Etsy Scandal - Collective Lawsuit

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Etsy Scandal - Collective Lawsuit

Etsy Scandal - Collective Lawsuit

Etsy's operations

Merchant relations

Etsy's unfair practices towards sellers are nothing new, and it's something we've experienced firsthand on multiple occasions since we started our store. Etsy has amassed hundreds of lawsuits against them by merchants and other companies.

Apart from the scandals and legal issues, Etsy has no interest in considering its merchants. They view merchants as easily replaceable by-products and need to be more willing to allocate resources to support them.

For example:

All the new features they release are solely focused on driving traffic to Etsy:

Sharable store link. One of the features they released in 2023 allowed merchants to share a link to their store to get a discount on the fees charged by Etsy. In other words, accept an order on Etsy instead of somewhere else, and we will give you a discount on the fees for that order.

Market and promote your shop. In the admin, there is a list of things related to promoting "Your" shop, all meant to drive more traffic to Etsy. For example, invite X friends for a surprise, Display your reviews on your website (With a link to Etsy), Tag Etsy on social media, etc.

I don't think a single merchant has ever asked for any of this, and it offers absolutely no benefit to them.

Merchants have been asking for standard features to improve their experience as sellers for years, but I guess Etsy doesn't see enough value in them.

Team accounts: There is no way to create team access accounts for an Etsy store. This means that your team has to use the same email address and password to sign in.

Etsy might block your account if you sign in from a different location. < I was shocked to learn this when we launched, as many platforms would consider this a massive security breach.

We had 3 team members managing the account. Yet, everyone was using the same sign-in and had access to bank account information, payment info, the ability to change the password, etc...

Requiring phone numbers for orders: Most shipping companies need a phone number for shipping. Yet, Etsy has no option for customers to add a phone number when placing an order. This forces merchants to have to ask for it manually every single time. Merchants have been complaining about this for years, and Etsy could easily add a required phone number field in the order form if activated by the merchant, but again, this would only benefit the merchant, right? It wouldn’t directly increase their revenue.

What's crazy is that all the revenue Etsy makes is made by merchants! Merchants handle everything, from shipping orders to production and materials, and ensure timely and safe deliveries. They bear 100% of the responsibility if anything goes wrong. Every payment consumers make to Etsy is essentially for services provided entirely by individuals outside of Etsy.

All this dedication is what brings in Etsy’s almost $3B in revenue and almost $2B in profit a year!

Scandals and Lawsuits

Etsy Payment Reserve Scandal

In June 2023, Etsy decided to hold 75% of order funds from merchants for 45 days after the item was shipped for most merchants on the platform. Now, digging into the details of this action, ask yourself: Who on earth thought this was acceptable to do considering Etsy's primary customers: Small merchants?

Most Etsy sellers are small business owners, running their stores month to month, and usually need more resources to fulfill orders they aren't getting paid for.

But Etsy thought it made sense to tell merchants to fulfill orders but only pay them 45 days later while they immediately take their 20-30% cut. Expecting all merchants to cover expenses related to shipping, material, production for a month a half and then patiently wait for Etsy to pay them what’s left.

What were the real reasons they held funds for such extended periods? They had close relationships with private banks (previously using the now-bankrupt Silicon Valley Bank). Keeping such funds through Treasury bills, private lending, etc., is ridiculously profitable. Given the hundreds of millions they were “holding” from their merchants, how much additional profit could this have resulted in? What is even more suspicious is that they implemented this a few weeks after the Silicon Valley Bank collapse. Did SVB close the relationship because of their bankruptcy and suddenly had to delay sending the invested funds back to Etsy?

We contacted support about the issue and explained that we couldn't afford to produce and ship orders ranging from $800 to $7000 upfront while waiting 45 days for the payment. We didn't have the necessary cash on hand. They replied with an automated message, saying, "We understand that the platform is not for everyone," with a link to an article explaining how to close your account.

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Etsy to ‘substantially’ cut vendors’ funds held in reserve after UK boycott Sellers put online shops in ‘holiday mode’ after website’s move to hold back up to 75% of takings for as long as 45 days www.theguardian.com⁠

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Etsy sellers say a fraud protection program is destabilizing their businesses Some sellers have thousands of dollars tied up. www.theverge.com⁠

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Etsy “Fees”

If you’ve been selling on Etsy, you’ll know that Etsy’s fees are incredibly unclear, and it’s ridiculously complicated to see exactly how much is being taken from your sales. It’s impossible to see an exact breakdown from your account; the only way to get an overview is to download your sales in CSV format and run calculations on the data.

Transaction fee (6.5%) Etsy charges a 6.5% “Payment fee” for all transactions. Note that there are no other options than having Etsy handle the payments, merchants are forced to pay this. The fee is also much higher than any other payment processor fee. Stripe and PayPal, for example, have a 2.9% payment processor fee. Considering Etsy’s volume, they probably pay around 0.8-1.5% in transaction fees, so most of this is also profit for them. It’s also funny that they charge this instead of just adding it to the “processing fee” because Etsy isn’t a payment provider, and it’s not like you connect an account to Etsy’s payment system and get paid through it. The only reason for them to separate this is to create confussion for merchants and to be able to advertise their “4% processing fee” for orders.

Processing fee (4%) These are the “Order fees.”

Listing fees (0.20c per listing /month)

Currency conversion (2.5% + This is another one of their fraudulent setups) Our account was initially in EUR, as I am originally from Germany, but I have been living in the US since 2022. Etsy does not allow you to change the currency of an account and thus charges a commission on exchanges. The exchange rates aren't what you would see on Google, though; the exchange is based on what's most profitable for them to charge from any rate from that period, and they then charge additional fees on this exchange on top of the 2.5%. I once looked into the costs after I spotted irregularities with the payouts: They where meant to send us USD 650, which, converted would have been around EUR 600, yet we received about 500€. When I asked them to explain, they sent me the same copy-paste message they sent me before, saying that they understood the platform wasn't for everyone, with a link explaining how to close your account.

“Postage transaction fee” (6.5%) > We never used the Etsy postage options. They charge this fee for all orders where we charge for shipping. This is another fee that we can’t avoid, and its pure profit for them.

“Offsite ad” fee” (15%) > All merchants are automatically enrolled, and Etsy won’t tell you they are taking these fees. They are explained below.

Forced “Offsite Ad” Program

Around mid-2023, I was looking into the payouts of our orders and noticed that large chunks were missing. I downloaded order data and noticed that Etsy started charging us 15% “Advertisement fees” on our orders.

We never opted in or authorized them to do this.

I contacted support and received a copy-paste reply saying that all merchants were “Automatically enrolled” in their “Offsite ad” program, which advertised products on platforms like Google ads, Instagram, etc, and then shared the merchants for this.

I was shocked when I read this; this means that Etsy runs ads to promote its platform, using product images from merchants, and then ends up charging the merchants for it without their consent.

Seriously, what are people at Etsy thinking when making decisions? Let’s spend millions on paid ads to promote the platform and have the merchants pay for it all.

Even worse, I have experience running campaigns on Google and other platforms, and even though I was shocked about how they implemented this, I was open to considering if it proved effective and if we gave our consent. So I asked them where we could track things like “Link clicks,” “Open rates,” “Ad views,” etc., and they answered that there is no available data for ad performance. You pay for it without proof that you are paying for ads showing your products or that any of it led to a sale.

The 15% taken is also ridiculously high. Our average order amount was around $1600, which means that Etsy takes a $240 cut for their ads in addition to the

Etsy’s authority

Etsy is a big tech company benefiting from a “First mover advantage” from when it started in 2015. A time when many platforms and marketplaces were “The first,” amassing quick media interest and user adoption.

Nothing is wrong with this, but being somewhat of a monopoly in the “Handmade & Artisan marketplace” sector gives them a lot of power and authority.

Etsy can be compared to a small government: They allow businesses to operate on their premises, and The businesses pay fees on every sale (around 15-30%) (Taxes).

Most governments, on the one hand, have legal systems and rules in place to protect public interest and fairness; this means that:

A government can’t just shut down a business without lawful authority.

Companies and individuals own the same rights that protect them within the law.

Etsy, however, does not; here are some examples:

Etsy states that they can closed down stores without notice, without reason and without the need for justification, all while the store owner “agrees” to never start a lawsuit against them.

Imagine if the government had the authority to shut down businesses without justification or needed explanation whenever they felt like it. Anybody connected to a government official could shut down a business for personal reasons.

The government can’t do this, so why could Etsy? As long as merchants don’t break any laws or platform terms, they shouldn’t lose a business they worked on for years, all while Etsy profited from most of their revenue.

If they decide to suspend a merchant for a valid reason, then the least they should do is provide a clear reason for why and have a dedicated agent handle the case.

Etsy suspends accounts daily on automation. Nobody is handling a suspension, and Etsy will never have anybody review an appeal. This all takes “Too much time and effort,” even for a store like ours, which has made them 45K in “platform and payment” fees in 15 months.

How many companies can say they’ve taken 45K from customers just for letting them sell on a platform while providing 0 support?

Controlled “Community”

I am currently unable to comment on or like posts in their “Community”. I tried signing in with my account, and the same situation occurred there.

When your account is suspended, their system automatically blocks your email address and all IP addresses, networks, and device addresses you’ve ever signed in with. This way, if you ever create a new account they will suspend you immediately.

I believe that they also apply this to their “community” to prevent any suspended users from posting.

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Summary

Etsy can act as a fair marketplace for merchants and consumers but instead chooses to operate the company with a “profit only” mindset, trashing their merchants with no consideration.

Regarding account suspensions: I am well aware of the importance of keeping the platform safe and preventing scams and fraud, and it should be a priority for the platform to avoid this, but whatever policies they currently have are not right.

First, why do they allow anybody to sign up and open a store but only suspend them later after they’ve put the time and resources into it?

They could either have a more in-depth review on sellers during sign-up or even just after they’ve made 5K in sales and have a dedicated account manager reach out to get on a call with the merchant to review their business and operations and then sign an agreement.

We had been selling on the platform for 15 months, made almost 200k in sales, had a 5/5 rating on over 80 reviews, not a single dispute or unsatisfied customer, didn’t go against any of Etsy’s terms and then have to accept our fate when we receive an automated message saying that they the entire store has been suspended and that we can’t appeal it?

What’s even crazier is that many merchants post fake goods like watches, handbags, etc., and Etsy doesn’t seem to do anything about it. These listings use brand names in the listing title, yet none of this is triggering an alert.

Some examples

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Fake watches, literally using brand names in the listing titles⁠

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Fake handbags⁠

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But no, none of this is in Etsy’s interest. Their approach is everything is automated, and we don’t communicate with merchants. A bot might trigger an account suspension alert, suspend the account, and that’s it.

Why did our account get suspended?

Did a competitor report one of our listings? I have no clue, and we’ll probably never find out.

Merchant relations

For example:

Scandals and Lawsuits

Etsy Payment Reserve Scandal

Etsy “Fees”

Forced “Offsite Ad” Program

Etsy’s authority

Controlled “Community”

Summary

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