Fake goods: Why foreign investors are turning a blind eye to counterfeit e-commerce


As more Indians are expected to shift their daily shopping to the online world, stringent laws will ensure their trust in e-commerce.

It’s not a hidden fact that foreign investors who have backed India’s online marketplaces are aware of the problem of fake products listed on their investee portals.

But it’s not widely known that by turning a blind eye to operational laxity of e-commerce portals, foreign investors often encourage such practices and thus gain from rising numbers and a subsequently increased valuation.

In the race to increase gross merchandise value, online marketplaces have resorted to building lax and sloppy processes through which sellers are on-boarded in a few hours, without proper verification and quality checks on the products being sold.

The problem also stems from the fact that ‘onboarding executives’ in
e-commerce companies have been given targets based on the number of sellers they can enroll in a month than the quality of the listing.

Thus, many sellers who sell first, second or even third copies of a shoe, bag or a dress get on-boarded,  in the process.

In the past few years, e-commerce companies in India have been on a race to acquire sellers in order to beat each other at the game and gain ‘market share’.

Many marketplaces have even done away with the practice of a seller having a current account number with a bank or even a GST registration.

An Aadhaar number and a savings bank account number sent by email is enough, for some of them.

There are no ‘feet on the street’ to cross-check the bonafides of a product or the seller’s original trade.

In the melee, some portals even end up on-boarding individuals who act as traders buying goods from wholesale markets and refurbished good factories in India and list them as new on such marketplaces.

But why do foreign investors put a blind eye to this malpractice of

on-boarding sellers without doing a proper verification of their premises, products or pedigree?

The answer lies in the fact that every investor in e-commerce is looking at a short-term game of exiting his or her equity by selling to another investor at a higher valuation in the subsequent round. A higher valuation only depends upon just one thing – Numbers.

Many marketplaces and inventory based portals who have just focused on quality than quantity have failed to give returns to their investors. Many have shut down in the last three years.

With a rise in e-commerce, many students, jobless youth, and traders have turned online sellers. A few of them have never had a skin in the game or even domain knowledge.

Without a quality check and just an online process of listing, most of the spurious sellers pass through.

In case a customer complains of a fake or bad product, it’s the marketplace who takes the brand damage than the seller.

Yes, the seller could be debarred from selling in that particular marketplace. But in the absence of a cohesive association of all marketplaces, companies rarely share data with each other.

This leads spurious sellers listing fake goods on other marketplaces. In cases, when his or her tax registration number gets debarred, they tend to use a friend/partner or even an employee’s details to sell the goods.

It takes months to debar a seller – from the first to the final warning. Sellers also have made associations and group together in case of an action by a marketplace.

This practice of selling fakes cannibalizes genuine sellers who sell originals or non-refurbished goods, albeit at a higher price.

Foreign investors hardly poke their nose in operational practices of marketplaces.

They are mostly concerned about a few broad numbers on a monthly basis – the GMV, the number of sellers, the traffic and the number of transactions.

Quality of a transaction or service delivery is hardly counted.

Some marketplaces in the 2014-15 period even resorted to onboarding related parties as sellers.

A few furniture and home decor portals started selling more gold and silver coins on platforms to increase their GMV.

It’s a known fact that the Indian consumer is highly price conscious.

Making her chose a 5-starred seller over its nearest competitor – a 3-starred seller who is selling the same product at 50 percent discount is difficult.

Some customers are also ‘okay’ with the fact that they are using the first copy of a luxury product that’s often out of their budget.

Marketplaces take advantage of this fact and flood their portal with sellers who could be selling a ‘Prado’ bag or a ‘Guci’ shoe.

Often the goods, are displayed as such in photos online. A seller is debarred only after a formal complaint is lodged by a brand of copyright infringement.

Then the section 79 of the Indian IT Act also comes to the rescue of portals resorting to such malpractices.

The section 79 of the Indian IT Act provides an exemption from liability of an intermediary (online marketplace in this case) for any third party information, data, or communication link made available or hosted by him.

This immunity makes the online marketplaces scot free – in case a good sold in their bazaar is found to be a fake.

This story revealed how a seller was selling fake shoes by the thousands.

However, most marketplaces now sell healthcare monitors, supplements, and devices.

Imagine being sold a refurbished device or a fake supplement disguised as genuine – that can cause medical complications to your body.

Clearly, the government needs to step in and weed out this menace. As more and more Indians are expected to shift their daily shopping to the online world, stringent laws will ensure customers get justice in the end.


This article was published in moneycontrol.com