Payments Innovation

Online Marketplaces And The $1.8T Counterfeit Problem

Fraudsters sold counterfeit products worth $323 billion last year, and are projected to make off with $1.8T by 2020. Kimberly Gianopoulos, director at the U.S. Government Accountability Office says that payments services providers, working with government agencies, can help marketplaces fix that. In the latest Payments And The Platform Economy Playbook, she explains how.

Shopping on third-party marketplaces can provide ample benefits to buyers and sellers, allowing goods to change hands with the speed and convenience both parties have come to expect. Unfortunately, the faster transactions become, the more likely it is that they will be susceptible to counterfeiting.

Illicit and counterfeit goods make up a multibillion dollar fraudulent industry, with merchants suffering $323 billion in total losses from counterfeit products in 2017. Online sales of such products are projected to reach $1.8 trillion by 2020, presenting a problem for third-party marketplaces that allow individual sellers onto their platforms. These sites not only need to be vigilant against payments-related fraud, but they must also have the right tools in place to detect illicit listings.

Kimberly Gianopoulos, director at the U.S. Government Accountability Office (GAO), noted that process can be harder than it seems. She recently told PYMNTS about how online marketplaces, government agencies and other eCommerce players are tackling the increase in counterfeit products and the problems involved in stopping them from being sold. GAO was responsible for producing a report on the subject last year, research from which was cited in an April executive order issued to fight counterfeit fraud.

“What we heard across the board was that intellectual property rights and counterfeit goods are increasing significantly in their appearances, especially in the online context,” Gianopoulos said. “The way a number of online platforms are structured, such as eBay and Amazon … [means] that third-party sellers can register on these sites and sell their wares, and there isn’t always a way for the platforms to make sure that the items that they’re selling are the real thing.”

Fast Speeds, Smaller Packages and Online Counterfeiting

The increase in counterfeit goods on such marketplaces can be attributed to different factors, one of which being that it can be difficult to determine counterfeit listings from legitimate ones. It is fairly easy to lure consumers into buying counterfeits with such listings, Gianopoulos noted, as anyone can screenshot photos of a legitimate product and post them online.

That leaves consumers on the hook for products they did not know were illegitimate, which can result in frustration with the marketplace. GAO’s report found that 40 percent of sampled goods in frequently counterfeited product categories turned out to be fraudulent, a problem the April executive order sought to address by requiring government agencies, such as the U.S. Customs and Border Protection Agency (CBP), to work with the private sector to prevent sales of counterfeit items.

“We recommended in our report that CBP consider sharing additional information with the private sector,” said Gianopoulos. “When we spoke with private sector folks, they said that sometimes it’s difficult for them to follow up and identify who is shipping the counterfeit goods, because CBP does not share the information that they need in order to track these [counterfeiters] down.”

The recommendation that GAO gave to improve CBP’s counterfeit detection strategies is still open, she noted. Marketplaces like Amazon have reportedly been reticent to share information about how they detect counterfeits, creating knowledge gaps that prevent crackdowns on fake listings.

Another part of the problem is that counterfeiters have fundamentally changed how they sell and distribute, making it harder for those like CBP to detect them when they are shipped into the country.

“Because so many shipments these days are being sent in small packages, it’s much harder for [agencies or marketplaces] to try to find these counterfeit shipments,” Gianopoulos said. “They’re not coming in … as they used to, … in these big tanker ships, where there’s a huge container ship full of fake sneakers or Gucci handbags or what have you. It’s the stuff that you and I go online and order and get shipped directly to us at home. There are millions and millions of those packages, so it’s very difficult to easily canvas all of the packages that come through.”

The demand for next-day delivery is also creating new opportunities for counterfeit sellers. Many online marketplaces are starting to see significant issues arise from this. Amazon is among them, struggling to prevent counterfeiters from taking over existing listings, falsifying reviews or finding other ways to distribute their goods on the site.

Solving the Counterfeit Problem for Online Marketplaces

Marketplaces that wish to significantly decrease counterfeit activity will need to work closely with government agencies and consumers, said Gianopoulos. The latter need to be vigilant and report counterfeit products when they encounter them, and consumers should also ensure that everything from the marketplace to the payment method is safe and secure.

“With traditional credit cards, you can always go back and challenge a charge, but if you’re using something that’s not going through one of those portals, then you may not have the rights or you may not have the coverage that you think you do,” Gianopoulos explained. “It’s up to the consumer to be as knowledgeable and as educated as possible about their payment methods.”

Marketplaces will need to change how they think about counterfeit products, like how they changed their thoughts about consumer shopping habits. Consumers, government agencies and marketplaces must all adapt to prevent the sale of such items.

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