One in five retail transactions, worth $4.3 trillion, now occur on ecommerce platforms. This would have been impossible without ecommerce’s central pillar: trust. That digital trust often gets tested, especially in online marketplaces, where multiple buyers and sellers demand superlative customer and user experiences. Fit-for-purpose dispute resolution mechanisms will therefore not only protect your marketplace startup, but can also become a significant competitive advantage.
Social psychologists define trust as an expectation about the behaviour of others in transactions. In the case of online marketplaces, buyers trust that they will send away money and receive goods in return. Sellers trust that they will supply goods and receive fair payment. Both trust in the platform that they are operating on – the marketplace – to step in and support them, should their transaction go badly.
For marketplaces, this three-sided relationship is sacrosanct. The margin for mistakes is non-existent. A survey conducted by PwC in 2017 revealed that a third of consumers would stop interacting with a business that they love after only one bad experience. If the stakes are that high for one-sided businesses, imagine how they multiply for marketplaces, which introduce users from multiple sides, inviting multiple points of interaction and increasing the likelihood of negative communication between buyers and sellers.
How can marketplaces ensure safety, fairness, and reliability when the stakes are so high and the players so varied? What mechanisms can they implement to prevent the kinds of interactions that could shatter that hard-won user trust?
In this article, we’ll explore these critical questions. From the technological safeguards and platform policies that bolster credibility to the evolving expectations of buyers and sellers in the digital age, we’ll investigate how modern marketplaces are navigating the challenges of maintaining trust at scale – one dispute at a time.
Why neutrality matters
Imagine that you are watching a rugby game between Team A and Team B. Over the course of the game, there are several moments where players’ adherence to the rules are called into question. In every instance, the referee sides with Team A, even when it is clear that the Team A player is at fault. Emboldened by this, Team A’s players start breaking rules on purpose. Team B’s players and their supporters in the stands try to bring this to the referee’s attention, but he continues to favour Team A in every dispute while dishing out penalties to Team B. As a result, Team A secures a significant lead by half time.
Would you want to watch the second half of this game?
Marketplace disputes are no different from this fictional rugby game. Like a good referee, a marketplace should strive for absolute neutrality in order to be able to provide support and resolution without alienating either buyers or sellers. The same chicken-and-egg problem that hobbles so many marketplaces at the start of their journeys rears its head again when it comes to dispute resolution. The marketplace that sides (or is perceived to side) too strongly with buyers will frustrate sellers and drive them away in droves. Correspondingly, siding too strongly with sellers will erode buyer confidence and eventually lead to a plummet in sales. When the balance is broken, the whole structure is at risk of toppling in on itself.
In some instances, a marketplace may deliberately lean off-centre when it comes to dispute resolution. This approach is usually informed by supply constraints within the platform’s ecosystem. Marketplaces with abundant sellers, like Etsy or FanPass, can afford to lean more towards buyers in disputes, because they know that the sheer volume of sellers reduces the risk of supply shortages. On these platforms, keeping buyers happy is tantamount to ensuring a steady flow of transactions, even if it means some sellers might feel slighted.
In contrast, platforms where sellers are fewer or harder to replace are less likely to lean towards buyers. Airbnb is a good example – it takes a lot more convincing to get a host to sign up their home than it does to persuade a guest to book a stay. Protecting hosts becomes a priority for Airbnb, since their departure could create gaps in the supply chain, leaving guests with fewer options and threatening the marketplace’s viability.
Alternatively, let the people decide
One of the ways that a marketplace may sidestep the neutrality problem completely is to turn decision-making over to users through Crowdsourced Online Dispute Resolution, or CODR.
Perhaps the most well-known example of CODR was eBay’s Community Court, later rebranded as the eBay Community Review Forum (ECRF). Instead of covering every kind of dispute, the ECRF provided an opportunity for sellers to appeal negative reviews left by buyers. These appeals were reviewed by 21 randomly-selected members of the eBay community, who rendered a decision collectively – not unlike jury duty in the US. Once the group reached a consensus, eBay’s support staff enforced the outcome.
eBay discontinued the ECRF in 2012, reportedly due to changes in its seller performance evaluation system. However, the idea existed long enough to inspire other platforms. The Dutch marketplace Marktplaats and the Chinese ecommerce giant Taobao launched their own CODR systems in 2010 and 2012, respectively. Much like eBay, Marktplaats allowed users to resolve review disputes through community input. Taobao’s CODR, on the other hand, expanded beyond feedback disputes to address a wide variety of ecommerce conflicts. In the year after its launch, Taobao’s CODR system handled over 238,000 disputes. By 2014, more than 575,000 users had signed up to be crowd jurors through Taobao’s User Dispute Resolution Center.
For companies managing large volumes of disputes, traditional resolution methods may prove to be both impractical and cost-inefficient. CODR provides a scalable, community-driven alternative that takes the responsibility of decision-making from the platform and places it squarely in the hands of its users.
What is there to argue about?
When it comes to marketplaces, there are as many opportunities for disagreements as there are users. Marketplace disputes come in many forms and flavours, and understanding their nuances is crucial to resolving them effectively.
Reviews
Remember how we established earlier that trust is the singular pillar that supports the marketplace ecosystem? Well if trust is that pillar, then customer reviews are the marble it was carved from. When reviews are used correctly, they are the social proof that drives buyer confidence and seller credibility. Fake or malicious reviews cause damage to an individual seller’s reputation, which in turn hampers their ability to sell.
Products
Product disputes range from buyers receiving counterfeit goods to products that are damaged, poorly described, or simply subpar in quality. These encounters can erode buyer trust quickly if left unchecked. The knife cuts both ways: buyers may make fraudulent claims about product quality in an effort to secure a refund for goods purchased.
Delivery
Few things are as frustrating for both buyers and sellers as an order that arrives late, not at all, or at the wrong address. Often, these problems stem from logistical errors or gaps in communication between buyers, sellers, and delivery providers. Marketplaces that provide delivery options as part of their logistic support need to be aware that this makes them responsible for what might become a serious friction point.
Bad faith
Among the most insidious types of conflicts are bad faith disputes, where buyers exploit the policies put in place to protect them in order to gain undue refunds or replacements. These cases demand careful handling, as they risk alienating honest buyers if policies become overly restrictive.
Service
Service-related disputes encompass a broad spectrum of issues, from unresponsive sellers to rude interactions or mishandled queries. These experiences not only sour individual transactions but can also harm the platform’s overall reputation if users feel that not enough is being done to support them in these matters.
Payment
Payment disputes are among the most sensitive, as they directly involve users’ finances. Whether it’s incorrect charges, failed transactions, unauthorised payments, or delayed refunds, these issues can quickly undermine trust in the platform and drive users away.
Contractual
Contractual disputes primarily affect B2B and service-oriented marketplaces, where agreements often involve detailed terms, timelines, and deliverables. These disputes can arise during procurement processes such as RFQs (Request for Quotations) or RFPs (Request for Proposals) and may stem from ambiguities or unmet expectations.
A strategy for every squabble
From payment processing to returns, penalties, claims management, and resolution centres, effective dispute management strategies are not just about solving problems – they’re about creating trust, optimising processes, and setting your marketplace apart.
Refunds and chargebacks
When it comes to payment disputes like unauthorised transactions or unhappy buyers requesting refunds, tools like Stripe Connect with 3D Secure (3DS) can be a game-changer. Stripe Connect is a payment processing platform that allows businesses to integrate Stripe into their software, marketplaces, or other platforms. It’s designed for multi-party business models, such as marketplaces and platforms. By adding an extra layer of authentication during the payment process, it shifts the responsibility to the buyer’s bank if something goes wrong. This not only protects sellers but also reassures everyone that the platform takes payments seriously.
In areas where 3DS isn’t an option, platforms can rely on Stripe Radar for fraud detection. It uses smart algorithms to spot suspicious activity, helping prevent sellers from being unfairly hit with chargebacks. These tools work in the background to make transactions safer and disputes easier to handle.
Returns
In 2023, the average return rate for ecommerce was 17.6%. That means that for every 100 products sold online, nearly 18 are returned. When you really think about those numbers, it makes sense that handling product returns can be a logistical and financial challenge, especially for marketplaces managing a high volume of transactions.
Some platforms opt to simplify the process by issuing refunds directly to buyers, bypassing the return altogether. The cost of refunds is then factored into seller markups. This not only enhances buyer satisfaction by offering a hassle-free experience but also reduces the operational burden of processing returns. More insights on this approach can be found in our Seller Pricing post, which outlines strategies for incorporating refund costs into pricing models.
For marketplaces who still want to give their customers the opportunity to return an item, there is always the option of outsourced returns. Happy Returns, Loop and AfterShip are examples of third-party logistics (3PL) businesses that offer customer returns management tools for online stores and marketplaces. This option may appeal to sellers, who would otherwise lose out on the opportunity to repair and resell returned stock.
Penalties
Penalties serve as a mechanism to enforce platform rules. By creating clear consequences for rule violations, penalties help maintain a fair and trustworthy environment where users feel confident transacting.
FanPass, an online marketplace that allows users to buy and sell tickets to events like concerts, sporting tournaments, and music performances, has implemented a robust penalty system to address non-compliance with its Terms and Conditions (have a look at the Seller Conditions under Point 9). Examples of some of FanPass’ penalties include:
- Late or non-delivery: Sellers face penalties for failing to deliver tickets on time or for providing incorrect tickets.
- Replacement fees: A ‘failure to provide’ penalty is applied when sellers provide inaccurate or unusable tickets.
- Confirmation penalty: If a seller fails to accept a buyer’s purchase offer within 24 hours, they incur a ‘failure to confirm’ penalty fee.
Noticed a pattern in these penalties? That’s right – they’re all focussed on sellers. By implementing seller-specific penalties, FanPass reinforces its image as a buyer-friendly platform. This ties back to the earlier point about supply constraints. FanPass is clearly confident in its ability to attract and retain sellers. Because of this, their focus is on assuring buyers that the platform is safe and dependable, prioritising their trust in order to keep transactions flowing.
Claims management
Rental marketplaces like Airbnb and Booking.com often face disputes involving claims for damages, such as broken furniture or property issues.
This is also true for Nestify, a property management platform that was once bogged down by damage claims. In order to address this, they built a streamlined interface into their admin dashboard. This system allows the team to track and manage claims reported by landlords or guests through channels like Airbnb or Bookings.com. It also helped them to check claim statuses, edit claim details, and facilitate payments or charges for landlords and guests.
This proactive approach resulted in the efficient resolution of damage-related disputes, enhancing the overall user experience.The proof is in the numbers: since their admin dashboard update, Nestify has seen a 50% improvement in landlord retention.
The resolution centre
It’s estimated that 3-5% of ecommerce transactions end in a dispute. In an ideal world, buyers and sellers would sort out their grievances on a one-to-one basis without needing an outside party to step in and resolve the dispute.
Since we don’t live in an ideal world, many high-volume marketplaces like Fiverr, Depop and Airbnb have established resolution centres. Acting as a neutral ground, they provide buyers and sellers with a structured way to resolve conflicts without escalating to external channels.
A well-designed resolution centre offers clear workflows for users to raise and address issues. For example, buyers can report problems such as damaged goods or unsatisfactory service, while sellers can dispute claims they believe to be unfounded. These platforms typically require evidence – photos, receipts, or communication logs – to back up claims, entrenching accountability on both sides.
Resolution centres also streamline the process for marketplace staff, allowing them to manage disputes efficiently. Features like claim tracking, automated updates, and built-in mediation tools ensure disputes are resolved quickly, preventing minor issues from escalating into major grievances.
While they aren’t common, third-party dispute resolution platforms do exist. Concilianet is a free dispute resolution platform hosted by the Mexican government. Both buyer and seller have to agree to Concilianet’s arbitration mechanism, which is limited to enforcing the original agreement, e.g. order a seller to deliver a product as promised. Despite these limitations, Concilianet has achieved settlements in almost 96% of the cases filed through its platform, and has reduced the amount of time it takes to resolve a dispute by 50%
Keeping track of disputes
Tracking disputes is a crucial part of any marketplace’s operations. The right tools and processes ensure that issues are handled efficiently, fairly, and with as little frustration as possible for everyone involved. Whether it’s a buyer claiming their package never arrived or a host reporting damages to their property, technology plays a huge role in keeping the dispute process running smoothly.
What technology do marketplaces use to track disputes?
Most marketplaces use a combination of bespoke software solutions and customer support tools to track disputes. These systems log every interaction between the parties, from the initial complaint to the final resolution, providing a clear timeline of events. We’ve already mentioned property management platform, Nestify’s claims management dashboard.
FanPass has also invested generously in its customer service infrastructure as its platform scaled. Its support tools track every customer interaction, recording details such as timestamps, communication history, and even IP addresses. This level of detail helps the team resolve disputes more effectively and identify patterns of misuse or recurring issues.
We’ve already established why it is essential for marketplaces to prioritise fairness and neutrality in all disputes. A robust, transparent data strategy is the foundation of this approach.
To build effective tools, marketplaces must first identify the types of disputes they are likely to encounter. For example, ecommerce platforms might expect product quality and delivery disputes, while rental marketplaces might deal with property damage or unfulfilled bookings.
Once issues are identified, marketplaces should create data strategies tailored to resolving those conflicts. This includes capturing relevant information like transaction records, communication logs, and evidence provided by both parties. Transparency in how this data is used ensures trust in the resolution process.
Dispute Prevention vs Resolution in Marketplaces
Dispute resolution may be essential for maintaining trust in marketplaces, but it still comes at a cost. Whether it’s staffing a dedicated support team, investing in resolution technology, or compensating users, managing disputes drains resources that could be spent elsewhere.
The old adage rings true: prevention is better than cure.
This principle is well-documented in marketplace case studies. Airbnb, for example, has invested heavily in tools like clear booking policies, host education programs, and automated claim processes to reduce disputes over cancellations and property damage. By addressing common pain points upfront, they’ve not only reduced the volume of disputes but also promoted trust among both hosts and guests.
Similarly, Etsy employs proactive prevention strategies through robust seller guidelines, fraud detection tools, and educational resources. These initiatives not only minimise buyer dissatisfaction but also reduce the operational costs associated with resolving claims.
Strategy 1: Reviews
As established earlier, disputes over fake or malicious reviews can damage marketplace trust. By introducing robust review verification systems, platforms can filter out inauthentic feedback before it becomes a problem. For example, platforms like TripAdvisor use advanced algorithms and human moderation to flag suspicious activity. Investing in such systems reduces downstream conflicts related to seller reputations.
Strategy 2: Seller curation
Carefully vetting sellers before allowing them onto the platform is another valuable prevention measure. Curation processes like FanPass’s detailed onboarding requirements or Etsy’s emphasis on seller authenticity create a baseline of trust. By ensuring that sellers meet quality standards upfront, marketplaces can pre-empt many disputes related to poor service or subpar products.
Strategy 3: Anti-fraud and compliance mechanisms
Fraud detection tools like Stripe Radar play a key role in preventing payment disputes. These tools use machine learning to flag high-risk transactions before they’re completed, stopping fraud in its tracks. Marketplaces can also implement compliance checks, such as verifying seller identities and ensuring adherence to platform rules, to minimise risk. We covered this in more detail in our article on anti-fraud and compliance mechanisms.
Strategy 4: Insurance
Insurance is another powerful tool for dispute prevention. Consider MobyPark, a parking platform which partnered with Axa to provide driver insurance as a way to minimise risks for both drivers and property owners. Insurance policies create a safety net, giving all parties confidence that they are protected if something goes wrong.
Strategy 5: Manage expectations
Transparent communication and clear terms of use are fundamental to dispute prevention. Providing detailed documentation about service standards, buyer protection policies, and dispute resolution processes helps set realistic expectations. Platforms like Airbnb excel here by sharing well-defined guidelines for hosts and guests. This proactive communication reduces misunderstandings, which are often the root cause of disputes.
Strategy 6: Leverage technology
Technology plays a crucial role in tracking, documenting, and preventing disputes. Take Nestify’s cleaner app: cleaners document property conditions using photos, videos, and checklists. This data ensures transparency, holding all parties accountable and reducing disputes related to property condition discrepancies.
Reframing dispute resolution as a competitive advantage
Instead of viewing disputes as annoying and time consuming, they should be leveraged as opportunities to optimise your marketplace platform. For example, if buyers consistently raise issues about delayed deliveries, it’s not just a headache: it’s a sign that your shipping processes might need a redesign. Tackling these pain points head-on not only reduces disputes over time but also creates a smoother, more reliable experience for all users.
Amazon is a master of turning complaints into action. Early in its history, feedback about slow shipping led to the creation of Amazon Prime, a solution that not only solved the shipping problem but also set a new industry standard. It just goes to show that disputes, when managed thoughtfully, can provide the kind of insights that help you outpace competitors.
Dispute resolution can also be a strategic way to build loyalty. This is particularly true for hyperlocal marketplaces, where trust and reputation are the currency of success. In these tight-knit ecosystems, word spreads fast. A well-resolved issue can turn a frustrated customer into a loyal advocate, while a poorly handled one can tarnish your brand overnight.
Generosity in customer service often pays off. Shoeseller Zappos, known for its generous return policies, has shown that investing in customer happiness can lead to long-term profitability. By absorbing short-term costs to resolve disputes – whether that’s issuing refunds, replacing items, or compensating for mistakes – you’re investing in the lifetime value (LTV) of your users. Studies show that retaining a loyal customer can be up to 5–10 times cheaper than acquiring a brand-new one.
That said, good customer experience isn’t about throwing money at problems indiscriminately. To make dispute resolution a competitive advantage, you need to evaluate the business economics carefully. Can your marketplace take a small financial hit now to secure long-term revenue? If the answer is yes, then that refund, replacement, or extra effort will likely pay off many times over in repeat business and seller retention.