Identity Verification for Online Marketplaces: Preventing Fraud in a P2P Economy

As a marketplace, you want to know who sells their goods on your platform. The reason is simple: buyers want to trust the marketplace and avoid purchasing products from fraudulent sellers. So, ideally, seller identity verification is a necessary process that ensures the legitimacy of products and sellers.

One important procedure in this regard is Know Your Business (KYB). It ensures that businesses engaging with corporate customers conduct necessary due diligence in accordance with AML regulations.

Industries that fall under the regulatory umbrella requiring KYB compliance include:

• Any financial and credit institutions, including cryptocurrency marketplaces;

• Independent legal and finance professionals—auditors, tax advisers, external accountants, estate agents, etc.—where they participate in money, real estate, and other asset transactions; 

• Providers of gambling services.

Ecommerce platforms, aware of the risks associated with unverified suppliers, often adopt KYB protocols to protect their ecosystem. Major players have already incorporated identity verification into their onboarding processes for sellers. Amazon, for instance, requires sellers to provide identity documents and banking details before gaining access to its platform.

Ensuring the authenticity of customers is equally vital for online marketplaces to maintain a secure environment. By verifying the identity of customers, marketplaces not only know who they are selling to, but can mitigate various risks: credit card fraud, identity fraud, unauthorized access to user accounts, and more.

While Know Your Customer (KYC) procedures are not mandatory for all eCommerce organizations, they are widely applied due to the growing threat of online fraud. Online marketplace fraud involves all sorts of strategies to deceive and exploit buyers, sellers, or the platform itself.

Cybercriminals, for example, may steal credit card information to make unauthorized online purchases, a tactic known as card-not-present (CNP) fraud. Another tactic called new account fraud (NAF) involves fraudsters using either stolen real consumer data or synthesized identities to create new accounts. Their goals range from mere spamming and acquiring promo credits to conducting "test" purchases with stolen credit cards.

These are just a few of the fraudulent schemes that can hit an online marketplace. A simple yet effective way to prevent all of the above is to use identity verification measures, ensuring that the individuals conducting transactions are legitimate.

Identity verification gains extra importance in online marketplaces dealing with regulated or age-restricted items. Selling alcohol, tobacco, or adult content, for example, requires by law that customers' ages be verified. With the increase in online sales, this necessity poses a complex challenge. 

Simple age verification methods, such as self-declaration or checkboxes confirming the user's age, fall short of effectively screening buyers, and by no means are considered sufficient in regulated industries. Today's top solutions combine multi-factor authentication tactics paired with advanced ID document and biometric checks.

Although customers typically don’t like providing extra information, identity verification also benefits the customers themselves. Other people’s reviews are a cornerstone of decision-making in online shopping. By verifying the identities of those submitting reviews, marketplaces can deter fake feedback, promoting a transparent and reliable shopping environment.

Companies in the sharing segment have the same issues as online marketplaces. Whether it's ride-sharing services, freelance platforms, or home rental sites, every transaction begins and ends with trust. 

If a company hires a freelancer at Fiverr, they want to have peace of mind hiring legit professionals, while the latter won’t hesitate to pick up the next project, even if the company isn’t from the Fortune 500. Similarly, Airbnb verifies the identity of both hosts and guests through government-issued identification to ensure the best experience for both parties.

This ecosystem relies heavily on mutual confidence between service providers and their clients. Here, the assurance in each other’s identities is not just a preference—it's a necessity.

Technically, identity verification for a sharing platform and identity verification for marketplaces can be performed using the same methods.

Generally, multi-factor authentication is one of the first fraud deterrents marketplaces put in place. This process requires a customer to use a secondary communication channel to verify their claimed identity. 

2FA usually involves something the user knows (like a password) and something the user has (e.g., a mobile phone to receive a verification code). In this case, it’s called 2-factor authentication, or just 2FA. By necessitating a secondary verification form, 2FA makes unauthorized access significantly more challenging. 

Today, more marketplaces have started adding more “factors” into their MFA process. This might include biometric verification, digital ID scanning, or behavioral analytics.

Document verification combined with live selfie authentication is at the forefront of identity verification technologies. It’s the gold standard in the identity verification field, and came as a benchmark to online marketplaces from the more regulated Banking industry. 

Document verification involves the analysis of government-issued IDs (such as passports, driver's licenses, or national ID cards) for authenticity. A user captures an image of their ID right on the platform. Then, advanced algorithms check the document's security features, data integrity, and validity, ensuring that it has not been altered or forged.

Selfie authentication takes this process further by asking users to take a live photo of themselves. This image is then compared to the photo in the provided document using facial verification technology. This step ensures that the individual presenting the document is its rightful owner. This biometric verification method is particularly effective in preventing identity theft and fraud, as it’s extremely difficult for fraudsters to bypass.

Here at Regula, we understand that looking for identity verification solutions isn't just about adding another layer of technology to your stack. It’s about finding practical solutions that enhance security without complicating the user experience.

One thing that sets Regula apart is our expansive database of identity document templates. It means that no matter where your users are coming from, their documents are recognized and verified with precision. Thanks to this, everyone, regardless of their location, can easily join your marketplace.

As we move further into the digital era, the importance of verifying electronic documents can't be overstated. Regula solutions effectively handle both traditional and electronic ID documents, ensuring they’re genuine and up to your standards.

With features like liveness detection and one-shot matching, Regula guarantees that the person making a transaction is who they claim to be. This isn't just about adding fancy features; it's about providing you with tools to prevent fraud effectively and make your platform safer.

Implementing identity verification for marketplaces means opting for a secure space where users from all over the world can interact with ease.

Interested in learning more about how Regula's identity verification solutions can support your platform? We're just a message away. Let's discuss how we can contribute to a safer yet still user-friendly environment for your digital marketplace together.