Multi-party fraud prevention tactics for your marketplace payment infrastructure
Unlike single-merchant transactions, marketplaces face multi-party fraud schemes where criminals exploit seller accounts, manipulate commission structures and orchestrate coordinated buyer-seller schemes that can drain platform funds.
Payment security breaches in marketplaces damage more than revenue. They destroy seller trust and trigger regulatory scrutiny across multiple jurisdictions.
Here are actionable strategies that provide implementation guidance for marketplace complexity. These approaches address the unique challenges of securing multi-party transactions, all while maintaining the user experience that drives marketplace growth.
Tip #1: Require Strong Customer Authentication and Multi-Factor Authentication
PSD2 makes Strong Customer Authentication mandatory for most customer-initiated card payments in the European Economic Area, with some exceptions. These extra security steps reduce fraud but add friction that can hurt conversion. If you ignore the requirements, you’ll face issuer declines, fines and regulatory scrutiny.
You should implement 3D Secure 2 to meet SCA without damaging your checkout flow. This protocol supports one-time passcodes, device checks and biometrics, covering all three factors PSD2 requires. In-app authentication keeps your shoppers on familiar screens, reducing anxiety and protecting revenue during payment.
However, for complex marketplaces, friction multiplies. Your international buyers might face cross-border challenges, unfamiliar authentication screens or SMS delays, while your sellers get frustrated when legitimate transactions fail. Poorly designed time-outs, generic pop-ups and device switching also erode confidence and increase cart abandonment.
You can reduce this friction with risk-adaptive authentication. Use Transaction Risk Analysis to request exemptions for low-value or repeat purchases, triggering extra steps only when something looks suspicious. This approach satisfies PSD2 while letting most of your customers complete checkout smoothly.
Tip #2: Implement AI-Driven Fraud Detection and Risk Scoring
Static, rule-based fraud systems rarely catch sophisticated schemes like buyer-seller collusion, triangulation fraud or account takeovers that plague busy marketplaces. These attacks drain your funds, cause chargebacks and damage relationships before you even notice something’s wrong.
However, machine-learning models provide a better solution. Feed them payment data, device fingerprints, velocity patterns and behavioural signals to teach them what normal marketplace activity looks like. When something odd appears—unknown devices, strange routing, sudden spikes in small orders—the system scores risk instantly and stops fraud in its tracks.
Accuracy counts as much as speed. Without proper tuning, AI can be overzealous, pushing genuine cross-border shoppers into review queues and delaying payouts to trusted sellers. Model drift, incomplete data and regional behaviour differences can increase false positives, hurting conversion and driving your frustrated users to competitors.
Tip #3: Enforce Robust KYC and KYB for Sellers and High-Risk Buyers
Weak seller verification is like leaving your front door unlocked. Fraudsters can create fake storefronts to launder money, steal identities and expose your marketplace to regulatory penalties. Once they compromise poorly verified accounts, they can access sensitive data and run fraudulent operations.
Strong KYC and KYB processes protect your business. Collect government ID, live selfies and device fingerprints to validate individual sellers quickly. For businesses, check company registry data through a dedicated KYC platform, verify beneficial owners and screen against global sanctions lists, with extra scrutiny for high-risk industries.
But each verification step adds friction. Too many document requests, repeated selfie checks and manual reviews frustrate honest entrepreneurs, slowing their start and tempting them to try competitor platforms.
International growth exacerbates this issue when unfamiliar document formats or complex names trigger false positives, forcing your team to handle exceptions time-consumingly.
Progressive verification offers a solution. By using an automated KYB API, you can enable basic selling after a quick ID check, while deeper corporate verification runs in the background, only interrupting merchants when something truly suspicious appears.
Tip #4: Use Secure Split Payments, Escrow and Strategic Fund Holds
When splitting a buyer’s payment, you’re dividing it among sellers, platform fees, shipping and tax. These funds need protection during shipping; without safeguards, refund fraud and account takeovers hit your bottom line directly.
Automated split-payment systems calculate distributions, secure your commission in a platform wallet and hold the rest in escrow until delivery confirmation. This window lets you block suspicious sellers flagged by monitoring systems and process refunds without touching operating funds during the verification period.
However, lengthy holds can damage the seller’s cash flow. Reliable merchants who ship same-day won’t tolerate week-long payment delays and will move to competing platforms if payouts seem unfair. You also face currency risk when held funds sit in multiple currencies across international deliveries.
Risk-based hold strategies balance these concerns. Release funds immediately to sellers with proven track records, low returns and confirmed shipping, while applying longer escrows only to new vendors, expensive items or high-fraud regions. Automated rules maintain protection without alienating your valuable sellers.
Tip #5: Monitor Transactions in Real Time and Set Rule-Based Alerts
Fraud patterns shift constantly throughout the day. Bots attack inventory at dawn, account takeovers peak at lunch and refund scams surge by evening. When detection lags, losses multiply before you even spot the problem.
You should create a real-time monitoring system that evaluates every payment against location data, device fingerprints, spending patterns and seller reputation. For example, your dashboard should flag anomalies when a London card connects from Vietnam or one account tries fifty gift-card purchases in minutes, giving you instant response capability.
Precision matters as much as speed. Blunt rules like “flag anything over £500” overwhelm your team and block legitimate orders. Aggressive location blocking also frustrates travelling customers. Each unnecessary block damages seller trust and increases operational costs faster than the fraud it aims to prevent.
Tiered alerting provides an effective approach. Your level-one alerts should feed machine-learning models that quietly adjust risk scores, level-two triggers extra authentication and only level-three requires human review. This helps keep false positives under 3% while catching new schemes before payout.
Tip #6: Optimise Dispute and Chargeback Management
Chargebacks hit both seller payouts and your revenue. When buyers dispute transactions often, card networks may freeze funds or suspend your processing.
You should treat chargebacks as a routine process, not a crisis. Map each dispute code to data you already collect—shipping confirmation, delivery proof, buyer messages—and create templates that automatically fill in these details.
Integrated dashboards can submit responses in seconds, not days. This keeps your chargeback ratio well below dangerous levels while freeing your team for more valuable work.
Volume creates its own challenge. For instance, a popular promotion or seasonal rush can double disputes overnight, requiring quick action. Without automation, analysts miss issuer deadlines and lose key time windows. This turns winnable cases into guaranteed losses and undermines seller faith in your marketplace protections.