Dark Side Of D2C: Ecommerce Frauds On The Rise As Shady Brands Take Over Social Media

Where is my order?

I have got the wrong item, need a replacement!

Where is my refund amount? 

I have received damaged goods, need a replacement! 

These are some of the consumer grievances that often get silenced amid all the buzz created by the so-called direct-to-consumer (D2C) and ecommerce players. Social media platforms such as Facebook, Instagram and Twitter promote many nondescript or unheralded brands via paid campaigns. Trusted ecommerce marketplace like Amazon and Flipkart also welcome such new brands with open arms. Even tech giants like Google tend to magnify startups that pay for ads within search results, with positive reviews often masking the reality. 

For instance, Delhi-based Sasta Books, an online book selling platform that offers books at cheap, discounted rates, which also has 4.6 ratings on Google reviews is one such classic example of how it has been duping consumers with zero accountability and reliability. Even on platforms like Quora, there are people boasting about this website. 

In fact, many of the customers that Inc42 spoke to said that they do initial research before buying any products online, but still at times they too fall prey to online fraud due to fake reviews and glaring discounts that many of these platforms offer. 

The story began when yours truly had a similar experience during the lockdown and since then we have been tracking this website. Not only is there no sign of a customer support team but there’s just no one available from the company to respond to any of our queries. 

What’s even more alarming is that the website went down on November 1, only to return online on November 2 — even then there’s no sign of our order or better customer service.  

According to details accessed by Inc42, Sasta Books is a registered trademark for Vidyashree House Private Limited, which is based in Bengaluru with Vikas D Goel and Pravin Kumar as directors. Goel is also the director of DGTG Marketing & Retail Private Limited and Techno XO Private Limited. 

Indian Ecommerce’s Shady Past

This is just scratching the surface. Instagram and Facebook are riddled with ads for brands and D2C websites such as Sasta Books. The Indian ecommerce industry has seen plenty of examples in the past of people being duped out of their money or ecommerce platforms selling fake goods. 

Most will recall the Freedom 251 smartphone from 2015. Ringing Bells Private Limited the company’s president Ashok Chaddha claimed to sell smartphones at a promotional price of INR 251 (less than $4 at the time). Turns out, it was nothing but a tall claim, and many likened it to a scam and Ponzi scheme.  The company shut shop after thousands paid for the phone, though it claimed in 2016 that it had refunded everyone who had paid for it. 

While fake products on ecommerce marketplaces are common, months before the official launch in December 2019, a fake JioMart ecommerce marketplace emerged. Reliance Retail-owned grocery delivery platform JioMart was a victim of fake websites which fraudulently sought franchises in its name. Reliance alerted traders and initiated legal proceedings against those misusing the brand name.

Not to forget. The now-banned Chinese ecommerce platform Club Factory was once a hub for selling counterfeit products, including Nike, Oakley and other international brands. The company was also accused of having fake sellers, violation of custom duty taxes and more. In fact, there is no end to counterfeit products on ecommerce marketplaces. In 2018, the Drug Controller General of India (DCGI) had also issued notices to ecommerce giants — Flipkart, Amazon and IndiaMART. But, fake products continue to sell on these platforms even till this day.  

The problem is big enough that ecommerce giants have acknowledged it in the past too. Days before the launch of The Big Billion Days this year, Flipkart wrote in its blog post asking its users to take precautionary measures against fake websites that imitates Flipkart. In its blog post, it stated that these fake websites can cause customers to lose their data and money, and suggested some of the simple ways to identify a fraudulent website or app. Similarly, Amazon launched Project Zero in India last year to tackle counterfeit products. 

The state of online frauds are taking a new shape everyday. Last year, the Uttar Pradesh (UP) police had arrested four men for duping people of lakhs of rupees by offering huge discounts on products through a fake ecommerce website. But, there is no end to this, because often criminals are let loose to commit more online frauds.  

During the pandemic times as well, bad actors were everywhere. From selling fake hand-sanitisers, dispensers to N95 masks, PPE kits, medicines, cigarettes and other essential items, the looming threat of counterfeiting was out of control, causing distraught to the public and manufacturers alike. For instance, the hand sanitiser industry was the worst hit. 

In Hyderabad, the police seized close to 25K units of 100 ml hand-sanitisers and raw materials worth INR 40 lakh. However, the racketeers managed to sell hand-sanitizers worth INR 1.4 Cr. In Bengaluru, INR 56 lakh worth of hand-sanitisers was confiscated. In Delhi, 2,840 kg of raw materials, including masks, hand-sanitisers, PPE kits were being smuggled to China. In Mumbai, the authorities seized fake sanitisers worth INR 2 lakh, which was apparently manufactured by a company with an expired license. The list goes on and on and the point is that despite noises by policymakers, the problem of ecommerce frauds and fake products continue to haunt the industry. 

Where’s The Anti-Fraud Ecommerce Policy?

According to the Ministry of Commerce & Industry, the number of online shopping frauds registered with the National Consumer Helpline has been multiplying at an alarming rate, from 977 cases in FY17, to 2,441 in 2018 and 5,620 cases in FY20 till November 2019. Overall, till November last year, 13,993 cases were registered.

It would be safe to say that with growing adoption of ecommerce over the years, the number of frauds have increased as seen in the official data. That’s worrying given the growth of ecommerce and online shopping in the past few months during the pandemic. With thousands of new websites coming in, those selling counterfeit goods are able to also move online with the crowd. This has led to more confusion, especially around festive season and for first-time buyers, who may not be familiar with the ecommerce landscape. 

Fraudulent websites can easily promote themselves without too many resources and target unsuspecting customers on social media. While the ecommerce policy is expected to finalise rules around counterfeit products online, that is yet to see the light of day. The questions that emerge in the light of such fraud experiences are what are the authorities doing about these dodgy platforms tarnishing the reputation of other genuine ecommerce startups and online-first D2C brands? 

Ecommerce policy expert and partner at a corporate law firm Khaitan & Co, Sanjay Khan Nagra told Inc42 that to deal with counterfeit products, ecommerce platforms and D2C brands may be required to specify details of sellers and product details, and in the absence of such info, the ecommerce platforms may be liable for the sale of counterfeit items. Further, he said that the sellers may also be required to separately provide an undertaking that the goods sold by them are genuine, which must be accessible to the consumers. 

“Thus, ecommerce and the seller may be held jointly liable for the sale of counterfeit products. Also, counterfeit products that are found in warehouse or fulfillment centers may be deemed to be liability of the relevant service provider of such a warehouse or fulfillment center,” added Nagra. 

Additionally, ecommerce entities may be required to provide an option to trademark owners to register themselves with such ecommerce entities which will be followed by a positive obligation to seek such registered trademark owner’s consent prior to the listing of high-value items or goods having an impact on public health along with a notification requirement in the event on any infringement discovered by the ecommerce platform, Avimukt Dar, partner, Induslaw, a full-service Indian law firm, told Inc42. 

The high value items or goods may include luxury goods, cosmetics, or products connected with public health, and the ecommerce platform will require specific authorisation from the trademark owner or licensee. In other words, the ecommerce platform may be required to put in place a policy to inform the trademark owner and remove the relevant product from the platform if the seller is unable to prove that a product sold is genuine, explained Khaitan & Co’s Nagar. 

“While phishing and malware attacks have not been specifically addressed, the new policy is likely to propose independent sector-specific legislation for the e-commerce industry itself which will inter alia deal with the handling of ecommerce related data issues,” added Induslaw’s Dar. 

Further, he said that the onus in terms of liability will be on the entity collecting information as data fiduciary. Separately, greater disclosure requirements in consumer interest will become necessary when collecting personal data of consumers, in addition to adherence to the provisions of the, once enacted, Personal Data Protection Bill, 2019. 

It has to be noted that this aspect of the policy has partially already been implemented through the recently overhauled Consumer Protection Act, 2019, and the associated ecommerce rules framed thereunder which stress extensively on transparency in information flow and putting in place stricter consumer redressal mechanisms.

Online Scams On The Rise

“Online scamming is nowadays a big challenge in cyberspace. Fraudsters create phishing websites by impersonating any big brand entity to fool people and steal their data. The main purpose of such kind of scams is to harvest the banking credentials as well as personal information,”avered Vineet Kumar, founder and president at CyberPeace Foundation, a think tank of cyber security and policy experts. 

“As people are now working from home in this pandemic situation and more reliant on computers and the internet than before, scammers are taking advantage of it. That’s why the amount of such kind of cyber fraud has increased in this tough situation” shared Kumar with Inc42.

According to CyberPeace Foundation, during the pandemic, a huge number of newly registered domain names related to coronavirus, pretending to be websites selling vaccines, masks, medicines etc have been identified and till now the number is approximately 7,30,000. Further, it stated that most of them do not have any legitimate information and have been created purely with malicious intentions.   

“In the current situation, approximately 1,00,000 domain names have been identified as malicious which are being circulated via mail and through various digital platforms,” revealed CyberPeace. 

The cyber threat research wing of CyberPeace Foundation which claims to have continuously monitoring the cyber space to make people alert against cyber threats. Recently, the team has identified two of the websites that have been seen to take user’s details like name, bank account number, bank name etc. The names of the websites are fundzforcovid19.com and ramnathkovindfoundation.com (with the name of the foundation of the Honorable President of India).

The Unconquered Frontier For D2C Brands

While even trusted ecommerce marketplaces such as Flipkart and Amazon are dealing with the fraudsters and fake products, new D2C brands also need to stay vigilant about being victims of phishing attacks where their web properties are targetted in ecommerce scams. Secondly, fake apps sprout up without too much effort on Google Play Store and even on App Store at times. 

Many of the D2C brands that we spoke to including Milagrow Robots, Space Allure, Super Smelly, AlphaVector, Dr. Vaidya’s, MCaffeine and Puresight Systems said that they haven’t come across any fake websites or counterfeit products for their brands yet. But the threat is never far away as seen in the case of pharma products in the pandemic. 

Dr. Vaidya’s founder Arjun Vaidya is of the opinion that any business when it grows, be it offline or online, there will always be fraudsters imitating the products/websites and designs etc, but the only way to track these activities is to stay vigilant and report the issue and take legal action immediately. Further, he said that it also becomes important to ensure your website is secured from cyber threats/attacks. 

Dr. Vaidya’s is a D2C wellness platform that claims to offer ayurvedic products to over 1 Mn customers across 16.5K pincode locations across the country. The company also claimed that it gets its lion share of revenue directly from the native website with 1.5 lakh customers visiting the website on a monthly basis. 

MCaffeine cofounder Tarun Sharma, on the other hand, said that this issue might be a function of price or popularity of the brand, but it can also be a function of how one operates in the market. According to him, the issue of copyright infringement and counterfeit products can be resolved by how one controls their supply. “Today, we are the single point of contact and work closely with ecommerce marketplace, who run programmes to track down fake products and de-list unauthorised sellers, and when we as a brand raise the issue, they take action immediately” he added. 

In addition to this, Sharma said that they do internal audits on a regular basis to ensure such problems do not occur which could potentially damage the reputation of the brand. Further, he said that the issue of counterfeiting products is more when the brands have multiple distribution points and channels, and since they are a 100% online brand and the only seller, controlling becomes easy. 

All in all, there is no single solution to address these problems of copyright infringement and counterfeit products. However, the only way to tackle fraudsters is to be vigilant, practical and proactive to build a comprehensive system to prevent such activity from occurring. Moreover, this also requires a collaborative effort from the authorities, consumers and brands to work in unison and take necessary action. “Awareness at all levels is the need of the hour, irrespective of age, income groups and gender,” Cyber Peace’s Kumar added.