Home Business News Call for reform to protect and promote small businesses in online marketplaces

Call for reform to protect and promote small businesses in online marketplaces

by LLB staff reporter
16th Oct 23 7:15 am

FSB is setting out a range of proposals to protect and promote small business owners who use online sales platforms, to ensure that small firms can make the most of the opportunities of trading online.

FSB’s new publication, Net Benefits? Small business use of online platforms, looks into the terms and conditions that small businesses have to work under when using e-commerce sites, and unearths areas of concern, from reports of late payments to fake or malicious reviews which may compromise small businesses who engage with these platforms.

Online platforms are a crucial, growing route to market for thousands of small businesses in this digital age. The research found that over half of small firms (53%) who participated in the research currently use an online platform as part of their business, while just 3% of participants stopped using a platform within the previous 12 months.

Seven in ten active small business users of platforms surveyed (71%) said they were ‘important’ or ‘very important’ to their business. Three in ten (29%) of those surveyed that are currently using platforms utilise them to trade internationally.

However, while there are undoubtedly benefits to offering goods and services on platforms owned by large companies, there are potential downsides, too, as identified from the firms surveyed.

Two in five (39%) of the small businesses who participated in the research who had an issue with a platform said it was ‘difficult’ or ‘very difficult’ to resolve that issue, while one in six small businesses who reported issues with platforms (16%) said they were resolved ‘very unfairly’.

Fake or malicious reviews were another problem reported by a significant minority of users of e-commerce sites in the research. One in eight small businesses surveyed (12%) who have used a platform in the last 12 months reported malicious or fake reviews, pointing to the need for more to be done to ensure the integrity and honesty of online reviews.

Other issues queried by the research included how useful the sales data provided by online platforms was to small business users, with results varying by platform. Some of the small firms that participated in the research reported that their products had been de-ranked (i.e. made less visible in search results, hitting sales) after a platform launched its own competing product, or delisted altogether.

Intellectual property infringement was another area of concern, with numerous small businesses saying they had experienced a breach of their rights in this area, including the copying of designs and products (20% of those surveyed using Amazon, 12% of those surveyed using eBay and 8% of those surveyed using Instagram and Facebook Marketplace).

The withholding of funds due to small businesses by online platforms has recently hit the news, with both Etsy and Amazon having been found to have changed how they handle reserves, meaning some small businesses on those platforms have had to wait for over a month to be paid. One in six (16%) of small business users of Amazon in FSB’s research said that it took more than a month to receive their money, potentially causing issues with their cashflow.

The report includes numerous recommendations for regulators, platforms, and the Government based on FSB’s reasonable opinion derived from the results of the research as to what could be done to resolve or improve many of the difficulties small firms face. These include:

  • Platforms should commit to paying small businesses within a maximum of thirty days, in line with the Prompt Payment Code which governs standard supplier payments. This should include payments due to third-party sellers, not just those who sell to the platforms themselves.
  • Platforms should invest much more in systems to resolve issues for small businesses, including the provision of dedicated complaint and dispute handling resources where these do not already exist.
  • The UK Government should consider legislation to make it an offence for an individual to post a fake and malicious online review.
  • The UK Government should legislate to introduce a rapid, effective and affordable dispute resolution procedure which would cover disputes between small businesses and e-commerce platforms, and between small businesses and other platform users, including both consumers and other businesses.
  • The Competition and Markets Authority should investigate the charging structures of retail platforms, and the charging levels of accommodation and food delivery platforms, to determine whether these are indicative of monopolistic or oligopolistic behaviour.

Tina McKenzie, FSB’s Policy Chair, said, “E-commerce sites are an indispensable part of everyday life for millions of people, and many thousands of small businesses make use of them to get their product or service in front of as many people as possible.

“At its best, this relationship between sites and small firms is highly mutually beneficial: the sites get a larger range of goods to showcase and earn fees from sales, while sellers reach customers they would have found difficult to source without the platform.

“There is however a huge mismatch between small firms and online platforms in terms of size, resources, and, ultimately, power. A small firm that feels like it has not had a complaint fully investigated might think that it has no further recourse, leading to frustration.

“Small firms are calling out for more to be done on issues like protection of their intellectual property, while platforms should commit to paying businesses as promptly as possible – a figure that would be a rounding error for a large e-commerce site could easily be the difference between survival or closure for a small firm.

“Making the relationship between small firms and online platforms as transparent and as stable as possible will ultimately benefit all parties. Our report scrutinises the data received from FSB members and sets out what FSB reasonably considers could be done, by the platforms themselves and by the Government and regulators, to ensure that online marketplaces operate constructively and sustainably for small firms, for e-commerce sites, and ultimately for shoppers too.”

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