Online marketplaces have made shopping easier than ever. Whether it’s a secondhand iPhone or a vintage handbag, you can buy and sell from the comfort of your couch. But convenience comes with risks for buyers, sellers, and marketplaces alike.
Buyers risk paying for products that never arrive. Sellers face fake buyers who disappear without paying. Marketplaces themselves risk not knowing who their users really are, opening the door to fraud and regulatory trouble.
The root of these challenges? Anonymity. Without knowing who is on the other end of a transaction, trust breaks down.
The solution is simple: integrating identity verification software into your marketplace onboarding process. In this article, we’ll explain why marketplaces need identity verification, what regulations apply, and how Klippa can help create a secure environment for everyone involved.
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Key Takeaways
- Identity verification protects marketplaces from fraud, fake accounts, and chargebacks.
- Both sellers and buyers can be verified quickly using automated tools.
- Regulations like KYC, KYB, and AML require marketplaces to know their users.
- Klippa offers secure, AI-powered identity verification to scale this process effortlessly.
Why Marketplaces Need Identity Verification
As a marketplace, you connect thousands of sellers and buyers globally. While this makes transactions quick and convenient, it also opens the door to fraud.
The marketplace boom of recent years has brought an increase in credit card fraud, identity theft, and chargeback scams. Buyers may hijack accounts or use stolen payment details, while sellers may offer fake products or take payments without delivering anything.
These risks thrive when platforms lack clear visibility into the identity of their users. Without reliable verification, it’s nearly impossible to prevent bad actors from exploiting the system.
Luckily, there is an easy solution to this. By verifying the identity of sellers and buyers in the onboarding process while they are setting up an account, you can prevent people from committing marketplace fraud in numerous ways.
In the next sections, we’ll explore how identity verification works for both vendors (sellers) and buyers, and why it’s essential for a secure marketplace experience.
How Vendor Identity Verification Works for Marketplaces
As a marketplace, you must know who is selling on your platform. Seller identity verification helps prevent fraudulent listings and protects buyers from scams.
The process typically begins during seller onboarding. Sellers are asked to provide business registration documents, tax information, and proof of identity. Using automated verification tools, you can validate these documents quickly and securely.
Following Know Your Business (KYB) regulations adds an extra layer of protection by confirming the legal status and legitimacy of the business. Once verified, sellers can list products with confidence, and buyers can trust the marketplace to enforce accountability.
How Buyer Identity Verification Works for Marketplaces
Verifying buyers is just as important as verifying sellers. Buyer identity verification adds an extra layer of trust and security for both the marketplace and the sellers.
During account creation, buyers may be asked to provide proof of identity, such as a government-issued ID, along with basic personal details. Automated tools can verify these documents and detect suspicious activity in real time.
Following Know Your Customer (KYC) regulations ensures you meet compliance standards while reducing the risk of identity fraud, stolen payment methods, and account takeovers. With verified buyers, sellers can confidently fulfill orders knowing their customers are legitimate.
With both sellers and buyers verified, your marketplace becomes a safer and more trusted environment. But how do you actually set up and manage this process? Let’s explore how identity verification works from start to finish.
How to Verify Identity for a Marketplace
Implementing identity verification may sound complex, but with the right tools and process, it can be simple and scalable. Here’s how most marketplaces approach it:
Step 1. Collect Documents
Ask users to submit government-issued IDs, business registration papers (for sellers), and proof of address where applicable.
Step 2. Automate Document Checks
Use identity verification software to automatically check the authenticity of documents and detect potential fraud.
Step 3. Use Biometric Verification
Add facial recognition or liveness detection to ensure the person submitting the document matches the photo ID.
Step 4. Cross-Check Data
Compare submitted data against official databases to flag inconsistencies or suspicious activity.
Step 5. Ongoing Monitoring
Even after onboarding, continue monitoring accounts for unusual behavior or fraud signals.
By integrating these steps into your marketplace onboarding and account management, you reduce risk, comply with regulations, and build a safer platform for everyone involved.
Key Benefits of Identity Verification for Marketplaces
Adding identity verification to your marketplace not only prevents fraud but also creates long-term value for everyone involved. The main benefits include:
- Detecting Document Fraud: Automated checks can spot fake or altered IDs instantly.
- Preventing Identity Theft and Account Takeovers: Strong verification stops criminals from impersonating legitimate users.
- Minimizing Payment Fraud: Verify buyers and sellers before transactions to reduce chargebacks and disputes.
- Certifying Verified Users: Mark verified users to build trust and improve transaction rates.
- Building a Safer Marketplace: A verified community encourages honest behavior and attracts more buyers and sellers.
- Meeting Regulatory Requirements: Stay compliant with KYC, KYB, and data privacy regulations without manual effort.
The result? A secure, trustworthy marketplace that protects your brand and keeps users coming back.
While the benefits of identity verification are clear, marketplaces must also meet legal and regulatory requirements. Let’s take a look at the key regulations you need to know.
Regulations for marketplaces
As of 12 July 2020, a new regulation called platform-to-business regulation (P2B) has been enforced by the European Commission. This rule intends to create a fair, predictable, and transparent business environment. The P2B Regulations are applicable to businesses in the European Union, and platforms needed to ensure compliance with the regulation before the 12th of July 2020.
On top of that, since May 2022 a new European Directive put new laws for online shops and platforms in place. Those involve more transparency for customers about who they are dealing with directly. Marketplaces must specify if a customer is dealing with a business or a private individual and what the terms of the agreement are.
Additionally, there are international guidelines that are applied by 100 countries across the globe. Those five guidelines state:
- Overarching principles that should be adopted by marketplaces
- Government actions that ensure the safety of products sold online
- The responsibilities of online marketplaces
- Complaints and redress mechanisms
- Consumer information and education
Note: Before you offer your services as a marketplace please inform yourself and conduct your own research in order to comply with all rules and regulations necessary.
Now coming to the end of the blog, it became clear that a majority of the challenges and risks faced by online marketplaces can be minimized by verifying identities from the get go.
We understand that for a marketplace, it is pretty much impossible to verify all customer identities manually as it is not scalable. To minimize the work and make this verification process scalable, automated identity verification software is proposed as a solution.
How Klippa Enables Secure Marketplace Transactions
Klippa offers an ideal automated identity verification solution for marketplaces. Our AI-based software makes verifying the identity of buyers and sellers a quick, easy, and secure process. You will never be unsure about who is using your services ever again.
Klippa’s software allows marketplaces to automatically onboard new customers 24/7 while giving everyone involved a safe and comfortable business environment. Our solution can be customized to fit into your identity verification flow, allowing you to add various security layers with the following features:
- Accurate ID document verification
- Fast age verification of customers
- Elimination of identity theft through liveness detection
- Verification of identities with selfies through facial biometrics
- Automatic comparison of the selfie and the picture on an ID
- Extraction of all necessary information from documents within a few seconds
- Use of AI algorithms to detect document fraud
- Masking of sensitive information to protect it from criminals and data breaches
Additionally, we can assure you that none of your or your customers’ data that is processed with our identity verification solution is saved on our servers, allowing you to be compliant with data privacy regulations as well.
With proper documentation provided for both API and SDK, the implementation of our identity verification software is easy and flexible.
Do you have questions about how our software helps you to improve the security of your marketplace? Please contact one of our experts or book a free demo down below for more information.
FAQ
With modern automated identity verification systems, the process usually takes just a few seconds to a few minutes. Manual reviews, if needed, may take longer but are rare with advanced technology.
Yes. By verifying identities at account creation and using ongoing monitoring, marketplaces can prevent fraudsters from taking over legitimate user accounts. Features like liveness detection and biometric matching add extra protection.
If a user fails verification, they are typically asked to resubmit clearer documents or additional proof of identity. If verification still fails, the marketplace may suspend or block the account to protect the community.
Not all marketplaces are legally required to verify every buyer and seller. However, many regions require marketplaces to verify sellers under KYB regulations and buyers in high-risk transactions under KYC and anti-money laundering (AML) laws. It’s recommended to check local legal requirements.
– KYC (Know Your Customer): Verifies individual buyers and sellers to prevent identity fraud, fake accounts, and financial crime.
– KYB (Know Your Business): Confirms the legitimacy of businesses and merchants before they can list products or services.
– AML (Anti-Money Laundering): A global legal framework that requires marketplaces to detect and prevent money laundering, often by applying both KYC and KYB checks.