Marketplace payments: everything you need to know
The rise of online marketplaces
Marketplaces have acted as the backbone of commerce for thousands of years. Istanbul’s Grand Bazaar is recognised as the oldest market still operating today (construction began in 1455), and the first markets are said to have started in ancient Babylonia around 3000 BCE. And physical marketplaces – where people connect, trade, and spend time with strangers and friends – are still going strong.
In today’s digital world, online marketplaces are becoming more popular. These digital hubs act similarly to their physical counterparts, connecting consumers and sellers and powering trade. And shoppers like them, with research revealing that 50% of European consumers use online marketplaces and that their value grew by up to 50% from 2020-21.
If you’re starting a marketplace or already operating one, the potential is huge. But as well as thinking about how your marketplace works, you need to think about your marketplace payment system. And there’s a lot to consider – splitting payments, regulatory compliance, know your customer (KYC), and more.
In this article, we’ll explain how payments for marketplaces work, assess some different marketplace payment options, and help you discover the best marketplace payment solution for your business.
How do payments for marketplaces work?
Marketplace and platform payments are different to a normal ecommerce payment flow. When a buyer makes a payment on an ecommerce website, the money goes from the buyer to the seller (though there’s more going on behind the scenes, involving payment gateways, acquirers, and others).
In online marketplace payments, you’re acting as the connecting platform for the buyers and sellers – and often making money by charging a commission on the transactions between them. You can do this in several ways.
By using wire transfers, you are in charge of accepting and redistributing payments. This usually means getting funds via direct bank transfer. Though this might be a viable option for a marketplace that is just starting, it comes with a range of drawbacks.
– Fees for users: With wire transfer payments, the person who begins the transaction usually pays a large fee.
– Processing time: Wire transfers can take several days to complete. This can cause cash flow issues for your business and create problems for your sellers and their customers.
– Security and compliance: Wire transfers don’t offer fraud protection or the ability to complete reversals and chargebacks. Wire transfers are also not subject to the checks that prevent money laundering and other illegal financial activities.
Creating an online marketplace payments solution
It is possible to create your own marketplace payment gateway. This custom solution will undoubtedly have all the features and functionalities you desire but comes with some considerations.
– Development time: Creating a custom payment solution for your marketplace will likely take several years.
– Security and compliance: A specific licence is required from the regulator to qualify as a regulated business. Getting these licences is a complex and lengthy process. In the EU, regulated companies must comply with the Revised Payment Services Directive (PSD2).
– Costs: Developing your custom-built solution will be expensive and usually require you to hire people who can ensure things run smoothly.
Use a marketplace payment provider
This is the preferred option for most marketplace operators. Partnering with a specialist to care for your marketplace payment processing offers a range of benefits to your business. These include:
– Easily offer multiple payment methods: The best marketplace payment gateways companies allow you to accept leading online payment methods quickly and even guide you to find the best payment options for your marketplace business.
– Easy integration: The best payment service providers (PSP) allow you to integrate their payments solution into your system with little work. That means providing clear documentation and offering technical support when needed.
– Compliance: As a licensed PSP, your chosen payment processor will control the funds, minimising the financial risk for your platform, as well as for your marketplace sellers and their customers.
– Security: The best payment gateways for marketplaces also help provide a range of tools to help offer secure payments and prevent fraud.
– Lower fees: Using a marketplace payment platform will help control costs, as good processors should offer consistent fees and transparent pricing.
– Local support: Navigating payments can be complex, so a good payments partner should offer local support teams that mean you can speak to someone whenever you need help.
These are all features that any good PSP should offer. The best payment partners also provide advanced features that can help any single- or multi-vendor marketplace excel. This includes advanced features that can take care of onboarding and multi-split payments.
When choosing a single- or multi-vendor marketplace payment gateway, think about these things:
– Do they have expertise in my market/markets?
– Do they provide the payment methods my sellers need?
– Can they scale with my marketplace?
– Do they offer transparent pricing?
– Do they offer advanced features?
What are marketplace split payments?
If you’re running a multi-vendor marketplace, you will have multiple sellers. That means shoppers on your marketplace might want to purchase goods or services from various vendors, creating a basket of products from different sellers. After they pay, you have to distribute the funds to the sellers and take your commission if required.
This is where multi-split payments can help. If you work with a PSP, they should take the total amount from the consumer and split it between each seller and your business. You can see how this works in the image below.
Advanced PSPs also offer features that help provide a clear overview of payments made to you and your sellers, which can also be vital when managing refunds and payouts.
Know your customer (KYC)
Know your customer standards help financial service providers to protect against fraud, corruption, money laundering, and other illegal activities. They are used to establish a customer’s identity and activities and assess the risk that they are involved in unlawful activities.
Marketplaces in ecommerce and other verticals must complete KYC processes whenever they onboard a new seller. Managing this process can be costly and time-consuming, and many marketplace operators don’t have the time or inclination to do this themselves. And the process needs to be simple for your sellers, who can drop out of the process if it’s too complex.
If you partner with a PSP, they should offer all the tools you need to help you complete these procedures effortlessly. Payment providers can offer different options for this, including:
– Automated KYC: This automatically takes care of all compliance requirements, so you don’t have to manually add sellers to your platform.
– White-label: You can add your marketplace’s logo or branding to the PSP’s onboarding process.
A good payment partner might also offer pre-KYC, which means your sellers can already start selling without completing the full KYC process.
The best payment methods for marketplaces
Credit cards, wallets, locally relevant methods – an array of online payment options are available to your marketplace. Like other online businesses, you need to offer payment methods that consumers – or your sellers’ customers – prefer. That means leading and local payment methods relevant to them, including card schemes, market-specific bank transfer methods, and wallets.
Working with a reliable payment provider helps you integrate these payment methods easily into your marketplace and create a seamless checkout experience for shoppers. They should also offer guidance about how you can use payments to grow. Find out more about the best payments strategy and options in our payment method guide.
Perfecting your marketplace payments
There is a lot to think about whether you’re a single-vendor marketplace or working with multiple sellers. But as the world moves online and marketplaces evolve, the basics remain the same: provide a positive experience for sellers and their customers to boost trade.
Creating the correct payments infrastructure might not be easy if you’re working alone, but partnering with a specialist can help you onboard your sellers, remain compliant, and provide an effortless payments solution. It also means you have more time to focus on growing your marketplace, knowing that your payments are in good hands.
Meet Connect for Platforms
At Mollie, we make marketplace payments effortless with Connect for Platforms – the fastest and easiest way to accept and integrate leading and localised payment methods on your marketplace. It also ensures you’re always fully PSD2 compliant.
Connect for Platforms also offers advanced features that enable you to automate and white-label onboarding for your sellers, process split payments, and easily manage refunds. We offer all this with transparent pricing, a powerful dashboard to help manage payments and refunds, and human support that speaks your language. Learn more about Connect for Platforms with Mollie.