AML

Deep Dive: ID Verification In The Sharing And Gig Economies

Sharing economy platforms are opening up new opportunities for property owners and travelers. Homeowners can monetize spare rooms and visitors can secure accommodations before arriving in new cities. Car owners can turn profits on underused property, and drivers can avoid the expense of purchasing items they need on a temporary basis.

Platforms facilitating these transactions must foster trust between property owners and renters if they want to be successful, but creating that confidence requires protecting both parties against fraud and bad actors. This Deep Dive explores common fraud issues affecting sharing economy or freelancing marketplaces and the identity verification strategies they can use to enhance their defenses.

Marketplace Abuse

Bad actors have various tools and techniques to steal property or launder money from sharing platforms. They tend to use stolen identity and payment credentials to establish consumer accounts on carshare sites, for example, winning over owners’ trust and securing their vehicles. They then can stick someone else with the bills or make off with the cars, knowing no personal or payment information has been left behind. This makes it difficult for authorities to find them or recover stolen property.

Renters are also at risk of working with scammers who post fake listings, something that can be particularly challenging during the high-demand holiday season. Purported property owners can lure victims with low rates and post instructions for interested parties to contact them by email, rather than over the platforms’ messaging systems, which allows them to act without oversight. These perpetrators will typically then ask for compensation through bank transfers, ensuring the money moves outside the platforms’ safety measures, like holding funds in escrow. Airbnb combats this by not releasing guests’ payments until 24 hours after check-in, thereby ensuring no such problems exist.

Bad actors might also use these marketplaces to launder money by creating accounts with falsified identity and payment information. This allows them to act as both parties and channel illicit funds from one account to the other.

Defense Strategies

Issues like these vex users and damage platforms’ reputations, discouraging buyers and sellers and harming marketplaces’ revenue streams. Some sites may seek a hands-off security approach by posting warnings that they do not confirm identities, putting the burden of risk on consumers. This is not always the optimal approach, and platforms may find that it serves them better to take more responsibility by employing KYC and identity verification features.

These platforms could implement third-party identity verification or KYC services to verify freelancers’ identity documents and check them for signs of forgery, or utilize methods that take advantage of videos and facial recognition technology. Onboarding procedures that only ask participants to log in with their social media accounts, rather than create new usernames and passwords, can fall short of robust verification. Platforms should instead assess the provided data by cross-referencing it against several other sources.

Bad actors on freelancing sites are also a problem, tending to offer fake profile information that asserts they have skills they do not or property that is not real. Reviews and rating systems can combat this by instilling greater confidence in the quality — and reality — of individual users.

Smaller marketplaces may struggle to offer such solutions, however, particularly if they lack the resources necessary for in-house compliance departments. They also might be unwilling to take on the liability of protecting sensitive user data on their own servers, but third-party providers can assist these businesses with plug-and-play gateways that integrate the latest security measures.

The sharing and freelancing economy is an important sector that cannot flourish without trustworthy, well-monitored marketplaces. Identity verification often imposes extra steps in the onboarding process, but users are typically willing to endure some friction in the interest of keeping their finances and livelihoods secure. Tackling fraudsters on these marketplaces will eventually help the entire sector grow, after all.

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