Nearly a decade in the making and some 25 years since the last major piece of EU digital legislation, the trading bloc’s brand new Digital Services Act (DSA) has already come into effect for 19 of the largest companies covered by its scope, before it comes into force for every business trading in the bloc in early 2024.
In this latest article in our series on marketplaces, Christophe de Sahb, our in-house marketplace specialist, takes a look at what the DSA means for marketplaces and what they need to be thinking about now, to prepare for next year.
What Is the DSA and Why Is It Important?
The European Union’s Digital Services Act (DSA) is a truly significant piece of legislation, which will have a seismic impact across Europe when it comes fully into force on 17 February 2024 (it’s already in effect for 19 of the largest digital players).
The DSA is a new set of rules that has two primary objectives: to keep users safe online with stronger protections for their individual rights, and to encourage more innovation and growth among all online businesses — especially small businesses — by leveling the competitive playing field.
Since August 2023 the DSA has been in place for 19 large tech players with more than 45m active users (AU) in the EU (which equates to 10% of the EU’s total population of 450m). These companies including social media sites X, Instagram and TikTok; the search engine Google and online encyclopedia Wikipedia; as well as large online marketplaces like Alibaba, Amazon and Zalando.
What Type of Businesses Will Be Affected?
Eventually the DSA will cover any and all digital players in the EU (whether they’re headquartered in an EU member state or not). The larger the company, the greater its responsibilities under the regulations.
Ensuring compliance may be a complex task, given that the new law covers significant ground, and includes a wide range of digital subjects and services. To achieve compliance, every organization operating in the EU territories will need to assess the type of services provided according to EU standards, the nature and complexity of its business, and its size and scale.
All digital players in the EU single market fall under the DSA’s regulations with different rules depending on a business’ size and scale. These players include:
- Very large online platforms and search engines (VLOPs and VLOSEs). Large-scale digital brands that reach more than 10% of the 450 million-plus monthly active users in Europe. The DSA is already in effect for these businesses and it is for these large brands that the responsibilities (and potential fines) will be more onerous.
- Intermediaries. These entities offer network infrastructure like service providers and hosting services, as well as internet online marketplaces. This is the category which includes the large majority of medium- and small-sized marketplace operators.
- Micro-organisations. Smaller, faster-growing organizations have longer grace periods before the DSA applies, to allow them to plan and transition.
How Will the DSA Impact Marketplaces?
These are the headline changes that will be affecting the top tier of marketplace operators:
- New measures to prevent illegal content, goods and services online. The DSA will require the rapid removal of illegal products and services from online marketplaces. Platforms will have to put in place a duty of care towards buyers and sellers registered to the marketplace, including better visibility of the provenance of products and services sold on the platform.
- Sellers must be traceable. Marketplaces will need to trace their vendors’ identities and carry out additional ‘Know Your Customer’ and anti-fraud checks
- No targeted advertising. In line with GDPR, online platforms won’t be allowed to profile minors or individuals based on sensitive categories of their personal data.
- Ban on “dark patterns”. Dark patterns are misleading, suggestive practices carried out online in order to push users into making certain choices.
- Risk-based action. VLOPs must put checks and balances in place to prevent abuse of their systems, including independent audits.
Why Marketplace Operators Will Need to up Their Game
More transparency. Marketplace operators will be under pressure to provide transparency reports to consumers, opening up about how many complaints they receive about sellers, the number of disputes and settlements, sharing information about everything from accuracy of deliveries to unfulfilled orders and more.
Better seller quality. This will obviously pose a challenge for marketplaces where product quality isn’t high. Those marketplaces will need to up their game by auditing their seller base and raising standards where necessary.
The consequences of not doing this will be punishing. Reports of mis-selling or fraud will need to be addressed within 24 hours, and removed within 72 hours of the consumer making a report, putting additional responsibilities on the operator as the marketplace gatekeeper.
More robust KYC processes. This raising of standards will also impact the KYC processes already in place. Until now, basic seller KYC for marketplaces has meant an owner ID checks, company administrative ID and bank details.
The DSA means that KYC checks need to become more robust. Marketplace operators will need to be able to provide tax authorities with seller contact details, ID documents and bank details plus be able to supply details about the products being supplied.
This is going to raise issues for marketplace operators, as they’re expected to be able to provide in-depth product knowledge, whether there are counterfeit or copycat products. Even those operators with strong KYC procedures may find they need to invest in more robust procedures.
Compliance by design. This is the obligation for online marketplaces to design and organize their websites and databases in such a way that sellers can provide their own information. This means marketplace operators being able to offer new and improved online interfaces.
What Does This Mean for Your Business?
There are three main areas for marketplace operators to start focusing on now.
The first one is transparency on complaints received and the overall service quality provided by sellers. It implies defining, implementing and constantly monitoring KPIs of the platform’s sellers.
The second one deals with sellers’ traceability and the need to provide additional information regarding them and their associated products, involving additional controls and robust processes.
The third is one making sure KYC processes are fit for purpose. This means making sure operators are capturing – and checking – the right information about the buyers and sellers on their platform. Think of it as ‘KYC Plus’.
This is because the DSA is ushering in an era of more complexity in the relationship between the marketplace operators, their clients and their sellers. New regulatory requirements mean that operators will probably need to spend more time getting to know their sellers, whether that’s asking them questions or supporting them.
At Concentrix + Webhelp we already do this for some of our B2B and B2C clients, helping them to manage post-onboarding business relationships across multiple digital channels.
If you’d like to discuss how your business can prepare for the challenges and opportunities of the new DSA regulations, please get in touch and let’s talk.
