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Business News/ Opinion / Online-views/  Counterfeit e-commerce: The dark side of WhatsApp

Counterfeit e-commerce: The dark side of WhatsApp

WhatsApp-based transactions do not leave a trail and are completely off the radar of tax authorities

Anyone can set up a WhatsApp group, add customers’ mobile numbers, and start broadcasting product details, genuine or fake. Photo: AFPPremium
Anyone can set up a WhatsApp group, add customers’ mobile numbers, and start broadcasting product details, genuine or fake. Photo: AFP

Jangal me mor naacha, kisi ne na dekha

Ham jo thodi si pi ke zara jhume, haay re sabne dekha

—From a song in the Hindi film Madhumati (1958)

Transgressions attract notice but only when there is a witness. Counterfeits on e-commerce portals attract attention while counterfeits sold on WhatsApp go unnoticed.

Indian e-commerce firms these days are anxious to reassure customers about the genuineness of products in their online marketplaces. Flipkart has been running a campaign titled “Flipkart matlab bilkul pakka" (Flipkart means completely genuine), trying to differentiate itself on the genuineness of its products and easy returns. Amazon has run an advertisement titled “We Indians love asli" featuring Indians checking out the genuineness of products.

The perception that fake products from dubious sellers have infiltrated online marketplaces motivates such campaigns. In recent years, most e-commerce firms have moved to a marketplace model, where the firms act as aggregators, to bring scale to their operations and provide choice to customers. This model lowers inventory costs and product risk, but carries the risk of a few rotten tomatoes (or lemons) giving the entire marketplace a bad name. Advertisement campaigns on genuineness thus offer quality assurance to buyers.

E-commerce firms are taking measures to eliminate fake products from their marketplaces. Online marketplaces require individuals or businesses to register with the aggregator their bank account, PAN (permanent account number), and VAT/CST (value-added tax/central sales tax) numbers. Sellers have to commit to selling genuine products. Although product listing is free, the aggregator charges a commission and pays the seller after the agreed-upon payment due date.

In contrast, selling on WhatsApp is much less cumbersome. There is no registration process. Anyone can set up a WhatsApp group, add customers’ mobile numbers, and start broadcasting product details, genuine or fake. No one checks if the seller has a PAN card or a VAT or sales tax registration.

The conversations with customers, including haggling over price and delivery terms, occur in an end-to-end securely encrypted mode, and financial transactions are channelled through net banking or cash-on-delivery (COD). No commission needs to be shared with anyone, courier charges are paid by the customer, and WhatsApp is free. The only cost is for the data plan or Wi-Fi access. The transaction costs for sellers on WhatsApp are thus significantly lower than in the online marketplace. What perhaps matters even more to counterfeiters is the complete lack of monitoring by any third party and the absence of any regulations.

Even if all e-commerce firms were to take measures to rid their online marketplaces of fake products, counterfeiters would find their way to the e-commerce transactions thriving on WhatsApp. WhatsApp-based transactions do not leave a trail and are completely off the radar of tax authorities. No wonder that although such transactions have been occurring for several years, there is little reference to them in press and academia. If transactions through WhatsApp were to be accounted for, conventional estimates of size of the e-commerce market in India would have to be revised upwards significantly.

The challenge in estimating the size of the WhatsApp-based e-commerce channel is that suppliers as well as the consumers have little incentive to brag about their transactions, many of which might be illicit. If a peacock dances in the forest where there is no one to see it, did it really dance?

Given the possibility of counterfeiters infecting WhatsApp, would you trust WhatsApp sellers? Contrary to what we believed, our ongoing research study—involving 94 unique WhatsApp groups, transactions with multiple sellers, and interviews with buyers and sellers—suggests that consumers purchasing goods on WhatsApp have a satisfactory level of trust. Consumers mentioned that the prime difference between a seller in an online marketplace and a seller on WhatsApp is that, when using WhatsApp, the consumers can directly talk to the sellers.

This personal touch, even if it includes haggling over price, gives buyers familiarity with sellers. The familiarity builds over time and reputation develops as information on buyer experiences spreads by word of mouth. Thus, sellers reap the benefit of providing quality service, even if in support of a fake product. The perception of risk associated with the transaction is lowered by the option of cash-on-delivery and hassle-free product return.

The consumers we surveyed felt that they could easily exit a seller’s WhatsApp group if the seller was not found trustworthy. The WhatsApp channel thus is a high-touch, low-transaction-risk channel able to differentiate on service quality. Paradoxically, a consumer may be more confident of getting genuine products on WhatsApp since fake products are clearly labelled “first copy". This self-declaration strengthens trust in the channel, and has positive spillover effects on the other merchandise carried by the seller.

The consumers are mainly fashion forward bargain hunters with extensive knowledge of prices of the original products in different marketplaces. Hence, they are quick to spot a good deal. Bargaining is commonplace and sellers mention both the price of a single unit and the “wholesale" rate. The bulk purchase option allows an individual consumer to buy along with a group of relatives, friends and acquaintances. It also allows the individual consumer to become a reseller and forward the product details to their own WhatsApp groups, thus making such a consumer an accomplice in the propagation of a counterfeit channel.

In contrast, online marketplaces are impersonal and address mostly end consumers. WhatsApp commerce is not just counterfeit trade. We encountered small businesses legitimately trading genuine products over WhatsApp. Indeed, India needs better regulation of WhatsApp for trade. But we would caution against throwing the baby out with the bath water.

Counterfeiters may have been early adopters of this channel and leaders in establishing the WhatsApp-based business model. The challenge before regulators and established businesses is to increase the adoption of this channel for genuine business transactions. For that to happen, the first task is to witness the peacock dancing in the forest.

Saral Mukherjee is associate professor at Indian Institute of Management (IIM)-Ahmedabad working on issues related to supply chain management.

Abhishek is assistant professor at IIM-Ahmedabad with research interests in marketing communications and retailing.

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Updated: 22 Sep 2016, 10:56 PM IST
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