Challenges of e-commerce businesses & startups

e-commerce businesses
Legal Analysis

One of the industries that has been able to attract most of entrepreneurs in recent years has been e-commerce businesses. Many startups are now operating in this field and trying to expand their startup as soon as possible and become a mature company. But the rapid growth of this industry is not without challenges. The e-commerce industry, like all other new technology-based industries, is severely regulated by legal frameworks. There are many instances where companies from different parts of the world have been involved in lawsuits over the rights to operate in an industry and environment, or to register a product / method patent.

Legal challenges and infractions for e-commerce businesses can be in many forms; it is highly important that the company can always anticipate legal needs and challenges in the next stage and make decisions so that it would experience the fewest problems in the future.

Legal contracts in e-commerce businesses

Amazon, one of the most well-known companies in e-commerce businesses, faced a legal problem in 2018. That year, the story of a dog collar sold to a woman by a third-party company that left her permanently blind became controversial and the US court ruled that Amazon was liable for that. This incident showed how vulnerable even the largest and most famous companies are to legal issues.

This is perhaps the best example that illustrates the importance of specifying commitments, warranties, etc. about a product or service in e-commerce, as a company may be held liable for a product’s defect that is not even produced by the company itself, and it may have to pay huge costs to defend itself on a lawsuit, and eventually pay for the damages. Regardless of the fact that such an incident simply stigmatizes the company’s image of the company, and raises questions about its services and products.

Terms and Conditions of Service

The first step in preparing for encountering such situations is to ensure that the ‘Terms and Conditions of Service’ section is complete and accurate. For example, if the company uses the products of a third-party company, this issue must be mentioned in this section. Additionally, the refunding method for a product must be fully and clearly specified and a mechanism must be foreseen to inform the customers on their purchases.

Privacy and data protection

Most e-commerce businesses need to be able to protect their customers’ sensitive data which is usually collected through contact forms, customer registration or the payment process. In most countries, strict rules are in place to ensure that this information is not leaked specifying how to collect and store the data.

Preventing from fraud in e-commerce businesses

E-commerce businesses has opened up new avenues for fraud. Especially at the beginning, when customers had little awareness of fraud possibility and there were no complete and comprehensive rules to prevent these crimes, many scammers persuaded customers to make unrealistic purchases or steal customer information in some way. Research shows that fraud related to online payments have grown significantly in recent years, and we will experience an annual growth of 14% by 2023 if a fundamental solution is not found to address this issue.

Therefore, companies operating in the field of e-commerce should pay special attention to protecting customer information as well as establishing internal mechanisms to prevent any fraud or error. In addition, in case of any security problems such as hacking or information leakage, it is necessary to inform customers on this issue. In many countries, informing customers is part of the law.

Bear in mind that e-commerce does not mean that there are different trading laws for your business. Therefore, before initiating your activities, make sure that all safety and legal principles are observed. Depending on the company’s location, the stipulated regulations are applied to the business. For example, companies intending to operate in Europe must comply with EU e-Commerce Directives. Let’s take an example; if e-commerce businesses collaborate with other companies to provide products and services, they must notify their customers, and if the fee is paid to the retailer, all details must be provided to the customer. This is done to build trust and ensure transparency.

All companies operating in the Eu-member nations must comply with the latest interpretation of approved e-Commerce Directives which provide a standard path for business in addition to specifying the scope of companies’ activities.

Therefore, establishing a successful startup and its management requires a comprehensive understanding of legal and commercial laws, especially since the company sometimes needs to implement and follow several different frameworks simultaneously. For this reason, it is recommended that the startup founders ask for the help of professional experts in this field.

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