Amazon Sellers vs Walmart Marketplace

A group of Amazon sellers filed a class action lawsuit against Walmart and fraudulent sellers on its platform, alleging that Walmart profited from and failed to prevent organized retail crime on the Walmart Marketplace.

The lawsuit alleges that fraudulent sellers participated in a scheme known as “triangulation fraud.”

Here's how it works:

1. A buyer makes a purchase on a third-party marketplace (like Walmart). 
2. The seller fraudulently purchases the product from another merchant (like Amazon) using a stolen credit card and has the item shipped to the buyer on the other platform. 
3. The legitimate seller (from Amazon) receives a chargeback after the item has been shipped, leaving them out of both the item and the money.

That's how it typically works. However in the scheme happening between Amazon and Walmart, the fraudsters weren't even using stolen credit cards. They were simply taking advantage of Amazon's customer-friendly policies to obtain refunds by falsely claiming that the items were never received. It's honestly a pretty smart scheme, and one that folks could probably get away with easily on a small scale, if they don't fly too close to the sun.

The 290 page complaint argues that Walmart is not properly vetting and verifying sellers, which the plaintiffs call the “Bogus Qualification Process.” 

The lawsuit argues that the acts violate the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act (ie: the INFORM Act) — which imposes requirements for online marketplaces to know their sellers, as well as penalties for failure to do so.

The complaint also suggests that Walmart, in its desperation to catch up to Amazon, has a financial incentive to look the other way because it benefits from the fraud.

The plaintiffs are seeking to build a class action suit that includes “All Amazon Merchants domiciled in the United States who fulfilled an order placed by a Fraudulent Seller that originated on Walmart Marketplace between January 1, 2021 to the present” with injunctive relief, restitution, and damages to be determined at trial.

Four thoughts come to mind: 

1. The lawsuit feels like a stretch. It's no secret that triangulation fraud is rampant in online commerce, however, I can't imagine that a company as big as Walmart would let it prevail for the sake of boosting its e-commerce revenue, or that the fraud was happening on such a large scale that it would tip the needle on Walmart's revenue metrics. 
2. I think the reality is that this type of fraud is extremely difficult to catch. After all, unless Amazon contacts the delivery recipient to inquire about whether the purchase arrived, the recipient would be none the wiser that the fraud took place because Amazon is only communicating with the fraudulent buyer about the “undelivered” package. The actual end recipient of the package has no reason to contact Walmart about the matter because they received the product as intended. 
3. Amazon can probably go tit for tat with Walmart on triangulation fraud — meaning it's likely rampant on Amazon's platform as well. (ie: Fraudulent Amazon Sellers listing items on its marketplace, ordering them from other retailers, and subsequently filing claims with those retailers.)
4. Is Amazon's seller qualification process any better or worse? How much farther is Amazon going than Walmart to “know its sellers?”
5. This doesn't feel like a “Walmart Taking Advantage of Amazon” issue, as much as it feels like a “General E-Commerce Fraud” issue that would benefit all marketplaces if properly addressed across the industry. However perhaps this lawsuit, and others like it, will be the catalyst that the industry needs to collectively address the issue.