This process of leaving scam reviews to harm the reputation of a competitor (or to raise the reputation of self) is termed a Sybil attack and is a common problem on e-commerce marketplaces.

The simple reality for e-commerce vendors is that a competitor can very cheaply and very simply leave bad reviews of a store or product, usually without even having to purchase the product in the first place. This massive issue for online sellers has no simple solutions, yet steps are being taken on the upcoming Safex marketplace to reduce the number of scam reviews. More on this in part 3 of this article.

Cost of “chargeback”

As defined by Investopedia.com, a charge back “is a charge that is returned to a payment card after a customer successfully disputes an item on his account transactions report”[19].

In 2016 alone, $6.7 billion USD worth of revenue was lost to chargebacks in the e-commerce industry alone[20], and that number is expected to grow to a massive $31 billion by the year 2020[21]. Although online stores are able to dispute chargebacks, win rates are generally less than 50%[22].

In a recent survey, 23% of stores had a chargeback rate of 1% or more (i.e. at least 1 in every 100 transactions resulted in a chargeback)[23]. Clearly chargebacks are dramatically influencing how online sellers operate. In order to cover these costs sellers must increase the price of other goods and services, leading to higher prices for the consumer.

However, with cryptocurrency payments it is not possible to reverse a payment once it has been confirmed[24]. This feature of payments with cryptocurrency greatly reduces the risk of fraudulent activity at the expense of the retailer[25], reducing costs and improving profit margins. When combined with an escrow and arbitration service, cryptocurrency is the complete solution to protect merchants against chargeback fraud.

Cost of transactions

One of the main advantages of payment via cryptocurrency is fast and low fee processing. A Credit Suisse report concluded that blockchain and digital (crypto) currency had an “immense potential… to improve efficiency and reduce friction across a broad range of private and public sector administrative processes”, and that there is potential to “remove significant layers of cost from the current ‘byzantine’ UK payments architecture… [which] could deliver significant cost savings for BPO [business process outsourcing] operators”.

Transaction fees are a significant cost to both consumer and retailer. As of 2014, “55 percent of American small businesses do not accept credit cards” due to high transaction fees[26], while around 3 million businesses in the UK do not accept payment by card[27].

When purchasing using a credit card, both the merchant and customer pay a fee ranging from ~1 – 3%for the customer[28], and 2.5 – 4.5% for merchants[29].

Fees are even higher when paying remittances internationally, with 8-9% common using traditional means[30]. In a recent experiment, the cost of sending £1000 GPB within the Euro zone cost between £4 and £45 GBP, while sending £10,000 GBP cost between £50 and £397 GBP[31].

A 2015 study identified “transaction costs as an important demand side factor motivating the use of crypto-currencies[32]. Indeed, the average cost of a Bitcoin transaction has been found to be close to 1%[33], a significant reduction in transaction cost, particularly for international transfers.

Cryptocurrency is a viable and proven solution to inefficient payment transaction[34]. There is an immense potential to reduce payment fees from the 2 – 5% range to below 1% using cryptocurrencies. As noted by Jim Bursch of Dash (a popular cryptocurrency) “If you have a problem like high transaction fees or capital controls or poor banking services or poor privacy protection, then cryptocurrencies will be a solution to consider”[35].

Cost of selling on popular marketplace platforms

One of the largest costs for an online seller is the platform fees that are charged by the large e-commerce websites such as Amazon and AliExpress. Generally, there are three fees associated with selling on a popular marketplace; a subscription fee, a listing fee, and a percentage fee of the item sale price. Some platforms charge all three of the mentioned fees, while others charge a single fee.

Below are four tables which list the fees for some e-commerce, freelancing, sharing economy, and mobile app marketplaces. Often the fee is variable depending on the category of item being sold. It is apparent that fees can equate to a large portion of the sale cost. If we calculate the total cost of chargebacks, transaction fees, platform fees and tax then the merchant can often be left with high expenses which leads to them needing to charge higher fees to cover costs.

What is needed is a low fee platform where people can buy and sell. In the part 3 I will explain how Safex can keep platform fees to ~5%.