By design, multiple parties are involved in a single marketplace transaction, translating into several different payment components, including payins, payouts, payment processing, payment methods, checkout modules, and more. To manage these types of complex transactions effectively, marketplaces need to be able to separate each element, track each part in real time, and reconcile them effectively. On top of that, a high level of security is required, as the risk for fraud, like money laundering, can be very high on both the payin and the payout side. This means marketplaces must think broader about transactions and connect different systems, starting from sub-merchant onboarding up and until initiating payouts and recognising their revenues, in an efficient and scalable way. It is also possible that not every payment instrument is available across every sub-merchant, which creates another dimension to manage. All these factors combined make marketplace payments more complex compared to other business models.
Vendor lock-in is a big challenge here. Marketplaces tend to rely on only one or two payment service providers (PSPs) for their payment processing, which can lead to limitations in terms of geographic coverage and the availability of payment methods, among other challenges. Limiting these features is a blocker for marketplace platforms that want to acquire new users and grow internationally. PSP vendor lock-in stalls growth and is also a reason for lost revenue opportunities and higher payment processing costs, as we have seen that multi-PSP environments increase payment success and allow marketplaces to take advantage of more competitive pricing. In addition, there are important regulatory frameworks like the Payment Services Directive 2 (PSD2) in the European Union, and equivalent across many countries in the world, that set terms and restrictions on how marketplaces should process funds to protect their businesses and sub-merchants – and to be compliant. These rules are not harmonised globally, and often they are different in each market.
Lacking a solid payment strategy can have wide-ranging effects on marketplaces. If the customers are not able to find their preferred payment methods or go through a seamless checkout experience, they are likely to drop out. Not only can it negatively impact customer lifetime value, but it can also churn marketplace suppliers and sellers. If the onboarding process is very complex or the payment cycle is very long, suppliers will almost definitely go to a marketplace platform where it is easy to get started and the payment cycle is faster – and therefore friendlier to the suppliers’ and the sellers’ business goals. This is an important limiting factor for marketplace growth: if they’re capped on the supply side by default, there’s no way to ensure a good experience on the demand side. In contrast, a good payment strategy can help marketplaces thrive by becoming integral to their business objectives. For marketplaces specifically, a well-rounded payment strategy should 1) streamline and optimise payments, 2) contribute actively to revenue growth, and 3) maintain strict security expectations. With those criteria in mind, marketplaces should look for a payment solution provider that can connect to their existing infrastructure and offer a unified platform from which they can manage and maintain all their payment operations.
Payrails enables marketplaces to connect to multiple PSPs through one single integration layer, thereby solving the challenge of geographic coverage and the choice of payment methods. This allows marketplaces to customise the payment experience for each market segment and to meet the expectations of both buyers and sellers. Our solution connects to all critical components of a marketplace’s payment setup, including know your customer (KYC), payins, payouts, ledgers, and more. Marketplaces receive powerful tools to easily customise all payment flows and monitor performance across all integrations.
One of the major benefits of the Payrails platform for marketplaces is that it enables them to manage and maintain all aspects of their payments from one central location, thereby removing complexity and freeing up resources for both management and engineering teams. Key features like dynamic payment routing and transaction analytics help marketplaces finetune their payments strategy and optimise for business goals like cost savings or revenue growth. Marketplace suppliers and customers will be able to select their preferred payin and payout methods and enjoy an optimised experience, with the assurance that their payments are handled securely and meet the most stringent requirements.
Marketplaces can use Payrails to further streamline their payments by automating routine financial processes like ledger functions and payment reconciliation. The latter is especially important for marketplaces, as it’s vital to cross-check accurate settlements between buyers and sellers and across all PSPs. Payrails automates this usually manual process by up to 98%, freeing up time and resources for marketplaces.
This editorial piece was first published in The Paypers' Fintech for Marketplaces and Platforms Report 2024 which taps into the fast, ever-expanding ecommerce industry, being the ultimate source of information for businesses looking to expand and grow their consumer base.
Having built global payment infrastructures and financial operations at high-growth technology companies, Orkhan is proficient at scaling fintech solutions, having previously built the payments setup at Delivery Hero. He brings a wealth of experience in payments and a strong track record of driving operational excellence and product innovation on a global scale.
Payrails is a modular platform that takes the complexity out of modern payments setups by offering merchants everything they need to streamline their operations, including accepting payments, issuing payouts, and automating financial processes. Payrails’ suite of products works together to lower costs, boost conversions, and uncover revenue opportunities.
Every day we send out a free e-mail with the most important headlines of the last 24 hours.
Subscribe now