There is no doubt that online marketplaces are the future of eCommerce – they currently account for 62% of all online retail globally. In addition, more than half of all online marketplaces were launched in the last seven years.
A recent study from Mirakl indicates that marketplace growth outperformed eCommerce growth in 2020 by 81% year over year.
Marketplaces are the high street of eCommerce, attracting millions of shoppers and providing sellers with access to larger customer bases. At the same time, traditional retailers such as Mango have begun to see the benefits too, offering product categories from other brands (in this case Intimissimi), because just like on the high street, merchants located among peers with similar target customers gain from increased footfall and brand awareness. In other words, location is everything!
However, online marketplaces are by their nature complex organizations, and as such they face more than the average number of pain points. Let’s look at a few of the problems commonly faced by marketplaces, and some examples of payment technology solutions to these problems.
Onboarding sellers to an online marketplace can be a manual and time-consuming process. Sellers must ensure that their inventory is listed correctly, while for the marketplace, KYC requirements are heavy because they are responsible for ensuring that all of their merchants are compliant. This process becomes even more difficult when recruiting international merchants because it requires knowledge of the nuances of regulatory requirements of additional regions.
If the onboarding process takes too long, the advantages of joining the marketplace for the seller could be negated, and they will look for an alternative marketplace that can get them up and running quickly, or even become competitors instead of assets.
Where eCommerce merchants must know their customers, online marketplaces must know their businesses. Mauro Stangalini, IT Project Manager at laFeltrinelli IBS, says: “The KYB process is a critical aspect in the strategy of a marketplace. Automatization and standardization of the KYB process thanks to a relevant partner is key to ensure efficient seller onboarding.”
Payment providers can automize the entire process, receiving and analyzing documentation from sellers and taking the logistic and regulatory burdens on for the marketplace.
Utilizing credit scores, documentation and rule-based engines to ensure due diligence, marketplaces and sellers alike can benefit from quicker time to market and confidence that the process has been handled competently.
Marketplace purchases often involve goods from more than one seller, so payments must flow in multiple directions and to multiple parties. It’s also true that sellers may lack the capacity to conduct their own accurate reconciliation processes. By utilizing a single payment provider that can supply optimized checkout experiences, split payment management and payouts, complexity is minimized and reconciliation errors avoided. It’s also vital that marketplaces have access to detailed, granular reporting, so that they can monitor and control processing costs. A good reconciliation system also needs to include currency management for cross-border transactions and split payments that divide and deduct commissions at point of order.
“Reconciliation could be compared to a bathtub with several taps and several siphons: the difficulty is to calculate the number of liters in that bathtub at a specific time, and whether each tap and siphon has been working as it should have.”
Laurène Lecomte, Head of Risk, Payments and Fraud at Backmarket
The importance of offering the appropriate payment methods cannot be overstated. Research has found not only that customers will abandon a purchase if their preferred method is not offered, but also that an unknown brand can gain credibility in the eyes of consumers just by offering a trusted payment method.
For online marketplaces that cover a range of industries and regions, offering all relevant payment methods is no small feat.
Given that marketplaces are most successful when they offer the payment methods appropriate to the regions in which they operate, the most efficient way to achieve this is to use a payment provider that has a wide selection of APMs. For example, Nuvei has more than 450 APMs in its database, covering all major regions and industries. Through one integration, a marketplace can allow its sellers to provide the appropriate payment methods, improving the customer experience and avoiding lost sales – research commissioned by Nuvei found that innovative payment methods such as installments and Buy Now Pay Later can increase conversion rates by as much as 30 points.
Pay-ins and payouts
One of the factors instrumental in the success of an online marketplace is its ease of payments. The checkout experience, the final step in a customer’s purchase, is a significant factor in deciding a customer’s ongoing loyalty. Thus, it is vital to make this experience as seamless as possible. Doing so requires offering relevant payment methods to each location, such as eWallets, mobile payments, installments (or ‘Buy Now Pay Later’), and, of course, credit cards. It’s also important to note that B2B marketplaces should offer different payment methods to B2C entities, such as offering financing options – in short, they must know their customers’ needs.
It’s also vital that payout services are optimized. Quick and easy payouts help to keep sellers using a given platform. There are many payout products available on the market, such as bank transfers, eWallets, and specialized services such as Mastercard Send and Visa Direct. Marketplaces should ensure they offer the appropriate options for their customers and sellers, ensuring that funds flow uninterrupted to where they need to go.
Online marketplaces often operate across regulatory jurisdictions and must be compliant in all of them – challenges include managing differing taxation requirements between Europe and different states in the US. In Europe, PSD2 presents a difficulty, requiring marketplaces to gain licensing to receive and store funds. Because of the resources required to do this, many marketplaces descope this to a third-party payment specialist, outsourcing compliance and reducing complexity for themselves. PSD2 mandates Strong Customer Authentication, an enhanced challenge flow designed to prevent fraud, which can make customer payment journeys less convenient. This is another area where there are benefits to outsourcing – for example, Nuvei’s Dynamic 3DS service maintains PSD2 compliance and optimizes conversions by identifying and utilizing exemptions to the 3DS2 flow.
Fraud and reputation
As online marketplace volumes have increased, so has their attractiveness to fraudsters. Citizens Advice, a UK-based consumer financial assistance network, found a 160% jump in reports of online marketplace scams since the first COVID-19 lockdown. This includes fake sellers, seller collusion, abusive behavior from customers, and identity theft.
“Payment fraud is now relatively well understood, and most merchants are now using some form of fraud prevention at the point of checkout. As a result, we are increasingly seeing fraudsters attacking other parts of the customer journey which are less protected – for example, over the last year there has been a significant rise in account takeover fraud, bot attacks, and returns abuse.”
Nir Maayan, Head of EMEA Analytics at Forter.
Customers tend to attribute their purchasing experience to the marketplace rather than the merchant from whom they purchased their goods. This means that a negative experience with a seller is likely to damage the marketplace’s reputation. For online marketplaces, this means they not only have to be careful about who they onboard, they must also be aware of everything that goes on under their rooves.
Marketplaces must practice proactive fraud management, meaning that their entire ecosystem has to be monitored to protect themselves, their sellers, and their customers from malicious actors. This can’t be done without innovation, and the best way to achieve that is to leverage the services of an innovative payment provider. For example, Nuvei uses AI tools that can learn to adapt quickly to potential threats, and a suite of chargeback services that effectively prevent friendly fraud and needless and expensive refunds.
“The goal for marketplaces is to replicate the frictionless shopping experience of eCommerce, taking into account the operator, the customers, but also the marketplace sellers”.
Antoine Deroche, Head of Solution EMEA, at Mirakl
Online marketplaces are a vital part of the global eCommerce landscape, and they require payment technology that can keep up with their growth in size and complexity. Research finds that the most effective way to achieve this is with a payment technology provider like Nuvei.
Nuvei, in collaboration with Edgar, Dunn & Company, has released a white paper entitled “The Evolving Needs of Today’s Marketplace: Leveraging payment technology as a growth catalyst”. It’s a comprehensive analysis of online marketplaces today, and how payment technology should be used to optimize their processes. Download it here.
For more information about Nuvei’s marketplace solutions, please don’t hesitate to contact me directly via LinkedIn.
|Marianne Salmans is the Vice President, Retail EU, Digital Payments at Nuvei, responsible for optimizing payment strategies for EU-based retail partners. With 14 years of fintech experience advising clients based in the US, APAC and Europe on their global payment strategies, she brings a wealth of insight and experience to the role. In her spare time, she enjoys golf, yoga, and travel.|