Be Aware of These 5 Online Marketplace Risks
In 2008, the financial crisis changed the shape of the economy and therefore the ways people not only earn money, but also do business. Coupled with the growing prevalence of the internet and efficiency-driving technologies, the online marketplace strengthened as an economic model. This meant an increased volume of interactions and transactions due to the rapidly expanded reach.
Now, online marketplaces are booming. In 2017, consumers spent $1.5 trillion globally in the top 75 online marketplaces. And amidst global pandemic, online marketplaces are experiencing significantly higher than usual volume. Unfortunately, online marketplaces have scaled so rapidly that the legal implications often are skimmed over, rather than carefully considered. For example, while many understood that customers must be presented with legal terms that govern use of their site, few realize that this must be designed to be enforceable.
And the more they transact online, the higher the online marketplace’s risk profile. For instance, tracking online terms and managing versions across digital assets will be more tedious than ever, and proving acceptance to your online agreements will be nearly impossible.
Here are 5 other online marketplace risks you aren’t thinking of yet, and how to address them.
1. Marketplace risks of data privacy and the nuance of consent
Using user data to inform business choices is a double-edged sword. For example, user data gives insight into your customers’ spending habits, income, social connections, and places they frequently travel to. While this information helps online marketplace platforms sell more efficiently, it is meaningless without the customer’s explicit consent. And in the age of GDPR and several other data privacy regulations, your organization can face serious repercussions for (mis)using information they were not given consent to use.
2. How global laws affect online marketplace risk profiles
The reach of the online marketplace is global. This means that inevitably, you will be doing business with people outside of the U.S. As a result, online marketplaces must ensure that their rules comply with those of other countries. For example, the GDPR originated in Europe, but people outside of Europe who do business with European organizations or entities must comply to this regulation. Otherwise, those organizations could face fines as large as 4% of their annual revenue.
3. Higher class action risks
It is almost inevitable that each organization will have contractors and/or customers who will take issue with some provided product or service. If enough people get together and find something wrong, they can become a class and file a class action suit against your company or business. Case in point: when customers complained that Uber charged them extraneous fees for travels in East Boston and to Logan Airport, they convened as a class to bring the ride-hailing giant to court. And because Uber’s clickwrap agreements were not enforceable, courts shot down their arbitration clause.
Likewise, a class of consumers came together to file a class action suit against Expedia and other travel sites because they “were part of a fraudulent conspiracy to deceive consumers into believing that they were paying a legitimate Taxes & Fees charge.” Lucky for the travel sites, they were able to prove what version of their online agreements the plaintiffs accepted and when.
4. Scaling too fast increases risks for online business
Marketplaces already move quickly with a high velocity of users and transactions. This risk multiplies exponentially when the business moves too quickly without the necessary protections in place. For example, if an organization presents their legal agreements via a house-designed clickwrap, that terms management solution should be able to track and manage each agreement, maintain individualized records of acceptance for each signer, and pull these back-end records quickly. Failing this puts your organization at greater risk of legal action.
5. Data breaches are huge online marketplace risk
Security is on everyone’s minds, but sometimes, companies aren’t thinking about it at the depth they should be to minimize risk in online marketplace. Online marketplaces often have thousands and millions of customers’ personal information on file. A data breach can expose all this information to malicious sources, putting your company’s reputation and well-being at risk. How can organizations ensure that their prospects, employees, and customers’ information remain safely within their possession? And what is the protocol for if a breach does occur? These are questions to think about to minimize your marketplace risk.
Protect your online marketplace from unnecessary risk
As you scale your online marketplace, prepare for these 5 risks and give your business the best advantage possible. It can be difficult to get ahead of these risks if you use a homegrown system for managing your online legal agreements. A third party solution like Ironclad is built with these very concerns in mind. Don’t believe us? See for yourself!
Table of contents
- 1. Marketplace risks of data privacy and the nuance of consent
- 2. How global laws affect online marketplace risk profiles
- 3. Higher class action risks
- 4. Scaling too fast increases risks for online business
- 5. Data breaches are huge online marketplace risk
- Protect your online marketplace from unnecessary risk