P2P companies and online retailers have found success in marketplaces that connect buyers and sellers. Whether for e-commerce, loans, ride sharing, or housing, marketplaces are reducing inefficiencies by both increasing supply and reducing costs.

P2P companies such as Airbnb and Uber rely on the marketplace model and directly hold a very small inventory themselves. Even companies you may not consider a marketplace like retailers have moved heavily into the space. For example, 50% of all items sold on Amazon are done via third-party sellers.

The benefits to having third-party vendors include:

  1. Broader Inventory – To carve out their own unique niches third party vendors may stock items that sell but are not widely popular
  2. Better Pricing – Customers receive lower prices due to competition between vendors
  3. Risk Reduction – Cost and risk of holding inventory is spread among a wide array of merchants

However, running a marketplace with many participants poses risks which need to be addressed. The largest immediate risk is fraud, which we explored in a previous post. The largest long-term risk is collusion and money laundering.

Marketplaces without the right checks in place are ripe ground for bad actors, who can set up buyer and seller accounts to launder money or game the system. The risks these activities present to your institution can be significant, especially when you don’t have the ability to determine when buyers and sellers are connected. Below we list just some of the vulnerabilities associated with each kind of marketplace.

Money Laundering

Because online marketplaces bring together a wide variety of buyers and sellers who have not transacted, there is increased risk of money laundering in the below scenarios

  • High value items:
    • High value items provide a relatively easy way for fraudsters to launder funds by selling a non-existent product to a colleague. Smartphones are a great example, as they have a high dollar value relative to volume, and are commonly moved internationally.
  • Gift Cards:
    • There is a huge amount of risk with gift cards because they are equal to cash, portable, and you can acquire many of them without suspicion.
  • Gaming:
    • Moving tens of thousands of dollars, internationally.
  • Lending:
    • Way to launder not hundreds, but tens or hundreds of thousands of dollars. IdentityMind has seen collusion between parties in P2P lenders, the usual reason is money laundering.
  • House share:
    • Way to launder not hundreds, but thousands of dollars. IdentityMind has seen collusion between parties in P2P house share, the usual reason is money laundering.
  • Car share:
    • Fake passengers and or fake drivers are an established problem. IdentityMind has seen collusion between parties in P2P car share industry.

Collusion

While the money laundering concerns above are real, there are further problems that collusion can bring:

  • Retailers:
    • Fraud is prevalent in organizations that provide ‘credits’ or ‘incentives’ for new buyers. IdentityMind has seen sellers who sell only to customers who have those credits. The colluding buyer and seller are taking advantage of incentive sign-ups.
  • Gaming:
    • Cheating between players leads to losses and drives away good customers who think that a game is rigged.
  • Lending:
    • IdentityMind has seen collusion between parties in P2P lending. The usual reason is money laundering, but fraud is also a reason.
  • Car share:
    • It’s very common in the ride sharing industry to see fraudulent or ‘fake’ rides to collect fares as well as bonuses or incentives.

Prevention and Detection

As collusion is so often a stepping stone for fraudsters planning to set up a money laundering operation, the best way to prevent money laundering is to detect it early. Collusion can often be detected and prevented, but it requires in-depth analysis of both sides of a marketplace.

Information challenges The Issue
Multiple systems Your onboarding tool is different from your fraud tool, which is different again from your transaction monitoring tool
No way to aggregate data in one spot Reports are manual and involve taking data from across systems (internal and external) to build out the information you need. This is time consuming and reactive
Data isn’t robust like a bank’s The amount of information collected at onboarding isn’t very extensive, especially internationally, and certainly not in comparison to the information held in a typical credit file at a bank

 

There are 20+ parameters to detect if buyer and seller are connected.

Screen Both Buyers and Sellers

How to Validate Sellers

How to Validate Buyers

  • Electronic DNA (eDNA)
    • Bad First Degree Relation
    • Bad Risk Score
  • Previous Attempts to Sign-Up
    • Device Failed Validation
    • User Account Count
  • Device
    • Merchant Application Count for Device
    • User Account Count for Device
    • Shipping Address Count for Device
    • Billing Address Count for Device
    • Timezone
    • Location
  • Address
    • Shipping address count for user
    • Billing address count for user
    • Shipping address count for user
    • Shipping address count for device
    • Shipping address count for payment instrument
    • Payment instrument count for shipping address
    • Shipping address previously used
  • Name/Address Validation
    • Public record of individual
    • Public record of business
    • Social media record of individual
    • Social media record of business
  • IP Address
    • Risk Score
    • Suspicious Proxy
    • Bad Proxy
  • Device
    • Device fingerprint
    • Timezone mismatch
    • Emulator
  • Email
    • Temporary email address
  • Phone
    • Telephone number safe
    • Telephone number contract connected to individual or business
  • Document Verification
    • Valid document
    • Document name match the name
    • Document picture match their picture
  • eDNA
    • Billing – shipping address match
    • 1st degree connection between buyer and seller
    • 2nd degree connection between buyer and seller
  • Name/Address Validation
    • Public record of individual
    • Social media record of individual
  • IP Address
    • Risk Score
    • Suspicious Proxy
    • Bad Proxy
  • Device
    • Device fingerprint
    • Timezone mismatch
    • Emulator
  • Email
    • Temporary email address
  • Phone
    • Telephone number
  • Payments
    • Account information: Paypal, bank account
  • Other
    • Buyer and seller are same person
    • Buyer and seller are connected

 

How IdentityMind Can Help

Businesses have a legal and moral responsibility to prevent bad actors from using their platform for money laundering. And, money laundering causes severe negative consequences.

IdentityMind’s platform takes on the burden of analyzing both sides of a transaction, notifying businesses of potential first and second level collusion, enabling businesses to investigate and potentially block bad actors from using their platform for nefarious purposes.

 

Information Challenges IdentityMind Platform
Multiple systems IdentityMind sits on top of all existing systems, as well as providing value towards prevention and detection suspicious KYC applications and transactions.
No way to aggregate data in one spot IdentityMind can ingest and combine transaction data with data from various service providers. IdentityMind provides you with the ability to create reports giving you the information you need, in real-time.
Data isn’t robust like a bank’s In addition to getting data which banks may not have, you can also add KYC services to force high-risk customers to validate that they are who they say they are.