As popularity for these platforms has continued to grow since the internet boom of the 90s, these centralised platforms have become a major part of the economy. They are seen as safe, secure and convenient. And this all started when original marketplace models appeared on the scene.
One aspect that has helped advance this technology and facilitate these exchanges – in increasingly complex new environments, markets and industries – is reassurance from payment platforms. Payments technology has become critical to marketplaces’ success and helped these online spaces evolve and enter new markets – each with its own currency, regulation requirements and complexities.
The sharing boom
The continued growth of marketplaces and social selling platforms is undoubtedly tied to the rise of the sharing economy, which spotlights the marketplace model by encouraging people to rethink which assets they need to own and how they make a living.
With the rise of the sharing economy and the resulting shift in consumer behaviour, marketplaces are in a unique and opportune position to further attract consumer engagement as people want to be able to carry out transactions in one central place.
That’s why the allure of the marketplace model is not just confined to the retail sector. As carrying out transactions online became easier and safer, we have seen the marketplace platform infiltrate other industries. Consider, for example, consumer-facing platforms for travel and for food delivery, Lime for shared bikes and e-scooters and Jayride for airport transports.
The model of connecting buyers and sellers, drivers and riders, delivery partners and eaters, and so on has become a global phenomenon that continues to grow alongside the sharing economy.
Building a marketplace is not without challenges, notably achieving a universal payment solution to tackle the complex web of buyer-seller experiences in multiple markets – each with their own currencies, dominant payout methods, and regulatory environments.
In addition to facing all the challenges that come with facilitating payments online, such as accepting a variety of payment methods, marketplaces must also ensure they have an attractive and localised payout process that keeps sellers just as engaged and loyal.
Gone are the days of paper cheque payouts – people want to be paid conveniently and quickly in today’s on-demand world. Consider a situation in which a buyer in the UK purchases gourmet honey from Australia. The British buyer will expect to pay in their local currency, but equally important, the Australian bee keeper will expect to receive digital payment for the transaction in Australian dollars and in a timely manner with fair foreign exchange costs.
Increasingly, marketplace models face varying regulations that add another layer of complexity as they look to scale globally. This process of how money flows from one side of the marketplace to the other needs to be compliant with the latest customer due diligence regulations, including obtaining all the right documentation. For example, under new PSD2 (second Payment Services Directive) rules, any agent handling funds between a seller and a buyer needs to have an appropriate payments license. Not surprisingly, obtaining this licensing is no small task, and the penalty for non-compliance is substantial. Marketplaces that wish to avoid the costly and confusing licensing process must instead remove themselves from the payment flow entirely, entrusting the services of a payment platform that’s already licensed and authorised to manage the disbursement of collected funds.
There are two ways that a payment platform can help marketplaces abide by PSD2 regulations. The first is to manage the flow of funds on the marketplace’s behalf. In this scenario, the payment platform uses standard credit card settlement workflows in order to reduce friction: a consumer’s card is charged, funds are cleared through the card schemes, and settlement is split between the seller and the marketplace. Marketplaces that rely on this split settlement method earn their revenue based on a share of the transaction value from each payment that is processed on their platform.
While a split settlement model enables the marketplace to remove itself from the flow of funds, it does so by ceding control to their payment provider. As such, they are now solely dependent on the authorisation and settlement cycle of a buyer’s credit card transaction in order to ensure funds are successfully sent to the seller (as well as to their own account). The result? There is little they can do to intervene and insulate a seller’s payment experience when issues arise with the payment provider, merchant acquirer, or payment networks. Marketplaces that wish to maintain control from outside the payment flow will need to work with a payment platform that’s purpose-built for issuing payouts. This model doesn’t settle funds on a per-transaction basis. Instead, the marketplace settles all transacted funds into an account with their payout provider. These funds are then independently sent to sellers to pay them for their products or services.
Decoupling the checkout transaction from the payout disbursement provides the marketplace with maximum flexibility and control over their treasury management, at the same time ensuring they’re abiding by PSD2 regulations.
By outsourcing payments to a platform that can handle the entirety of the payouts process with all its regulatory nuances, fast-growing marketplaces can focus on scaling their core business rather than getting tangled up in the web of regulation.
Partnering for growth
With the right partner, marketplaces can take advantage of the opportunity uniquely afforded to them with the coinciding rise of sharing economy platforms and the ensuing “on-demand mentality”.
Securing the right partner will help growing marketplaces manage the flow of funds and regulatory compliance while additionally providing a seamless experience for sellers and paying out to sellers without delays or high fees.
And beyond that, the right payout partner can enable global growth plans. Hyperwallet’s 2019 Marketplace Expansion Index provides marketplaces with analysis and ranking of countries showing their international expansion viability, which takes into account factors such as infrastructure (including digital payments capabilities), workforce, market size and foreign competition like dominant incumbents.
Simon Banks is the director of Asia Pacific at Hyperwallet, a PayPal service.