Look back some 60 years to see the first payment ‘cloud’ emerge in the shape of Visa, connecting US merchants with Bank of America’s systems so that consumers could pay in the shop by using a card, rather than cash. A couple of decades later, the emergence of the Internet and virtual computer networks paved the way for the arrival of the ‘cloud’.
That technical ability to connect anyone to anything has found many commercial uses, from the rise of Software-as-a-Service in many industries to the emergence of platforms and marketplaces in all areas from person-to-person to business-to-consumer – and finally, most recently, to business-to-business.
In the mid-1990s, companies like Amazon, Rakuten, eBay, and Alibaba saw this connectivity as an opportunity to build marketplace platforms which not only connected sellers and buyers but also facilitated transactions between parties and provided a range of supporting services. Fast forward a couple of decades, add an almost total digitalisation during the two years of the COVID-19 pandemic, and now we see platforms in pretty much any industry – hence the title of this article, Platformification.
Over the past decade, three strategies for approaching platforms and marketplaces have emerged, and these are summarised in the table below.
However, platformification is far from easy. Let’s pick out the top five challenges below:
Regulators are increasingly expecting marketplaces to do more than just provide a platform for others to sell. After all, the consumers are going to the marketplace website, trust the marketplace brand (not necessarily the sellers), and sometimes do not even pay attention to the terms and conditions which explain that they contract with the sellers only. Thus, getting compliance right is vital for success, and platforms must stay in touch with the regulations, rules, and requirements in all regions where they are present.
Another challenge is represented by payment processing and fund flows. Many regulatory regimes and payment schemes expect marketplaces and platforms to have payment licences (Payment Institution or Electronic Money) or to outsource payment management. There are currently not many payment providers who provide fully compliant and modular solutions to support marketplaces (less than a dozen of circa 300 global PSPs offer this service). Some marketplaces have become regulated entities themselves, but that brings extra complexities, costs, and a constant need for compliance oversight to add to the already difficult task of running a marketplace.
There is intense and growing competition between marketplaces, with the added factor that many sellers have concerns that working via platforms does not allow them to build their own customer base, and they end up losing their customers to marketplaces. This is somewhat mitigated by the emergence of local or industry-specialised marketplaces which contrast with international unicorns.
The ability to provide a competitive platform is tightly correlated with the quality of the marketplace platform, its technical integrations, and the ecosystems of providers who are connected to it. Both technology and the ability to add modules as and when they become relevant and desired by the sellers are of utmost importance.
Finally, many marketplaces choose to ‘curate’ the content, so they build a more exclusive and carefully selected offering. This helps address concerns of negative brand impact for marketplaces from ‘bad’ sellers.
The below picture outlines some of the key building blocks necessary for a successful platform.
Irrespective of the sector and the type of sellers and buyers the platform serves, seller onboarding is the most important obstacle to getting the platform right. Whilst a B2B seller may accept a process which takes days, instead of hours – an essential factor for the B2C case –, the process for all types of sellers has to be intuitive, frictionless, safe, secure, and reasonably fast. Thus, KYC/KYB and risk assessment need to be very efficient.
Payments and settlement processes have to be easy and quick – and reflect the local customs and expectations of both consumers and sellers. The platform has a choice between either investing in doing this in-house or finding a partner who can support its specific needs for all of its geographic markets.
Reporting, tax management, invoices, and transaction data access are also cited among the key requirements by most sellers. The platform may also take this further by helping sellers open bank accounts, get paid early, or obtain other financial services such as loans, currency management, or insurance.
In short, the success of building a platform is based on a combination of many factors, including selecting great technology and service partners – and any platformification strategy by a brand, retailer, or service provider should be carefully designed, with a clear understanding of the attributes and features of their platform partners.
This editorial piece was first published in The Paypers' Cross-Border Payments and Ecommerce Report 2022–2023, which taps into the fast-growing cross-border market and provides a comprehensive overview of trends and developments that are pivotal in this space, being the ultimate source of information for ecommerce businesses interested in expanding globally.
With over 25 years of experience in the payments industry, Masha is currently Principal Consultant at Payment Options Ltd, NED at Trust Payments, as well as a recognised speaker and writer on the subject of payments, fraud and identity management, marketplaces, and new economies. Masha previously held senior posts at Visa, Microsoft, Mastercard, Cybersource, and Ingenico.
About Payment Options
Payment Options is an independent consultancy run and managed by Masha Cilliers. Its key focus is helping merchants and payment providers to understand the payments industry and each other, to build successful partnerships, and to implement innovative strategies. Payment Options has been working with marketplaces for over ten years and has a deep and practical knowledge base of this emerging vertical.
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