It's a good time to be an online marketplace. Global sales have doubled from $2 trillion to $4 trillion in just six years. But there's a problem: with increased success comes increased risk of fraud. And many marketplaces aren’t equipped to fight it.
Instead of verifying business entities, many marketplaces choose to verify the people associated with the business — i.e. individual business owners — as a stand in. But identity verification solutions used to verify people aren't built for verifying business information like EIN and business address, which confirm that a business even exists. In fact, marketplaces often skip business verification entirely, continuing to verify individuals-as-proxy. That ultimately exposes gaps that bad actors can take advantage of with synthetic identities.
It’s a growing problem that affects even the most mature marketplaces:
- Amazon blocked 700,000 fake seller accounts from opening in 2023
- eBay blocked 380 million counterfeit and prohibited items from listing in 2023
- OfferUp has disabled 10,000+ accounts and removed almost one million suspicious items from its platform
That’s why marketplaces need identity verification that’s purpose-built for businesses. The right solution maintains strong individual seller verification while closing critical gaps in business verification — helping you fight sophisticated fraud, reinforce customer trust, and build sustainable growth.
Why individual verification falls short
Identity verification tools built for individual sellers focus on people, verifying business owners’ government-issued IDs, Tax Identification Numbers (TINs), and simple banking details. While these tools effectively screen sellers operating as individuals, they can’t properly assess sellers operating as businesses.
Assessing business legitimacy and risk requires completely different tools and data sources than assessing individual seller risk. To properly verify a business, you need visibility into authoritative data like:
- Secretary of State records
- IRS databases
- Beneficial ownership reports
- Liens, litigations, and bankruptcies
- Sanctions list matches
This is critical for properly assessing the risk of any business, but is even more challenging when assessing newly formed businesses — it can take months for them to appear in traditional databases after formation, creating prime opportunities for sophisticated fraud.
Today's fraudsters are increasingly using synthetic business identities, combining legitimate and fabricated details to create business profiles that can evade initial detection. When further checks are run, and the fake profiles are discovered (if they are), it’s typically too late. Oftentimes the damage has been done, and the fraudsters have already fled.
That puts the burden on your teams to manually spot increasingly complex fraud attempts. Risk teams must complete time-consuming manual reviews while operations teams struggle to handle growing verification requirements. As more business sellers join your platform, backlogs can grow, and verification standards can become harder to maintain.
But verification gaps create vulnerabilities far beyond operational strain. Marketplaces that process payments face heightened regulatory scrutiny and potential fines for failing to verify business sellers, while marketplaces selling physical goods to consumers must ensure INFORM Consumers Act compliance. That’s why it’s important to understand the right level of verifications for your marketplace’s needs.
Embracing a risk-based approach for your marketplace’s business verification
Understanding which level of business verification is appropriate for your marketplace is crucial to not only your compliance standing but also your operational efficiency and fraud prevention capabilities.
All marketplaces need a baseline level of business verification to protect against fraud — regardless of size, maturity, or the percentage of business sellers on your platform. However, as your marketplace grows, your verification needs will evolve based on your business model, seller types, and regulatory requirements.
A risk-based approach means starting with essential verification and adding more comprehensive checks only where necessary — creating an intelligent balance between security, compliance, and seller experience.
This approach centers around answering two fundamental questions about your sellers:
Does this business exist?
Regardless of the size or stage of your marketplace, the most fundamental verification question is whether or not a business really exists. To answer it, you need to verify:
- TIN (Tax Identification Number): To confirm the business's TIN matches official IRS records
- Business name: To confirm the business exists and is properly registered
- Business address: To confirm the address is valid and legitimately associated with the business
- Other basic details: To identify obvious red flags in application information like mismatched registration dates or fake contact information
While this level of verification should be run for all businesses onboarding to your marketplace, some marketplaces may be compelled to do so by law. Marketplaces selling physical goods to consumers are subject to the INFORM Consumers Act, which requires verification of third-party sellers with 200+ transactions or $5,000+ in gross revenue within a 12-month period.
Regardless of why you perform baseline verification, the process pulls required information from government data sources like IRS databases and Secretary of State records to confirm a business’s legitimate existence and flag obvious fraud attempts while streamlining onboarding.
But based on a business’s risk factors and your marketplace’s regulatory requirements, this may not be enough to keep bad actors off your platform. With a risk-based approach, after you confirm the baseline details for a business, you can decide whether the business has been sufficiently verified or if you should take the next step to comprehensive verification.
Factors that will inform whether you should employ comprehensive verification include:
- Payment processing model: Most marketplaces rely on third-party payment processors like Stripe or PayPal to handle transactions, which provides a layer of built-in verification. However, if your marketplace directly processes payments, you'll need to implement comprehensive Know Your Business (KYB) protocols to meet regulatory requirements.
- Transaction value: Higher-value transactions pose greater fraud risk and may warrant more thorough verification.
- High-risk verticals or industries: Some industries like gambling or firearms inherently carry higher risk with them. This may be because they operate in heavily regulated sectors and/or have historically been associated with increased fraud rates.
These additional factors lead to the second fundamental question to ask before onboarding professional sellers:
Is this a business I want on my platform?
With growth comes added complexity, which means the considerations listed above might inform if certain businesses or business types are right for your platform. Comprehensive verification, which is the next step after your table stakes baseline verification, helps you answer that question.
Depending on the seller, you’ll want to analyze additional information like:
- Credit risk: Are there tax liens, litigations, or bankruptcies associated with the business?
- People risk: Are there concerns with any of the business owners or officers?
- Web presence: Does the seller have an existing web presence, and does it appear legitimate?
- Address risk: Is the address a physical location, or does it belong to a registered agent/virtual mailbox?
- Watchlist screening: Does the business or its officers appear on U.S. security or defense watchlists?
- Industry classification: Does the business operate in a prohibited or high-risk industry?
- Adverse media coverage: Is there negative press about this business or its officers?
The relevance of each factor varies based on your marketplace type. For example, criminal history is more critical for home service providers than for online product sellers. The key is determining what‘s most relevant to your marketplace based on regulation and your own seller requirements.
While the second layer of verification may add steps to the onboarding process, business verification providers like Middesk minimize friction through automation and instant verification. That means you can maintain a streamlined onboarding process and high auto-approval rates while effectively identifying potential risks.
By embracing a risk-based approach for business verification on your marketplace, you can build a trusted platform that balances security, compliance, and growth — protecting both your business and your customers from sophisticated fraud without creating unnecessary barriers to legitimate sellers.
Middesk’s business verification makes it easy and safe for marketplaces to scale
Individual-first verification can’t support the needs of scaling marketplaces managing large volumes of businesses across different industries, risk profiles, and operational complexities. No matter your desired level of verification, Middesk’s KYB solutions will help you better mitigate fraud, maintain compliance, and scale your business.
Signal for baseline business verification
Baseline verification that covers the first stage of verification for all business onboarding is seamless to implement with our lightweight verification product, Signal. Signal lets you:
- Access a 0-100 risk assessment in under a second to enable rapid decision-making
- Leverage predefined business reason codes to quickly evaluate business attributes and potential risks
- Identify critical gaps in business registration and compliance information
Verify for comprehensive business verification
Our complete verification product, Verify, supports verification for marketplaces that require deeper due diligence — whether you’re onboarding sellers with greater risk factors, are subject to regulatory requirements, or simply have stricter seller requirements. With Verify, you can:
- Conduct comprehensive checks across business names, addresses, people, and watchlists
- Automate risk management through document retrieval, fraud checks, and ongoing monitoring
- Delegate any required manual reviews to a 24/7 specialized operations team that ensures high data quality
No matter the level of verification you choose, you can mitigate risk and provide seamless onboarding experiences. Middesk empowers all marketplaces to:
- Access 160M+ business profiles with 52 Secretary of State data pipelines, post office records, and other essential government data sources with near real-time data
- Customize verification as you scale or needs evolve, from basic TIN match to enhanced due diligence
- Solve the KYB verification gap that legacy or individual-focused solutions miss
- Catch sophisticated synthetic identity fraud other providers overlook
- Verify 100% of U.S. businesses with instant, authoritative data — including those newly-formed businesses that don't show up in LexisNexis or D&B for months
With Middesk, you can implement business identity verification for your marketplace, ensuring you can onboard business sellers of all types confidently and securely.
Upgrade your business identity verification
Download our guide, Middesk for Marketplaces, or connect with our team to see how Middesk can support your platform.
