Online marketplaces and platforms occupy a unique position in the business verification landscape. Unlike traditional businesses that know their customers directly, marketplaces facilitate transactions between buyers and sellers—often at massive scale. Verifying the businesses operating on your platform isn't just good practice; it's essential for regulatory compliance, fraud prevention, and platform integrity.
This guide covers KYB considerations specific to marketplaces, including regulatory requirements, verification strategies for different seller types, and operational approaches for high-volume onboarding.
Why Marketplace KYB Is Different
Marketplaces face a fundamental tension: they need to onboard sellers quickly to grow, but inadequate verification exposes them to fraud, regulatory risk, and reputational damage. Every friction point in seller onboarding has a business cost—but every bad actor onboarded has an even higher cost.
Diverse Seller Base
Unlike a bank that serves primarily established businesses, marketplaces serve the full spectrum:
- Enterprise sellers: Large businesses with formal structures, easy to verify
- Small businesses: LLCs and corporations with Secretary of State filings
- Micro-businesses: Often sole proprietors without formal registration
- International sellers: Foreign entities with unfamiliar documentation
- Individual entrepreneurs: Gig workers and side-hustle sellers
A one-size-fits-all KYB approach fails this diversity. Enterprise sellers sail through verification designed for individuals; micro-businesses get stuck in processes designed for corporations.
Scale Challenges
High-growth marketplaces may onboard thousands of sellers monthly. Manual review doesn't scale. Effective marketplace KYB requires:
- High auto-verification rates for clear cases
- Efficient manual review workflows for edge cases
- Risk-based tiering to match verification depth to risk level
Regulatory Requirements
Money Transmission and Payment Facilitation
If your marketplace handles money—taking payments from buyers and disbursing to sellers—you likely have regulatory obligations:
Payment Facilitator (PayFac) Model
- Platform is the merchant of record
- Responsible for sub-merchant (seller) due diligence
- Card network rules require seller verification
- AML obligations flow to the platform
Marketplace Facilitator Model
- May trigger sales tax collection obligations
- State-level registration requirements
- Seller verification expectations vary by state
Marketplaces increasingly face liability for what happens on their platforms:
- Payment card fraud by sellers
- Sale of counterfeit or prohibited goods
- Tax collection failures
- Money laundering facilitated by the platform
KYB is the first line of defense against these risks—catching bad actors before they can cause harm.
Know Your Business Customer Requirements
For marketplaces with payment facilitation, Customer Due Diligence (CDD) requirements apply to sellers:
Verification Strategies by Seller Type
Enterprise and Large SMB Sellers
Profile: Established businesses, formal corporate structure, existing compliance programs
Verification Approach:
Challenges: Complex ownership structures, multiple locations, subsidiary relationships
Best Practice: Leverage business graph data to understand corporate hierarchies and verify relationships between entities
Small Business Sellers
Profile: LLCs, small corporations, partnerships with state registration
Verification Approach:
- Entity verification against state records
- Entity resolution to match trade names to legal entities
- Simplified UBO verification (often single owner)
- Risk-based screening
Challenges: Name mismatches between how sellers identify (trade name) and legal registration
Best Practice: Strong entity resolution to connect "Joe's Pet Supplies" (what seller enters) to "JPS Holdings LLC" (state registration)
Micro-Business and Sole Proprietor Sellers
Profile: Individual entrepreneurs, often without formal business registration
Verification Approach:
- Individual identity verification (KYC) as primary
- Trade name/DBA verification where registered
- EIN or SSN verification
- Alternative business signals (web presence, transaction history)
Challenges: No state registration to verify against, thin credit files, limited documentation
Best Practice: Layer multiple signals—individual identity, address verification, bank account validation, online presence—to build confidence without formal entity records
See Sole Proprietorships, Micro-Businesses, and KYB for detailed guidance on verifying businesses without formal registration.
International Sellers
Profile: Foreign businesses selling on domestic marketplace
Verification Approach:
- Verify against foreign business registries
- Understand jurisdiction-specific entity types
- Additional sanctions screening for high-risk countries
- Tax documentation (W-8BEN-E)
Challenges: Unfamiliar entity types, limited registry access, language barriers, higher fraud risk
Best Practice: Work with verification providers who have global registry coverage; apply enhanced due diligence by default for jurisdictions with limited transparency
Risk-Based Tiering
Not every seller needs the same verification depth. A risk-based approach matches scrutiny to risk:
Tier Criteria
Seller type
- Lower Risk: Established business
- Higher Risk: New sole proprietor
Transaction volume
- Lower Risk: Low
- Higher Risk: High
Product category
- Lower Risk: Standard goods
- Higher Risk: Regulated/high-value
Geography
- Lower Risk: Domestic
- Higher Risk: International/high-risk
Payment terms
- Lower Risk: Net terms
- Higher Risk: Instant payout
Tiered Verification
Tier 1: Basic (Low-risk, low-volume)
- Identity verification on primary contact
- Business name and address verification
- Basic sanctions screening
- Lower transaction limits
Tier 2: Standard (Moderate risk)
- Full entity verification
- UBO identification
- Comprehensive screening
- Standard limits
Tier 3: Enhanced (High-risk or high-volume)
- Enhanced due diligence
- Document collection (business licenses, bank statements)
- Deeper ownership investigation
- Senior review of approvals
Progressive Verification
Allow sellers to start at a lower tier and unlock higher tiers through:
- Transaction history on platform (builds trust)
- Additional verification steps completed
- Business growth milestones reached
This balances onboarding speed (get sellers started quickly) with risk management (limit exposure until trust is established).
Operational Considerations
High-Volume Onboarding
At scale, KYB must be efficient:
Optimize for Auto-Verification
- Target 70%+ STP rates for clear approvals and rejections
- Reserve manual review for genuinely ambiguous cases
- Continuously tune rules based on review outcomes
Efficient Manual Review
- Queue prioritization (high-value sellers, oldest applications first)
- Clear decision criteria for reviewers
- Templates for common rejection reasons
- Escalation paths for complex cases
Batch Processing
- Screen all active sellers against updated sanctions lists
- Periodic re-verification of high-risk sellers
- Automated alerts for status changes (entity dissolution, new adverse media)
Seller Experience
Verification friction drives seller abandonment. Optimize the experience:
- Prefill where possible: Use known data to reduce form filling
- Explain requirements: Sellers accept friction when they understand why
- Progress indicators: Show completion status through the process
- Fast decisions: Communicate approval/denial quickly
- Clear remediation: If declined, explain what's needed to reapply
KYB connects to broader platform functions:
- Payments: Verification status gates payout eligibility
- Trust & Safety: KYB data informs seller reputation
- Customer Support: Verification issues drive support tickets
- Legal/Compliance: KYB records support regulatory inquiries
Red Flags for Marketplace Sellers
Beyond standard watchlist screening, watch for marketplace-specific risk indicators:
Identity and Entity Red Flags
- Seller name doesn't match payment account name
- Multiple seller accounts with same beneficial owner
- Shell company indicators (no operating location, formation agent address)
- Recently formed entity with immediate high-volume activity
- Mismatched business type (entity registered as "consulting" but selling physical goods)
Behavioral Red Flags
- Unusually high refund/chargeback rates
- Product listings inconsistent with stated business
- Geographic anomalies (seller address vs. shipping origin)
- Velocity spikes (sudden increase in transaction volume)
- Customer complaints about authenticity or non-delivery
Documentation Red Flags
- Inconsistent information across documents
- Documents that appear altered
- Business licenses that can't be verified
- Bank account that doesn't match seller name
B2B Marketplaces
Verify both the selling business and the buying business. Consider:
- Credit risk on buyers (will they pay?)
- Legitimacy of purchase orders
- Industry-specific compliance (export controls, regulated goods)
Service Marketplaces
For platforms matching businesses with service providers:
- Professional license verification (contractors, consultants)
- Insurance verification (liability coverage)
- Background checks on key personnel
- Industry certifications
When "sellers" are individual service providers:
- Balance individual identity verification with business verification
- Consider whether providers operate as businesses (Schedule C) or employees
- Verify any business entities providers create for tax purposes
