Participants can quickly and easily enroll in the MarketPlace and begin accepting payments for their goods or services. The MarketPlace Payment Platform becomes the Merchant of Record. There are six major functional components to a marketplace relative to payments and payments monetization. MarketPlace Payment Solutions need to address all 5. 1-Easily create a merchant account when onboarding a new seller to the marketplace 2-Take a percentage of each transaction as a fee while the transaction is occurring 3-Accept payments in the marketplace any way possible but mostly via credit cards or Push Payments 4-Pay out to sellers, once the money has been collected and the marketplace has taken its share, via ACH/bank transfer (cost savings) or Instant Payouts For MarkePlace Platforms 5-Provide reporting tools for marketplace sellers 6-A simple non-obtrusive way to for the platform to monetize payments
1-How do MarketPlace Payments Work Let’s use Etsy as an example. Etsy offers artists, makers and entrepreneurs an easy way to sell their products. Etsy provides a platform that enable users to easily display their goods for sale. So a jewelry maker would upload photos of their creations, set pricing and shipping info and of course collect payment. Traditionally accepting payments would mean each Etsy user would apply for their own merchant account. This traditional need creates friction for Etsy clients. Many are unfamiliar with merchant accounts and the process of applying and providing supporting documentation is more hassle than having the platform is worth. Etsy and many other providers [PayPal was first] realized that if they could make payment sign up simple there would be much higher adoption rates. To that end Etsy has a MarketPlace Payment Solution. This means that Suzy Jones of ABC Jewelry selling handmade earrings can sign up with Etsy, provide some basic information [including bank account] and almost immediately be approved for accepting credit card payments. For every sale Suzy makes Etsy is acting as the Merchant of Record [MOR]. What does that mean?
2-How can I add a MarketPlace Payment Solution? It is important to understand that MarketPlaces are viewed as higher risk than a traditional single-location merchant. Fraud is a major concern as a bad actor on your platform could potentially charge customers and not fulfill the order, resulting in chargebacks and potential $ loss. This and additional fraud/compliance concerns ultimately mean that the MarketPlace platform is carefully vetted to ensure that fraud and reputational risks are mitigated. 3-What types of MarketPlace are good fits to easily monetize payments? For reasons mentioned above the best fits are: a-Physical goods: A jewelry platform or a PoshMark eg b-Services like a plumber or landscaper Platforms selling digital goods or offering a wide variety of services/products are unlikely to be approved. Stripe may be an option.
When evaluating solutions that address the 5 functional needs of a MarketPlace Payment solution the integration to the Payment Gateway plays a pivotal role in the MarketPlace’s success. The MarketPlace Payment Gateway must first and foremost allow for secure PCI compliant credit card data transmission. MarketPlace Payment solutions also must address:
The requirements above are all addressed during the integration with the Payment Gateway for MarketPlace partner. MarketPlaces make money in several ways but acting as the MarketPlace Merchant of Record or MOR is typically their largest revenue generator. If the actual cost to process payments is 2.6% then Etsy makes over 20 million dollars per year from their payments business [process over $2 billion per year]. This recurring revenue model is very attractive and it’s very easy to see why MarketPlace Payment Solutions are much in demand. Much of this article is from the vantage point of leveraging payments as a revenue driver for the platform. There are many businesses looking to aggregate like goods and create a marketplace. There are now platforms that let you enter this pace without having to create your own engine. www.Mirakl.com | https://www.newegg.com | https://www.izberg-marketplace.com are just a few.
Payment processing is inherently risky. Non-payment of fees, chargeback exposure and fraud are all areas where there can be potential revenue loss. In Etsy’s case as in most marketplaces, non-payment of fees is not an issue as the Etsy seller is funded the sale price less the 3.5% and per transaction fee. But you still have potential chargeback exposure. Someone buys earrings from ABC and upon receipt is not happy. If they can’t resolve with ABC they could initiate a chargeback. When that happens Etsy sees a debit to their bank account from their credit card acquiring bank. Etsy in turn would debit ABC Jewelry. If that debit was not successful, Etsy potentially eats the $ loss. This risk is fairly small, but certainly has happened. The fraud risk has the biggest loss potential. Someone applies to Etsy and sets up a bogus store. They have 100 stolen credit cards and place orders for fake goods. Etsy funds the fake business. Those stolen cards charges are all likely to come back on Etsy as the entity that loses the money. There are also compliance requirements. MarketPlace Payment Solutions must offer PCI compliant solutions and some are subject to obtaining a Money Transmitter License. Each MarketPlace is different and whether an MTL license is required should be given careful consideration. In addition to legal and risk mitigation concerns you also have the challenges of international payments and payouts. Most if not all payouts are done via the ACH network or the country equivalent when not in the US. Coupled with exchange rate concerns there is a LOT to have to manage. Lastly there is reporting. Every platform user needs to track sales and deposits [as well as IRS reporting needs]. This means there needs to be a user portal to reconcile these transactions. So the payment processing is only one layer of a complex system. This makes using pre-built Marketplace platforms like Mirakle much simpler. For first movers like an Etsy much of what they do has been built from the ground up. If you have ever done development than you know this takes SIGNIFICANT time and money. What took Etsy many months and a ton of money to create can now be implemented in days.
There are the usual suspects: Stripe | PayPal | Adyen [primarily European]. In each case the platform will have a flat rate charge for processing credit cards. Payouts are supported via ACH. Most of these platforms support multi-country payment options. All of these options have deep experience handling payments and depending on marketplace goals can be viable options. The issue is that a MarketPlace payment solution is potentially your biggest revenue generator. With Stripe etc you may find it difficult to get pricing that allows you to optimize revenue. By exploring other payment solution options you might be able to generate .30-.50% or more per transaction. When the MarketPlace is small this may not make a material difference but if volume grows this % variance adds up to a significant amount of money.
First some context: A MarketPlace, Etsy for example, allows disparate vendors a platform to list and sell their products. Many of these vendors are individuals. It would be very burdensome and in some cases impossible for each vendor to obtain/qualify for a merchant account. Etsy acts as the “master merchant”. Each vendor provides Etsy bank account details and when their goods sell Etsy funds them (less payment fees charged). Etsy has all the payment risk so chargebacks/disputes and fraud are their problem. As you can imagine this could present financial risk for Etsy and the payment processor behind Etsy. For this reason MarketPlace Payment Solutions are typically difficult to obtain. To qualify you should be selling physical goods that do not stray into the high-risk space eg cannabis.
As explained above a regular/traditional merchant account underwrites the individual vendor. This means personal and business info is collected and vetted. With a MarketPlace Payment Solution, the platform is underwritten and vetted (as well as the ownership)
Clearly defined fees and policies should be in place. When are you funded? Do you have to hit a $ threshold for payouts? Do they offer multiple payout option eg ACH, push to debit card?