Anonymity in e-commerce enables a long list of fraudulent behaviors. The obvious ones are fake reviews and fake traffic. Less visible, but perhaps more damaging, are automated checkout bots and fake customers of various kinds.
There are very sophisticated, high-tech machine-learning algorithms and other tools to help fight these various types of fraud. An entire industry is springing up around this problem. As fraud increases, more and more new companies are created to combat it. But no matter how powerful, no tool is 100% effective, and they are only effective if they are used. This turns into yet another expense e-commerce stores have to deal with every month.
Crypto has long since employed a very simple tool to prevent individuals from hiding their identities and duplicating themselves online: Know Your Customer or “KYC”.
Of course, KYC existed before the blockchain, so why doesn’t everyone use it? The main problem is friction. Online retailers want customers to visit their stores and check out in mere moments. Anything standing in between the customer and the checkout button is a chance to lose a sale.
Here are some specific problems that can be solved by KYC, and how can crypto be used to make the process streamlined and efficient.
The estimated economic impact of fake reviews is 152 billion dollars. This problem goes in both directions: fake positive reviews and fake negative reviews. Fake negative reviews can take months or years to shake off and can cost up to 25% of lost revenue or more. On the other hand, fake positive reviews can artificially inflate a product’s Google ranking and revenue. More often than not, fake positive reviews are accompanied by a terrible product or even a product that doesn’t exist.
One of the reasons why it is so easy to make a fake review is that buyers are allowed to remain mostly anonymous and can make multiple different accounts. If only one buyer account was possible, then far fewer fake reviews would be possible, and if a user was to engage in this behavior, their only account could eventually be flagged and suspended.
There is a wide range of fraudulent behavior enabled by identity theft/duplication online. A simple one of these is when users create multiple email accounts to take advantage of free offers or first-time buyer discounts.
Scammers can also take over user accounts by buying stolen passwords online, certain security codes, or other personal information that might be used to authenticate your identity. This information is always floating around the dark web. They can also successfully use a phishing attempt against individual customers. They can use this information to make purchases and sometimes withdraw cash for certain accounts. This can destroy a customer’s trust in a brand in an instant because they feel that their data isn’t safe there.
KYC would prevent customers from making multiple accounts and would prevent identity theft because identity verification would be required every time.
Automated Checkout Bots
Product launches are often accompanied by a buying frenzy from automated systems. The largest pain point in e-commerce since the global pandemic is automated checkout bots utilized by resellers and scalpers. Those buyers that use the bots can then re-list those products for a higher price. Some of these products may not even be real. The counterfeit industry is growing rapidly, but in certain cases, the product doesn’t even exist. This affects businesses of all sizes. Anyone selling unique, high-quality products can be affected.
As stated before, e-commerce is being plagued by automated bots. When a unique product hits the market, Add-To-Cart (ATC Services) or Automated Checkout Bots immediately buy as much inventory as possible so that the owner can resell the products at a higher price. This leads to poor and unfair product distribution. Loyal customers are being forced to buy their favorite products at resale prices instead of the fair market value decided by the brand. The loyal customers that helped create the brand and enable the bots to make a profit are being punished, and there’s nothing reasonable and scalable that brands can do about it.
The problem is so pronounced that even the American government stepped in to help. A federal team was launched to analyze and take down the large groups that create the majority of these checkout bots.
KYC would prevent bots from running amuck. It would render them useless for some tasks in an instant.
Low-Friction KYC in E-Commerce
One way to reduce KYC verification friction in online purchases is to use NFTs. In a general sense, a “Shopper’s NFT” could be a customer’s ticket to make purchases online. After going through the KYC process once to mint the NFT, each subsequent interaction would only require that the customer was logged into their wallet. After that, the Web3-enabled webpage would verify that the user was holding the NFT. If the user was not holding the required NFT, the checkout button (or submit button for reviews) would be unable to be pressed.
NFTs and crypto wallets can be stolen, but not nearly as easily as other kinds of data we enter online every day. A crypto wallet hack is almost always a user error. And typically, the hacker is looking for large funds, not to make a single purchase online. NFTs are also impossible to duplicate or fake.
Reserves help brands mint special NFTs that are used to “hold the user’s spot in line”. Each NFT holder will only be able to buy one product (or as many as allocated by the brand). This gives store owners an easy, convenient way to reward loyal customers with guaranteed access to product drops, discounts, and other perks decided by the brand. If the customer is NOT holding a Reserve NFT, the checkout button will not be clickable.
This system is trustless, fair, and transparent. Customers will be able to see how many NFT passes have been distributed, how much product is allocated to each NFT, and how much product is left on the shelves.
However, even NFTs can be snatched away from the consumer with bots and smart contracts. The solution here is to require users to hold SHOPX while attempting to purchase a Reserve NFT and to continue holding it to keep the NFT active.
Reserves are only meant to hold the user’s spot in line at the moment, but the SHOPX Protocol has plenty of room to evolve. Web3 is uniquely equipped to handle Web2 weaknesses, and SHOPX is prepared to build the tools necessary to take advantage of those strengths.