Preventing Identity Fraud in Online Marketplaces With Electronic Identity Verification

Online behavior and shopping are constantly changing.

Ever more people are shopping online, while also embracing peer-to-peer online marketplaces to purchase, sell, lend out, and borrow items. The online marketplace sector is expected to grow by 15% annually from 2022 to 2032, reaching a global valuation of 5.1 billion USD.

Unfortunately, in parallel with this growth in online consumption, we’ve seen a concerning uptick in ecommerce identity theft and fraud that subjects consumers to malicious attacks. As people’s personal identities are compromised, attackers get to access their accounts on ecommerce and marketplace platforms to commit fraudulent crimes.

To create a secure environment and safeguard their user base, ecommerce websites and online marketplaces must improve their user authentication processes.

Fraud in ecommerce and online marketplaces

Identity theft is when someone steals another person's personal information. Identity fraud is when they use that stolen or fake information to commit crimes.

In online marketplaces and ecommerce, fraudsters may gain access to a real user's account or create a “fake profile” to pose as a real person. Phishing attacks are one method criminals use to access real users' accounts.

After the attacker has accessed a user’s profile or created a fake one, they can engage in all sorts of criminal activity: purchase things illegally, sell things that do not exist, or trick people into accessing malicious websites. And they can do so without their identity being traceable.

Real users are at a significant risk of interacting with such criminals. Without a secure authentication procedure during customer onboarding, it is easy for fraudsters to produce a fake profile.

Why marketplaces and ecommerce businesses must focus on reducing fraud

Identity fraud is extremely damaging for businesses. It’s estimated to have caused $48 billion in ecommerce losses in 2023, and this trend has been increasing yearly since 2020. 

But combating fraud isn’t just about money. It’s also about building consumer trust, enhancing the user experience, and driving customer growth: the three main pillars that suffer from the impact of identity fraud.

Let’s look at these pillars in a bit more detail:

1. Damaged trust

To be blunt: People will never use an online marketplace or webshop that they don’t trust!

Companies that run such platforms are dependent on their users’ trust. This is especially true for peer-to-peer buying and selling: Users want to be sure that the person they’re dealing with is who they claim to be.

It is just as important for users to have confidence that their own identity isn’t at risk of being used for fraud.

This is crucial: Even a single bad experience can lead users to abandon the service entirely and find a competitor. According to a 2021 report by Javelin, 38% of identity fraud victims of financial services ended up closing their accounts after an attack.

2. Poor user experience

Dealing with fraud is an unpleasant experience that affects the user’s entire perception of the service and brand. It overshadows every other aspect of the user experience.

Security is therefore a crucial building block for creating a good user experience and avoiding negative effects on your brand.

3. Reduces growth

As a consequence of low trust and poor user experience, consumers will be less likely to continue using the platform or recommending it to others. That’s why weak security and a high risk of identity fraud can slow the overall growth of a platform.

That’s why it’s necessary for online marketplaces to ensure strong identity verification and security to ensure sustainable customer growth.

How eID verification helps prevent fraud

Identity verification through electronic identities (eID) has become increasingly common.

Most people are familiar with using eIDs for public services, but private organizations also utilize them to provide the most secure and efficient identity verification for their users. 

The wide adoption, along with improvements to the technology it’s built on, has helped eIDs become the most secure way of preventing identity theft and fraud. And now, several online marketplaces are using them to improve both trust and the user experience.

1. Building trust

eIDs are a trusted method of identity authentication. 

Not only do users know how eIDs work, but they also trust that they’ll protect their online identity. After all, people regularly use eIDs to log into their bank accounts, do taxes, or manage their insurance.

By letting users verify identity with trusted eIDs like Danish MitID, Swedish and Norwegian BankID, or Finnish Trust Network (FTN), marketplaces can elevate the level of trust on their platforms and in peer-to-peer interactions.

One example of this is the peer-to-peer lending platform Hygglo. The platform allows users to borrow things from each other, which makes trust a critical factor. Users need to know that they’ll get their item back. The whole business rests on this trust, and Hygglo ensures this trust by implementing MitID in Denmark, BankID in Norway, and FTN in Finland for user verification.

“Being able to rent your things out to someone, and to be sure that you will get them back, is one of the mainstays of what Hygglo is, so high-level verification is extremely important. This is what Criipto provides through the various identification solutions that are available”

- Co-founder and Product Manager, Henrik Fräsén

2. Improving the user experience

Because they’re easy to use and highly recognizable, eIDs are an efficient way to increase security without sacrificing the user experience. Customers can effortlessly authenticate themselves with their personal eID instead of having to remember passwords, while also knowing that other platform users have similarly verified their own identity.

Some eIDs also provide biometrics during verification, which simplifies the process even further. Biometrics like fingerprints or facial recognition are highly efficient and benefit businesses in several ways including usability, security, and speed of authentication.

This level of security helps break barriers in terms of what you dare to buy and sell online. Sportienda is a Norwegian company that creates a safe online space for selling and purchasing used expensive bikes. For Sportienda, eID verification is crucial to making customers feel secure, which contributes to a positive user experience.

“Through the integration of Norwegian BankID signatures with Criipto, we could improve the user experience, increase security, and mitigate fraud on our platform”

- CEO, Kjetil Imbsen

Read the full Sportienda story.

Sportienda customer story


How to prevent identity fraud with eIDs and Criipto

Criipto is an official provider of European eIDs for secure user authentication and digital signatures.

We make it easy for online marketplace and ecommerce businesses to start verifying their customers in the most secure and efficient way possible. 

Reach out to us to hear more about using Criipto’s authentication solution.

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