Never has ecommerce been so popular. Over the past several years, and particularly throughout the pandemic, consumers have turned more than ever to marketplaces for their day-to-day shopping. Products that once were staples of brick-and-mortar establishments are now associated with ecommerce, such as prescription pharmaceuticals and groceries. As the online shopping experience has grown increasingly more convenient, it has also become a much more attractive breeding ground for illegal products of all kinds.
Illicit products sold on marketplaces range from counterfeits and illegal substances to fake automobile air bags, recalled baby products, and even actual trash recovered from dumpsters. The scale of the problem is alarming; in one particularly high-profile instance this year, regulators have identified Amazon as hosting hundreds of thousands of recalled products that pose life-threatening risks to consumers. In 2020 alone, Amazon seized and destroyed more than 2 million counterfeit products, investing more than $700 million to combat the problem. It isn't just Amazon – recalled, counterfeit, and hazardous products have proliferated on many global platforms including Wish and Etsy, along with others. And these trends only seem to increase, with no solution in sight.
These fraudulent, often hazardous products, pose significant risks for both consumers as well as the marketplaces that host them and facilitate transitions. However, there are actions marketplaces and managed ecommerce platforms can take to help mitigate the impact of these products and their subsequent risk, including preventing these concerning products and repeat offenders who list them from showing up on the marketplace at all.
A New Breeding Ground for Counterfeits
"All ecommerce marketplaces, regardless of sizes or geographical location, are at risk of hosting illicit products," says Tal Bitton, VP of Fraud and Risk at EverC.
This applies to all segments of the industry, from clothes and luxury goods to baby products, nutraceuticals, and food items. It is important to note that counterfeit items are not just illegal — but, in many cases, pose health and safety risks to consumers, who aren't aware the product they have purchased does not follow global safety or hazard policies. This includes chargers and batteries catching fire, airbags that do not deploy, cosmetics products that burn the skin, nutraceuticals that contain illegal substances and even toddler food that contains lead paint. Bitton says there are countless examples.
A significant problem is the ease with which scammers can post illicit, counterfeit goods, and go undetected or unaddressed. Scammers will spread across multiple platforms and utilize limited detection and delayed enforcement capabilities. In doing so, they can reach millions of consumers worldwide.
One of the most attractive elements for illicit sellers is the ability to walk away unscathed. "If I'm a seller, even if they come after me, I could be in a different region in the world, far away from legal enforcement. I can disappear in a second, assume many identities, and create hundreds more seller accounts quickly." says Bitton. Bad sellers are sophisticated, creative, and unique — which puts marketplaces at an automatic disadvantage. This makes for a needle in a haystack problem, trying to unrealistically catch illicit listings among an astounding volume of legitimate ones.
Reputational and Legal Risks
Consumer deceit is problematic in its own right, but counterfeit and dangerous products pose far more significant risks — and the ramifications can be serious. Merchants, marketplaces, and other platforms can be held accountable for damage caused by illicit products hosted on and sold through their platform both from the consumer itself and from multipole regulatory agents. It is crucial to remember that legality is based on where the product is shipped to, and the ramification can be severe from several different regulatory agencies.
Although marketplaces have historically not been held responsible for transactions on their platform, due to Section 230 of the Communications Decency Act, this protection may soon expire; legislation such as the newly introduced Shop Safe Act is a move by the US government in an attempt to hold marketplaces accountable for their inventory. This opens marketplaces up to liability, says Bitton — a major issue soon to proliferate. "These platforms could be liable for millions or even tens of millions of dollars for having illicit products on their platform," he adds. Even more, marketplaces can lose payment processing, advertising, and media partnerships if they are caught and exposed for selling illegal goods.
Additionally, brand reputation is at risk as these goods flood online marketplaces. Trader Joe's, a beloved grocery retailer, has recently seen its expired products salvaged from dumpsters show up on marketplaces, such as Amazon. Consumers often can't tell the difference between genuine, safe products from brands, versus tainted products sold by third-party sellers. Both are hosted on the same platform — and it's nearly impossible to tell them apart. This has caused reputational damage, leaving brands like Trader Joe's in a difficult situation.
On a larger scale, these products can even cause damage to entire economies. "Economies lose billions of dollars both in loss of business, reputation as well as job loss," says Bitton. He also adds that companies often have to expend resources combating these sellers and taking down illicit listings, which means sacrificing investments in other departments, such as staff or R&D, as a result. Resources that have otherwise been used to expand the business are now being diverted to fight counterfeiters.
It is important to remember the ripple effect of these products and understand that the problem is not just about a fake bag or a specific nutraceutical, but the overarching effect on people's lives and the entire economy. Per recent reports, counterfeit products cost the global economy more than $500 billion a year — a number that keeps increasing.
How Platforms Can Fight Back
Fighting counterfeits, recalled, illegal substances, and other illicit products can be difficult, especially with the ease at which scammers can post hundreds of listings in a matter of minutes. This makes it virtually impossible to remove these products fast enough, or to even detect them at all. There are best practices that ecommerce platforms can do to both reactively remove these illicit products as well as proactively prevent problematic listings before they are available to be sold. To stay in compliance, marketplaces must utilize both knowledge and technology as a single unit of detection.
First, a multi-layer detection capability is crucial in the identification of these products. These sophisticated sellers will utilize several mechanisms in the attempt to stay hidden. Another crucial element of remediation is speed of detection and removal. Sellers capitalize on the fact that the marketplace will be slow to find and remove their items, and they will sell as many products as possible in that window — which can be weeks. A system that can quickly dectect and scan an unlimited number of products within minutes is not a preference, but a requirement.
It's not always enough to simply detect the product, but also to understand which geographical location that a product is sold in. There are specific regional regulations regarding where a product is bought and shipped to, and this requires an understanding of complex and dynamic regional laws. For example, contact lenses are a prescription medical device in the US and as such require a prescription before being sold. However, the same contact lenses are OTC in Germany, and can be sold without a prescription. In this instance, the marketplace would lose sales in Germany by terminating the contact lens seller altogether and not simply remediating their products in the US.
This is also an example of how working with compliance experts to define strategy is a key component — marketplace compliance teams may not even be aware of these regulations. Specialized expertise can bridge these knowledge gaps and create new business opportunities that are unique per region or country, offering a deep understanding of local regulation that can enable more sales globally.
Ultimately, these "bad sellers" are not only getting more conniving, but many detection tools are also simply unable to keep up with the speed and sophistication of their operations. That's why it's increasingly important to rely on big data and algorithmic technology to stay ahead and catch illegal products before they are listed, because the speed and breadth at which these automated tools can operate supersede the capacity of human moderators and risk analysts.
Bitton says, "In order to make a true impact on this problem and protect customers, technology infused with expertise is the only true way and path forward."
Companies interested in evaluating their product listing assessment strategy can speak with EverC to find the right tools and expertise to guide them in staying compliant with acceptable use policy.