Online marketplaces are truly the locomotives taking e-commerce growth to levels no one could have predicted just a few short years ago. Retail e-commerce sales in the U.S. last year totalled approximately 768 billion, according to Statistica, and could reach beyond $1.3 trillion by the year 2025. With so much money at stake, it’s no surprise that online marketplaces are being infiltrated by players with less than honest intentions – including counterfeiters – trying to get their piece of the pie.
In fact, counterfeiting has become a huge and growing problem for online marketplaces and sometimes for payment providers as well. In 2021 alone, $1.7 trillion in pirated and counterfeit goods were sold, and $1 trillion of this was sold online.
The current economic environment also creates the potential for this already proliferating market for counterfeit goods to explode. Studies have shown that when consumers’ wallets and bank accounts take a hit during a recession, their spending on luxury and high-value goods decreases, and their willingness to purchase less-expensive knockoffs increases.
From athletic shoes and luxury watch brands to nutraceuticals and electronics, it seems that no product is safe from counterfeiters looking for items to reproduce and sell online, to make money at everyone else’s expense. This includes the consumer who doesn’t get what they thought they were paying for, the payment provider caught in the middle of a transaction with a shady character on one side, the brands that lose money, and of course, the marketplace.
Counterfeiters can cause serious consequences for marketplaces
When consumers lose faith in the authenticity of the products they purchase, the damage to both reputation and sales can negatively impact an online marketplace. Consumers expect marketplaces to ensure that their merchants are reputable and sell authentic brands. And when they’re the victim of a counterfeiter, they may lose faith in all the merchants selling on an online marketplace as well as the marketplace itself.
Brands expect a certain level of due diligence on the part of marketplaces to protect them from counterfeiters selling knock-offs, which are typically less expensive and of lower quality. Not only do they suffer financially from the loss of sales, but counterfeits lower the value of authentic products and can also damage the brand’s reputation when consumers believe the knock-offs are the real thing but experience quality issues.
Unfortunately for online marketplaces, there are ever greater consequences to allowing the infiltration of counterfeiters than the damage to consumer and brand confidence. These consequences include severe fines from regulators and, in extreme cases, even the potential to be shut down temporarily or permanently.
Furthermore, payment providers that allow transactions for counterfeit goods and products may be held accountable. As regulators crack down, virtually anyone in the payment flow may have to assume some risk.
Counterfeiters are often associated with other criminal activity
The sale of counterfeit goods is by itself criminal. However, this activity is often linked to other more serious crime that ranges from money laundering and extortion to terrorism, as well as to criminal organizations.
According to the United Nations Office on Drugs and Crime (UNODC), the involvement of organized crime groups in the production and distribution of counterfeit goods is well documented globally and also on the rise. Not only do crime organizations use funds from other illicit activities to fund their counterfeiting operations, but also vice versa. And they use similar methods to traffic counterfeits as they use to move illegal drugs, firearms and people trapped in human trafficking schemes.
The potential connection to more serious crime is why both national and international regulatory and law enforcement agencies are increasing their efforts against the sale of counterfeit goods, including products sold online. The Shop Safe Act, introduced in Congress in 2021 for this very reason, would specifically hold online platforms liable for the selling or advertising counterfeit goods on their websites.
In the U.S., organizations tasked with handling counterfeiters range from the Federal Bureau of Investigation (FBI) and U.S. Customers and Border Protection (CBP) to federal agencies aimed at protecting consumers like the U.S. Food and Drug Administration (FDA) to the U.S. Consumer Product Safety Commission.
Global organizations with initiatives to address counterfeiting include, but are not limited to, Europol, Interpol, the Asia Pacific Economic Council, the Word Customs Organization and the World Intellectual Property Organization.
How online marketplaces can prioritize the detection and removal of counterfeit items
Heightened enforcement coupled with the changing regulatory landscape has prompted some high-profile marketplaces to prioritize the detection and removal of counterfeiters on their sites. These marketplaces have employed screening, reporting, physical authentication, and other techniques to detect counterfeit products. But even though physical authentication is the gold standard, it’s expensive to perform, and can have a negative impact on the customer experience (slowing it down, etc.)
EverC recently announced an agreement to assist Wish, one of the world’s largest online marketplaces, in fighting product counterfeits. Wish selected our MarketView marketplace risk management solution to detect dangerous, illicit, and counterfeit products using AI technology.
With a combination of artificial intelligence and expert insights, MarketView has the ability to conduct tens of millions of searches daily, analyze details and seller behaviors even down to the type of photo used in the product description, and return results within minutes. MarketView also enables remediation so that marketplaces can work with merchants to remove problem items that they may not even be aware of, without terminating the merchant.
With MarketView, Wish and other large online marketplaces are working to reduce risk from counterfeits and other illicit products, and EverC is here to help.