A payments view on marketplaces – how to be(come) successful

Marketplaces offer many benefits to SMEs like marketing, an existing market of millions of buyers, payment processing, dispute management, and more. Andy Davies from Endava shares advice on how to tap into this potential successfully

Starting back in the 90s, the model of connecting millions of buyers to millions of sellers carried so much value that it just continued to evolve. Uber, Airbnb, and Booking.com demonstrate that this isn’t just an approach for retail ecommerce, but one that is highly adaptable across multiple industries

A large marketplace platform provides a typical SME access to a global network of buyers that, without the marketplace, would simply be cost-prohibitive to achieve. Marketplaces are so much more than a simple website platform for sellers: they provide the marketing, the search engine optimisation, an existing market of millions of buyers, payment processing, dispute management, and services like shipping and logistics. These platforms really are a turnkey solution for any SME – you simply select the marketplace brand that best suits your target market.

While marketplaces represent a fantastic opportunity, the barriers to entry are rising in a potentially perfect storm of industry and compliance changes that is affecting newcomers and the old guard alike.

Becoming regulated as a marketplace is not a simple process. First, you must consider what regulatory model you wish to operate under – Payment Institute, Payment Facilitator, or eMoney Institute being the common options. Each one comes with its own challenges. For many businesses, this impacts everything, from how you onboard a seller and manage incoming funds to monitoring how these funds are running through the systems. The rules are tightly managed by KYC and AML rules, which until recently have mostly been the burden of fintechs and banks, not retail and other marketplace organisations.

Most large marketplace solutions are globally oriented, and any global ecommerce solution will typically have to address the ever-expanding list of payment solutions. Your platform needs to support the major card schemes in target countries/regions. The network of APMs and Wallets are also a serious consideration for consumers today and can have a major impact on checkout conversion. And lastly, don’t forget the new market entrants, from BNPL to Open Banking.

Now that you have met your regulation requirements and have the funds coming into your marketplace, let’s look at how to manage the exceptions. As a regulated entity, businesses can come under far more scrutiny with regards to refunding and managing disputes. As a non-regulated entity, there is often no instance tracking or governing how or when you return money to a user, but once regulated, your business will fall under AML rules, requiring it to be much more robust.

It is also worth considering the challenges with the many APMs that exist, a lot of which do not offer a method for refunding, requiring the business to engineering rules and processes to facilitate these payments.

The typical process for many marketplace models involves paying users for the goods or services you have sold on your platform. This process throws up some interesting challenges. In some instances, a single checkout process may involve multiple sellers selling in multiple currencies to a single buyer. This creates a complex web of currency exchange and fee calculations that needs to be carefully tracked and results in the system needing to generate multiple currency payouts to multiple countries.

Once you have your network of partners helping you with the payouts, you now need to carefully consider your funding process. There are several hurdles at this stage: for example, what time does it take for your incoming payment method to clear? Another one relates to balancing your accounts between geographies. Complicating this are seller expectations; many want to get paid faster, so you need to consider this when designing your systems.

In many countries, it is now the responsibility of the marketplace to collect the tax at the point of sale and settle it in accordance with the respective agencies. It is no longer the responsibility of the seller in many cases, although you will need to provide them with the means to demonstrate to their local agencies that tax has been paid. This is a huge undertaking and adds significant complexity since most countries have their own set of rules. Once you have the tax right at the checkout, you also need to consider logistics and any import /export duties that may apply and provide tools to help the sellers with this process.

No longer just a payment gateway and acquirer combination, these new vendors provide businesses with turnkey solutions for payments in and out, onboarding, AML, KYC, tax, and much more. The leading vendors in this space can provide solutions for most of the challenges raised in this article, and some offer them on a truly global scale. Running a global business is tough enough, but the challenges which marketplace introduces should not be underestimated.

Principal Industry Consultant

Andy is an enthusiastic, self-motivated, and innovative professional with over 25 years’ experience designing and delivering leading-edge payment solutions for the banking, retail, financial services, and public sectors. With extensive knowledge of card, bank and alternative payment rails, his time in the industry and exposure to key players provides him with a unique insight into product innovation, regulatory drivers, security, and fraud requirements.

Reimagining the relationship between people & technology

We accelerate our clients’ ability to take advantage of new business models and market opportunities by ideating and delivering dynamic platforms and intelligent digital experiences that fuel the rapid, ongoing transformation of their businesses. By leveraging next-generation technologies, our agile, multi-disciplinary teams provide a combination of Product & Technology Strategies, Intelligent Experiences, and World-Class Engineering to help our clients become more engaging, responsive, and efficient. Our Payments footprint covers the UK, Europe, and the US, focusing on helping clients build, integrate and support next-generation payment platforms to keep up with the fast-paced nature and ever adapting digital world of payments.