What is marketplace supplier fraud and how can you stop it?
  • Screen Shot 2019 08 13 at 16 12 52 Jessica Allen
  • 03/02/2020

What is marketplace supplier fraud and how can you stop it?

Online marketplaces are vulnerable to fraud from suppliers as well as customers. Learn how to identify supplier fraud and why it needs a different approach to customer fraud.

Supplier fraud is an increasing concern for on-demand marketplaces, such as couriers/delivery services and ridesharing apps. Fraudulent behavior from suppliers can have as high a cost as card-not-present (CNP) payment fraud, but it’s often more challenging to spot as it rarely results in chargebacks.

Supplier fraud also has a negative impact on the user experience for genuine customers. Longer wait times, lost orders and higher fees cause customers to lose trust in a business. It also puts greater pressure on legitimate suppliers to remain competitive.

Marketplace business types

Marketplaces connect suppliers with customers. Supplier fraud affects marketplaces where the customer selects a specific supplier, as well as marketplaces where the customer selects a service instead of a specific supplier.

Exposure to supplier fraud is often highest during expansion, when a marketplace onboards new suppliers quickly and offers generous incentives to attract customers. There are many other factors that impact supplier fraud rates eg. products/services offered, onboarding processes and business strategy.

Supplier fraud scenarios

Suppliers typically turn to fraud when they see an opportunity to boost their earnings. In some cases, suppliers might seek to improve their ranking within the marketplace, or launder money from CNP payment fraud.

Low-value orders from fake customer accounts

A supplier creates fake customer accounts to place orders that are lower in value than the fee they are paid as a supplier - for example, a courier may place orders for low-value items (eg. a drink) to receive the delivery fee.

Order cancellation

A supplier uses a fake account to place an order with cash delivery, in this scenario the marketplace advances the restaurant the payment. Once they receive the payment, the restaurant cancels the order and keeps the payment.

Collusion between a customer and supplier

Using a ridesharing marketplace as an example - a passenger and driver pre-arrange a trip using a stolen credit card. In return for accepting the fare, the driver will receive a large fee.

Referral schemes and promotions

Suppliers may create fake customer accounts to unlock rewards - eg. discounts for new customers, referral schemes or a bonus based on the number of orders completed over a period of time.

Why supplier fraud needs a different approach

It’s important to emphasise that the methods used in supplier fraud are very different from methods used by professional fraudsters who commit typical CNP fraud.

With online payment fraud, the typical fraudster uses stolen credentials to make orders, sometimes using lists containing hundreds of accounts or credit card details. Supplier fraud is far more opportunistic. The majority of the time, suppliers only occasionally commit fraud based on specific circumstances.

Why is this important? When a user is caught committing CNP fraud they are usually blocked from making any future orders. However, a marketplace needs suppliers to function, and if it blocks every supplier who does something slightly fraudy it may not be able to fulfill genuine customer orders. Therefore instead of permanently blocking suppliers, we prevent specific negative behavior.

How do we stop supplier fraud?

To help marketplaces combat this problem, we offer an anomaly detection model to look at the supplier history and identify patterns of behavior that indicate fraud. As well as the supplier, we also look at the combined risk of the supplier, customer and the order itself.

This means the marketplace can prevent the potentially fraudulent suppliers from being matched with high-risk customers/orders. The supplier is still able to fulfill low-risk orders, so if there are any false positives it doesn’t prevent them from earning. Also, the dynamic approach of our anomaly detection model means that if the supplier's behavior improves, they are not permanently penalized. We recognize suppliers are not inherently bad and typically have more good, fulfilled orders and fewer fraudulent orders.

We also look into networks where suppliers are working together, potentially sharing a group of fake customer accounts or working with the same colluding customers. In this sense, networks allow us to identify potentially fraudulent suppliers that have just emerged and therefore hadn't been identified by our machine learning model.

Warning signs to identify supplier fraud

Shared properties between a supplier and customer (or between customers)

eg. Name, surname, phone number, address, device.

Similarity between a supplier and customer (or between different customers)

Look out for similar names, contact numbers or emails, eg. one character change.

Supplier receiving repeated orders from the same customers

Nearly always suspicious for commoditized suppliers (eg. couriers or drivers). With differentiated suppliers (eg. restaurants) this is common and not a sign of fraud.

Also look for any suppliers receiving a higher than average proportion of:

  • New customer orders
  • Discount/promo orders
  • Orders which change price
  • Cancelled orders

If you want to learn more about how we can help you manage supplier fraud at Ravelin get in touch here.


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