Why Indian eRetailers are not able to configure their fraud settings?

One of the major challenges of the eCommerce industry today is the rising consumer concern about counterfeit and piracy, especially in terms of payments and villainous eCommerce imposters.
Online Counterfeiting

Indian eCommerce market has today become prodigious betting on the rising digital awareness and smartphone and internet penetration across the nation. However, if we look at the other side of the coin, the industry is still struggling on many fronts. Leaving behind the operational and funding challenges, one of the major challenges that pose threat on the existence of this industry is rising consumer concern about counterfeit and piracy, especially in terms of payments and villainous eCommerce imposters.

“I have purchase Moto X play at INR 13,760. I have done payment through my credit card on July 5th   2016, order status shipped showing since 7th of July, but I have not received any tracking number or messages from this site. They are not replying on my emails neither they are picking up my calls,” posted Ankit Rawat from Ghaziabad on a cyber complaint forum. India was always been one of most prone countries to cybercrimes even before the advent of eCommerce. The affect ratio reached at an exponentially higher rate after it. In an international report, India was named as one of the top three countries for cyber-attacks, accounting for 6.5 per cent targeted attacks during 2012.

eCommerce, a high potential market for illicit operators
No doubt the eCommerce industry, at present, is a complex ecosystem. With transactions happening in such large volumes, advent of cutting-edge technologies and most importantly the growing demand of e-Wallets, the fraud risks including phishing, identity theft, card frauds and many more of such counterfeiting have collectively started hindering the growth of online shopping.

Such high-risk transactions and intimidating word-out-mouth has started shaking consumer confidence in online shopping. Many avid online shoppers, now, hesitate in purchasing a big-ticket item online and rather prefer going to a brick-and-mortar store for their shopping needs. In addition, with stern competition to gain the maximum from the industry and to meet profitability and raise funds have somehow deviated these eCommerce firms from their back-end operations, thereby increasing the risk of fraud.

According to a recet research by audit, consulting and advisory firm Deloitte, some key factors responsible for such counterfeiting happening in the eCommerce landscape were:

i. Being aware of the fraud vulnerabilities/ areas of revenue leakage in your business? Are your existing revenue assurance frameworks robust enough to mitigate these risks?

ii. Do you know if counterfeit products are being sold through your marketplace?

iii. Do you know if the third parties (vendor/ sellers) in your business ecosystem have an adverse reputation among their peers or the public?

iv. Is your organisation complying with the statutory requirements such as the Companies Act 2013, Prevention of Corruption Act, 1988 etc.? If not, can the non-compliance impact our future funding prospects?

v. Have you gauged the effectiveness of your existing fraud risk management framework?

The regular complaints on social media and other complain forums has really shook consumers’ trust and eCommerce companies, with the best of their efforts, are trying to regain the lost trust. For instance, the homegrown eCommerce portal Flipkart has till now barged many of its merchants whom they find counterfeiting on their platform. 

Many of such companies warn or ban offenders on detecting fraud either by their customers or by their suspicious behaviour from a particular device be it mobile phones, email addresses or locality. After the rise in such counterfeiting, many companies, especially catering to some niche segments like electronics, now allow only authorise dealers to sell on their platforms.

Technology, a catalyst to counterfeiting
Mobile payments industry is highly venerable to such frauds. Payment gateway PayU India estimates that around 4-5 per cent of overall online commerce transactions in India are fraudulent. Social media is also touted to be one of the major reasons for eCommerce counterfeiting in the country.

As per Nisha Bhaita, Director, PwC India, “The menace of counterfeit products in India has increased with the exponential growth of e-commerce platforms, online marketplaces and social media in the recent years. The online portals and social media are becoming a popular and cheap method for counterfeiters to attempt to sell fake goods.”

Of course these frauds not just canibalise the sales of a company, but also affect their brand reputation. Even for or online marketplaces such sham poses serious business risks. Of late, we have also seen many national and international brands suing marketplaces for allowing fake goods on their website. Furniture maker Housefull International has recently demanded Rs 150 crore from AskMe Groupbacked online marketplace Mebelkart for allegedly defaulting on payments and selling imitations. 

Government’s standpoint
eCommerce counterfeiting is also a rising concern for the government as it leads to financial loss of exchequer. Najib Shah, Chairman of Central Board of Excise and Customs (CBEC), expressing his concern over the buying and selling of bogus products on various online portals said that CBEC was considering putting in place a voluntary code of practice for e-retailers to curb illicit trade.

“Given the emphasis on the current ‘Make in India’ campaign bringing in economic development and the much anticipated growth; an effort therefore needs to be made to examine how illegal trading activities can be curbed,” said Dr. A Daidar, Secretary General, FICCI.

Betting on the technology dependence of these eCommerce, counterfeiters also see a huge potential in the online ecosystem to expand their business. The counterfeiting rackets are now able to access a much wide market leveraging the technological advancements. However, the launch of ‘Make in India’ and ‘Digital India’ initiative by the Government of India intends to transform the country into a manufacturing hub which will further curb the impact of illicit trade and associated activities of piracy and counterfeiting. 

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