How reseller fraud is harming eCommerce merchants and ways to prevent it

What is reseller fraud? Learn how reseller fraud is harming eCommerce merchants and how to prevent it with machine learning models.

Patrick Drexler

VP of DACH and Friendly Fraud

18 July 2022


6 min read

If there’s ever been any certainty about fraud, it’s that fraudsters are always trying to adapt old, tried and tested techniques to the new realities of evolving technologies. Increasingly, they are turning to innovative new ways to target the growing no. of global smartphone users - mobile application fraud is a very real, yet still misunderstood threat. The same applies to the growing policy abuse eCommerce merchants encounter as they try to offer existing and new customers as many platforms to surf, various payment methods for convenience, and promotions and rewards for continued loyalty. Malicious actors are always ready to take advantage, which is precisely what is happening with a new type of fraud experienced by online retailers: reseller fraud.

What is reseller fraud and how does it work?

In the TL;DR summation - unauthorized resellers, usually small to medium sized merchants, or even criminal gangs or dishonest individuals, will buy en masse certain high-value and/or sought after products in order to resell them for profit. Certain goods may be purchased, for example, at heavily discounted prices, and resold at regular market prices, or at inflated prices - especially if demand is high. Online smartphone sales are a popular target, however, fraudsters do not limit their targets to high-value tech products, but also services and experiences. No industry is immune, but in particular, eCommerce stores, fashion brands, event sites and the travel industry can be affected. Anyone with an online presence involving selling and payments must take this fraud risk seriously or face up to the huge financial costs.

Have you ever tried to buy a concert or festival ticket, or that must-have gadget, only to be disappointed mere seconds or minutes after they went on general sale to learn the stock is sold out? Malicious small/medium sized merchants, buyers and fraudsters will use bots setup across multiple devices to buy merchandise (smartphones, high-value goods etc.) en masse through a website checkout service, virtually giving regular consumers no chance at all to make the same purchase. 

But what happens during this time, is this a victimless crime? It may appear that an affected merchant will be delighted, as in the end, their aim of garnering commerce through their sales channels has been accomplished. But companies that sell directly to customers can find their products being resold by unauthorized resellers. The original seller is not making a profit, the malicious reseller is - and at their expense. As for regular buyers, that disappointed feeling - let’s call it a negative customer experience - can result in lost future custom for eCommerce merchants. Magnified a hundredfold among disappointed customers, and the effects of these unethical trade practices can have a major financial impact an online store, and potentially create an unfavourable online brand reputation score. To be known for being unable to prevent such resellers bulk purchasing your desired goods is not a sought-after accolade. Online shoppers will use a competitor's service without having a second thought about it.

Why should eCommerce merchants take reseller fraud seriously?

It is understandable that in a highly competitive online environment, eCommerce merchants will always try their best at managing the online customer experience of every new/existing shopper. The end goal is to ensure revenue growth, while at the same time, trying to ensure the online customer experience is nothing short of exemplary! 

One of the biggest problems an online retailer face is ensuring that company reputation is always positive. It is difficult to keep everyone happy, but an overall positive reputation, backed up by online reviews and opinions, can contribute to further revenue growth. But if not nurtured properly, it can heavily impact sales if too many customers have a negative experience and decide to shop elsewhere.

There has been a general increase in policy abuse experienced by eCommerce merchants, with fraudsters and even dishonest customers taking advantage of rules and regulations in order to gain financially. We’ve documented promotion abuse, refund abuse and return abuse. Can you see fraud patterns emerging? It’s no accident that reseller fraud is also referred to as 'reseller abuse', for this is what it is, a malicious attempt to take advantage. Although fraudsters will outright aim to take advantage of company policies, there are customers who simply feel they are not breaking any rules, although they do aim to gain financially. And where fraudsters and dishonest customers gain financially, it is often the original seller that is the one that loses out. The rise in reseller fraud is just another extension of policy abuse. But just like other forms of policy abuse, there is a way to prevent reseller abuse from taking place.

Behavioural biometrics and machine learning models (ML) can prevent reseller fraud

The definitive technology online retailers must seriously consider adopting is already available. The solution to reseller fraud is beautifully simple. But don’t be fooled, this simple idea is backed up by some cutting-edge FinTech powered by artificial intelligence (AI) and machine learning models. Taking advantage of the ability to automatically, passively and in real-time analyze digital fingerprints (device setup etc.) and user behaviors (behavioural biometrics), fraudsters and dishonest customers can be weeded out. How can this prevent reseller fraud and all forms of fraudulent transactions? The key to reseller fraud succeeding is the ability for individuals and fraudsters with the resources to use bots that can imitate fake users (with either a completely made up identity, or using a mix of real and fake details - synthetic fraud - by signing up using numerous email accounts). By truly Knowing Your Users (KYU), bots can be weeded out, as can dishonest individuals signing up for services with a fake email account to take advantage of discounts to buy merchandise in bulk. This is all possible thanks to machine learning algorithms.

Just as fraud is evolving, anyone working in risk management should know that the anti-fraud solutions are adapting to the threats. And the means to effectively prevent reseller fraud and spot a fake transaction is a way to ensure the essence of any serious eCommerce merchants business model: to ensure a positive customer experience. It is all completely possible, and essential to maintaining your company’s gleaming online reputation. Failure to have an effective fraud detection system in place is costly - so why put your company’s fortunes in jeopardy?


Are you determined to stop reseller abuse from harming your eCommerce business? We can help. Click 'book a call' at the top of this page or contact Patrick directly via email at or via LinkedIn.

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