
One retailer described – I forget what the number was, Colin, I’m sure you can remind me – 30 percent of all their orders were ending up being fraudulent.
That’s an enormous risk.
You can see again this sense of moral hazard.
For TikTok, “We’re not losing through fraud. We’re offering an exciting new proposition for all our customers, and we’ll get somebody else to pick up the tab for the fraud that then ensues.”
COLIN:
Who knew that we’d never get there?
What could possibly go wrong?
Closing the discussion
COLIN:
That’s really fantastic. Thank you so much.
It was a really exciting session, and I think we’ll have to repeat that in 2025.
We even had our friends from the academic stand in Australia join us as well.
That’s how good it was.
Thank you, Adrian, and we’ll see you next time.
ADRIAN:
Okay, cheers, Colin. Bye‑bye.
