Get All Access for $5/mo

Why Verifying User Identities Is a Good Thing For Your Customers and Your Business Online marketplaces are starting to authenticate users, and it's a key component to creating a safer environment for digital communities to thrive.

By Dejan Pralica Edited by Kara McIntyre

Opinions expressed by Entrepreneur contributors are their own.

oatawa | Getty Images

I still get nostalgic thinking about the early years of sneaker collecting. In those days, people would congregate in lines to secure a limited-release shoe or meet a fellow collector at the mall to make a fair trade for their coveted collection.

Sure, it wasn't as convenient as clicking "send to cart," but the experience was rooted in real human connection — an element that's become as rare as it is sought after in today's era of online commerce.

And while there's no turning back from ecommerce, there is a way to make the digital experience of buying and exchanging goods online more human: authenticate all users.

Know your customer technology, or KYC technology, is already commonplace in the finance industry. Investment firms standardly require customers to verify their identities and submit detailed anti-money laundering information before using their online services. The purpose is clear: prevent fraud and increase trust and accountability amongst users.

The same technology is now being used to authenticate users on online marketplaces where we buy and exchange expensive assets. While this creates a layer of friction in onboarding new users, it ultimately serves both businesses and users to take the extra step. Here's why.

Related: Top 6 Trends for Boosting Your Ecommerce

Trust in marketplaces keeps users coming back

Peer-to-peer marketplaces have grown into a hundred-billion dollar industry with the lending segment alone valued at over $115.61 billion last year. While the latter has widely adopted KYC, the majority of peer-to-peer marketplaces have been slower to adopt it because it creates a barrier to entry that results in a lower number of net users.

While user growth is important, it shouldn't come at the expense of exposing your true customers to fraud or harassment from bad actors. When the identity of the person you're buying from or trading with isn't verified, not only does it pose a greater level of risk, it diminishes trust amongst users preventing them from developing authentic relationships amongst themselves. Research shows a lack of trust is the top reason why shoppers don't purchase products or services online.

Businesses that embrace a community-first approach to e-commerce, centered in building trust and curating relationships between users, will remain competitive, particularly as Gen Z and younger generations grow in purchasing power and demand more personalized e-comm experiences rooted in transparency.

Digital verification ultimately improves the integrity of online marketplaces and helps promote trust and community.

Related: Maximize Marketing and Communication Strategies With the Largest Generation on the Planet

Early adopters won't be blindsided by regulation

Aside from creating trust and user accountability, there's another reason digital IDs are good for businesses that operate online marketplaces — they keep them compliant. The government is now cracking down on businesses that don't authenticate users for tax purposes.

In my industry of sneakers, the resale market boomed during the pandemic, with side hustlers earning two to 10 times the retail price of sneakers on secondary marketplaces like StockX. The sneaker resale market alone was estimated to be worth $6 billion in 2019, with predictions of it rising to $30 billion by 2030. Without user verification, the government isn't able to tax the profit made by bulk resellers. Think about it. If sites like StockX did a billion in gross merchandise value — that's hundreds of millions in personal income tax that the government doesn't get — and that's just one industry.

In December of 2021, eBay announced it would require all sellers who earn more than $600 a year on their site to provide a Social Security or individual tax identification number starting in 2022 to accommodate new regulations set out in the American Rescue Plan Act of 2021. Businesses who don't start planning for digital authentication now may be caught off guard and off-budget when the new regulations are enforced. Verifying sellers for tax purposes also deters bad actors from committing fraudulent acts on their sites.

Related: What You Need to Know About Multifactor Authentication

Online communities promote greater returns

Online marketplaces have been driven by gross merchandise value over the past decade. While businesses have realized profit from this model, it's quickly becoming outdated. We're entering into a new era of commerce — one that is community-led. As such, customers want to shop where they socialize and feel a sense of community, which is moving increasingly online.

We now spend more time on our phones than on TV and we're no longer just searching for entertainment — we're seeking to build meaningful connections with people who inadvertently influence our purchasing decisions. It's why social commerce is projected to bring in $1.2 trillion by 2025. But we cannot connect if we don't trust the person on the other side of the avatar.

That's why online marketplaces that offer protection through user authentication will thrive in this next era of ecommerce. As the connection between community and commerce strengthens, it's imperative online marketplaces find the right balance between user experience and protection.

Digital authenticators create a safer environment for online communities to thrive, and this ultimately leads to quality user growth and transactions. It comes down to this: What is good for communities is what is good for business — a principle that rings true in any sustainable market.

Dejan Pralica

Entrepreneur Leadership Network® Contributor

Co-founder and CEO of SoleSavy

Dejan Pralica is the co-founder and CEO of SoleSavy, one of the world’s largest paid sneaker communities, and co-founder of KicksDeals.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Side Hustle

The Side Hustle He Started in His College Apartment Turned Into a $70,000-a-Month Income Stream — Then Earned Nearly $2 Million Last Year

Kyle Morrand and his college roommates loved playing retro video games — and the pastime would help launch his career.


5 SEO Hacks to Help You Rank Fast

Discover the best SEO hacks you can use to rank fast and avoid waiting for months to see results.

Starting a Business

Inside the Exclusive Private Club Devoted to Food, Wine and the Arts

Barrett Wissman breaks down the passions and partnerships behind his latest venture Domus Artium Reserve.

Business News

Elon Musk Threatens to Ban Employees from Using Apple Products, Says Will Lock Devices in 'Cages'

The Tesla founder sounded off on X following Apple's 2024 Worldwide Developer Conference on Monday.


Watch Out for These 5 Consequences of Too Much Collaboration

Beware of the collaboration trap! Too much collaboration causes overload, and well-intentioned efforts to have broad collaboration can backfire.

Science & Technology

Why We Shouldn't Fear AI in Education (and How to Use It Effectively)

Facing resistance to new technologies in the educational process is nothing new, and AI is no exception. Yet, this powerful tool is set to overcome these challenges and revolutionize education, preparing students and professionals for a future of unparalleled efficiency and personalized learning.