New research from Edgar, Dunn & Company, commissioned by SafeCharge, the payments services partner, has revealed the challenges inhibiting the growth of marketplaces and calls for fintech innovation to address them.
The report 'Marketplaces Best Practices for a Successful Payments Strategy' also identifies solutions to address the specific needs of the marketplace business model.
Marketplaces are seeing unprecedented growth. According to a study from the Ecommerce Foundation, almost 40% of the world's online retail market will be controlled by marketplaces by 2020. Despite this accelerated growth, the report argues that marketplaces face complex challenges that traditional payment solutions cannot solve.
"As the marketplace sector matures and scales, it has become clear that the payments technology required to keep these businesses running has not," said Pascal Burg, Director Edgar Dunn & Company. "From seller onboarding to regulation and fraud, marketplaces across Europe and beyond are constrained and inhibited by existing systems. The fintech sector needs to rise to the challenge and deliver the technology to enable these businesses of tomorrow."
Unlike for traditional ecommerce merchants, marketplace payments involve three parties, sellers, buyers and the marketplace. This difference creates complex challenges when it comes to payments:
- Seller Onboarding – A regulated process with multiple potential areas of friction that would discourage sellers to register with the marketplace
- Regulation – The coming EU's Payment Services Directive 2 requires any intermediary holding funds between a seller and a buyer to have a payment institution license
- Pay-in – A critical component of any business, buyer payment experience, payment method offering and conversion must all be solved
- Split payments – Both for marketplace commission and where a single checkout experience involves multiple sellers, the transaction needs to be split between several parties. Funds are withheld by payments provider in escrow to assist marketplace with gaining buyers and sellers trust
- Pay-out – A marketplace's pay-out process is vital to keeping sellers engaged and loyal to the platform. Challenges include frequency, delay and cost Fraud – Marketplace platforms have become increasingly attractive to fraudsters and are exposed to fraudulent activity that can be difficult to detect
"New business models, such as marketplaces, demands a new approach to payments. Money flow is shifting from one-to-many to many-to-many, as consumers flock to marketplace platforms where they can buy goods from a universe of different sellers.," said Yuval Ziv, COO at SafeCharge. "The research demonstrates that fintech isn't meeting the needs of marketplaces today. In the coming days we'll be revealing an innovative solution which addresses these challenges for marketplaces while enabling them to remain in full control of operations."