The Myth of the Borderless Marketplace Economy

This editorial was first published in our Online Payments and Ecommerce Market Guide launched on 1 November 2017. The guide features several important thought leadership editorials from ecommerce and payments industry professionals, which makes it a top-reference source for anyone involved in the payments ecosystem.

Beginning in the mid-1990s, the rise of online selling through two-sided marketplaces like Amazon and eBay seemed to herald the emergence of a borderless marketplace economy; one in which buyers and sellers from almost anywhere in the world could seamlessly connect and transact online. These platforms made it easier than ever for small businesses and individual sellers to get their products to the people, and for buyers to find a bargain. By 2016, Amazon alone saw USD 136 billion in sales.

Still, despite the tremendous growth of ecommerce, the ideal of the borderless economy is still far from reality – a fact that becomes obvious when we take a closer look at how marketplace experiences differ for buyers and sellers.

Youre better off as a buyer

It goes without saying that the goal of any two-sided marketplace is to attract users to the platform and connect as many buyers and sellers as possible. Marketplaces can encourage platform participation in a number of ways: survey results from The State of Ecommerce Marketplace Selling in 2017 , a report from Hyperwallet, showed that things like shipping options, sense of trust, and speed of payments play a major role in platform loyalty.

It all boils down to a transaction experience that is simple, intuitive, and free of major friction. Buyers do not particularly care where a seller is located; they just want to purchase merchandise at competitive prices and have it delivered in a timely manner. Transactions should be just as easy – no, easier – as they would be at a local brick-and-mortar store.

Many global marketplaces have sought to recreate a localised experience for buyers by establishing regional versions of themselves. Amazon, for example, is not just an American marketplace: it also has regional marketplaces in other countries around the world, including Canada, Mexico, the UK, Germany, France, China – the list goes on. It does not matter where the seller is located: when a buyer in Japan shops on Amazon, they will see prices in JPY; when a buyer in Italy goes to checkout, they will be able to choose from popular local payment methods. The purpose of these localised marketplace variants is, primarily, to improve the experience for the buyer.

The problem with payouts

The experience for sellers, on the other hand, is rarely so simple. Even when we put aside the obvious complications of creating a localised version of a marketplace (e.g., translations, cultural expectations, etc.), the reality is that many marketplaces cannot effectively distribute payments to sellers who are located outside of the country in which the marketplace is based.

Typically, marketplaces would need to establish bank accounts or payment partners in the home nation of each seller on the platform. That is not particularly difficult if we are talking about highly-developed markets like North America and Europe, but it becomes more complicated when we look at sellers from emerging countries in places like South America, Asia, and Africa. Building the necessary global multicurrency payout network to settle these transactions – while also ensuring compliance with local regulations – is simply beyond the scope of most marketplace companies.

There are some workarounds to these challenges. Many marketplaces require these remote sellers to establish local receiving accounts, a solution which sees the seller create a bank account in a different country and transfer funds back to their own local account.

There are also e-wallet solutions, whereby the marketplace pays into a virtual stored value account from which the seller can transfer earnings to their home country or, alternatively, use the funds within the e-wallet ecosystem. Still, both of these solutions add significant friction to the transaction experience and often subject sellers to a third partys terms and fees. They also create a blind spot for marketplaces because they lose visibility in the last mile of the payment – one of the key areas in which marketplaces can build (or lose) trust with their sellers.

Building the Borderless Economy

How can marketplaces create this borderless economy – one in which transactions happen seamlessly, regardless of where the buyer, seller, or marketplace is based?

For starters, global marketplace aspirations will require a global payment solution – one that abstracts the different local characteristics and needs of all the stakeholders, enabling each to behave naturally. Expanding marketplaces need to establish payment mechanisms (or harness payment partners) that allow global buyers to pay in their local currency with their preferred local payment method and global sellers to get paid in their local currency to their local bank account – all while maintaining the marketplaces status quo in terms of bank accounts, regulatory stance, and currency and treasury management.

That is the kind of solution that will help marketplaces achieve a truly borderless economy, and it is probably closer than you think.

About Michael Ting:

Michael Ting is SVP of Digital Markets at Hyperwallet, where he is responsible for developing the companys commercial and strategic partnerships in the high tech and marketplace sectors. Michael formerly served as Head of Payment Services at oDesk (now Upwork).

About Hyperwallet:

Hyperwallet provides growing marketplaces with a frictionless, transparent, and reliable way to management payments and enhance their payees’ experience almost anywhere in the world. Trusted by enterprise, ecommerce, and service-based platforms, Hyperwallet makes it easy to pay a dispersed workforce of freelancers and contractors using a singular payout environment.