Reconciling, splitting, and settling payments are key challenges for marketplaces

This interview was first published in our Online Payments and Ecommerce Market Guide 2017. The Guide is a must-read for anyone trying to understand how the ecommerce and payments market is developing, whether you are a merchant, a PSP, or active in the market in any capacity.

Could you briefly explain how ONPEX is positioned in the value chain of payments? What customer segments do you service?

We are building a bridge between payments and banking. We have and provide all the connectivity, like a technical gateway for all acquirers as well as several payment method providers and risk services, similar to a traditional PSP.

However, we are mainly focused on the banking/cash management side. Whenever we receive a payment, it ends up in one of our ONPEX Payment Accounts. This is a bank account that works in many respects just like a traditional one, but is also multi-currency enabled, it accepts card payments directly, and it can be used to accept and send payments through other payment methods. For example, you could transfer funds to an mPesa wallet in Kenya directly from your Payment Account, instead of sending a wire with SWIFT.

Being in between the payments and handling the cash enables us to position ourselves more in a wholesale perspective, like the B2B2C market. Our customer base consists mainly of PSPs, acquirers, issuers and other fintechs whom we help in customer settlement, payments collection, or APM processing.

Another important customer group for us are marketplaces, which struggle to meet regulations and have difficulties in managing the payments for their sellers.

What challenges do marketplaces face when onboarding and servicing their sellers?

Meeting regulatory requirements is the main challenge. Big marketplaces like Amazon are regulated – they have contracts with banks, they are licensed as payment institutions and for handling money, etc. They simply have to onboard the seller and that’s it.

However, many marketplaces are not regulated and are not allowed to handle the funds. Because of this, they run into the problem of how to split payments collected on behalf of different sellers. If you have one shopping basked per seller, you can implement a straightforward settlement with a standard card acquirer.

In most cases, this is wishful thinking, though, as nearly all shopping baskets are mixed between different sellers. It is normal to have five articles from five different sellers in one basket, with different delivery dates and different payment authorisations. This raises several questions: Who gets settled when? Do the sellers get settled on behalf of the marketplace, or on behalf of the acquirer?

The solution that we offer is our Payment Account, which allows the marketplace and all its participants to receive funds into their respective accounts. By applying this structure, marketplaces can automatically split payments, settle funds, and deduct their commissions.

With ONPEX being a licensed Financial Institution, they are also getting out of the scope of any regulation. Furthermore, they do not have to worry about where and how to manage the funds. Plus, our solution is a fully API-controlled system; a client can give us detailed instructions about how to manage and split payments between sellers. They can, for example, tell us that from a EUR 100 shopping basket, they only captured EUR 80 because the seller didn’t ship its goods. This means that they will receive EUR 80 minus the fees and they can instruct us, via the API, how much of that amount should go to each seller.

What makes reconciliation complex and how can ONPEX make this process simpler and less time-consuming for PSPs and merchants?

The amount of funds received in a bulk settlement can differ from the amount stated in the report. To reconcile the sums, you would have to go through a lengthy process and, even when the reports match (they rarely do), you still have to break it down and see which transactions are included in the settlement amount and get these marked in your bookkeeping. What complicates this process is the lack of a correlation between the transaction that has been created on a gateway and the settlement that has been received in a bank account.

To solve this, whenever we receive a transaction on our gateway, we know the merchant’s transaction-ID and we assign another unique identifier to each transaction on our system. Then, the transaction travels to the alternative payment provider or acquirer from which we receive back the transaction-ID as well as the result (successful or not).

Every successful transaction is registered in the Payment Account that also shows the respective fees, as well as the amount that is available to the account holder. In essence, we break up the logic behind the scenes for all these different settlement scenarios and automate the cash management. The PSP or merchant no longer has to worry about splitting the sum of a larger bulk settlement. A merchant simply sends a transaction and, if successful, the amount and fees will appear in the Payment Account with all the details that are necessary to trace and account for the individual transaction.

Could you elaborate a bit more on how fintech companies can benefit from a cooperation with ONPEX?

Our main focus at the moment is servicing fintechs. Program managers, prepaid card issuers, e-money issuers, currency traders, and remittance platforms contracted and are contracting with us for our Payment Account. Our solution allows them to set up a multi-currency account for each of their clients, so that they can trade internally between different clients and externally in about 25 currencies that we support at this stage.

We make our technology available to them via an API-driven platform. They connect their system (be it a banking platform, currency trading app, or any other type) to our API and when onboarding a customer, they simply have, in the background, an IBAN from our side, allowing them to handle and manage all the cash, currencies, and wires and basically just use it as a service with fully automated management.

About Christoph Tutsch
Christoph Tutsch is the founder and CEO of ONPEX. He set up the business with the vision to make it easy for consumers and businesses to pay and transfer valuables in any way they like, anywhere and at any time. Christoph is responsible for the overall direction of ONPEX business and its continuing growth around the world.

About ONPEX:
ONPEX combines advanced Software-as-a-Service with the financial services of a regulated Financial Institution. This is the basis for a range of white-label finance management including API-banking, frontends for legacy banking systems, a full-service PSP platform, IBAN accounts, and acquiring for Credit Cards as well as APMs. ONPEX solutions improve the scope, automation, and efficiency of financial services and infrastructures around the world.