Having witnessed the success of Amazon, Uber, Airbnb and Deliveroo, many businesses now want to create their own marketplace equipped with an efficient and global payment platform – a tempting but expensive business model, difficult to set up and risky. Do not underestimate the complexity of what should be considered a full-fledged business project.

Marketplaces were born out of the so-called platform economy. This new form of commerce first appeared about twenty years ago, just after the explosion of the Internet. One of the most famous examples, Amazon, was created in 1994. This brand built an empire, and so did AliBaba, born a short time afterward, in 1999. Over the last few years some of them have adopted payment platforms to simplify flow management. Alipay did for AliBaba what PayPal did for eBay in 1998. Their objective was to protect all stakeholders from disputes, whether it be vendors who needed reassurance of getting paid, or buyers who wanted to be guaranteed that the products they purchased were the ones they ordered on the platform. Finally, the 2010s saw the arrival of Airbnb, Uber and, especially, Deliveroo with a business model that relies entirely on an industry-specific platform.

Marketplaces, the new trend to do Business

The emergence of marketplaces is a basic trend stimulated by an increasing demand from buyers attracted by greater choice at a one-stop shop with competitive prices. Their model is also going through a major evolution from a B2C to a B2B relationship, thus lightening the load for a business’s purchasing department. By creating your own marketplace, you can offer more products and/or services while reducing costs, inventory, and flow. According to iBe TSE, a pan-European consultancy for financial services organisations, 70% of transactions by 2024 will be carried out through a B2C marketplace.

In terms of opportunities, a company switching to an efficient marketplace model can hope to retain more buyers who are looking for the simplest possible buying experience, whether in terms of product search, transaction, or delivery. A marketplace model that allows you to recruit multiple vendors and widen your product offering, will greatly increase customer satisfaction and the number of transactions, and generate more cash receipts. Finally, the marketplace model helps a business take off internationally. But beware – do not grow your business to fast!

What to bear in mind before creating a marketplace?

Creating a marketplace involves taking on some challenges, some big ones! The first is managing payment, which must be reliable to a maximum. Collecting transactions requires compliance with several rules that involve the mandatory auditing of vendors. When collecting money, businesses must honour the rules of every country. This regulatory component however can be restrictive depending on the geographical area. For example, Europe requires approval from a central bank in an EU member state. This gets complicated especially when you represent more and more vendors operating on your platform. Along with that, the proliferation of buyers poses a few problems such as managing the payment methods – which vary according to each country – and dealing with the risk of fraud.

Highlight on legal and economic risks of a marketplace

Brands often get bogged down by installing mixed solutions that do not work well or even at all. Not only do they underestimate the issues and impacts of such a project, these businesses rely on payment service providers who often do not clearly explain all the issues with third-party collections and risk management. A business may wind up assuming the financial liability for the payment methods or even be responsible for account reconciliation (necessary for the business model to be viable) and handle requests for outgoing payments to vendors. This exposes the company to legal and economic risks. So, it is not uncommon to see companies go bankrupt because they have mismanaged the payment methods.

Recommendation and Tips for marketplace

Above all, remember that a marketplace is a strategic investment. At Limonetik we recommend starting on a limited scale before expanding and seeing big. The brand must set realistic goals and constantly question their business model to make it profitable within a restricted perimeter before expanding it.

Secondly, it is essential to “challenge” the provider by asking, “Who is responsible for collecting payment?”, “Do I have to change my ERP?”, “Who is in charge of auditing the vendors?” and so forth. If the provider is unable to comply, costs may skyrocket. In other words, the brand should only trust companies with a proven track record who have been working for a long time with the players in the payment chain, with financial and banking institutions, with members of payment networks and technology partners (processors and/or payment gateways). A provider must have a perfect knowledge of the regulations and rules of compliance for incoming payments (from buyers) and outbound operations (from vendors).

Innovative solutions do exist that integrate all the components of the traditional payment value chain but with value-added services such as account management, payment orchestration, marketplace fee management, and the rapid creation of vendor accounts. The provider must be able to take care of all stages of the project. A business must be able to focus on recruiting and promoting its marketplace to buyers and vendors.

 

Want to see a webinar on the subject ? Click here 

Having witnessed the success of Amazon, Uber, Airbnb and Deliveroo, many businesses now want to create their own marketplace equipped with an efficient and global payment platform – a tempting but expensive business model, difficult to set up and risky. Do not underestimate the complexity of what should be considered a full-fledged business project.

Marketplaces were born out of the so-called platform economy. This new form of commerce first appeared about twenty years ago, just after the explosion of the Internet. One of the most famous examples, Amazon, was created in 1994. This brand built an empire, and so did AliBaba, born a short time afterward, in 1999. Over the last few years some of them have adopted payment platforms to simplify flow management. Alipay did for AliBaba what PayPal did for eBay in 1998. Their objective was to protect all stakeholders from disputes, whether it be vendors who needed reassurance of getting paid, or buyers who wanted to be guaranteed that the products they purchased were the ones they ordered on the platform. Finally, the 2010s saw the arrival of Airbnb, Uber and, especially, Deliveroo with a business model that relies entirely on an industry-specific platform.

Marketplaces, the new trend to do Business

The emergence of marketplaces is a basic trend stimulated by an increasing demand from buyers attracted by greater choice at a one-stop shop with competitive prices. Their model is also going through a major evolution from a B2C to a B2B relationship, thus lightening the load for a business’s purchasing department. By creating your own marketplace, you can offer more products and/or services while reducing costs, inventory, and flow. According to iBe TSE, a pan-European consultancy for financial services organisations, 70% of transactions by 2024 will be carried out through a B2C marketplace.

In terms of opportunities, a company switching to an efficient marketplace model can hope to retain more buyers who are looking for the simplest possible buying experience, whether in terms of product search, transaction, or delivery. A marketplace model that allows you to recruit multiple vendors and widen your product offering, will greatly increase customer satisfaction and the number of transactions, and generate more cash receipts. Finally, the marketplace model helps a business take off internationally. But beware – do not grow your business to fast!

What to bear in mind before creating a marketplace?

Creating a marketplace involves taking on some challenges, some big ones! The first is managing payment, which must be reliable to a maximum. Collecting transactions requires compliance with several rules that involve the mandatory auditing of vendors. When collecting money, businesses must honour the rules of every country. This regulatory component however can be restrictive depending on the geographical area. For example, Europe requires approval from a central bank in an EU member state. This gets complicated especially when you represent more and more vendors operating on your platform. Along with that, the proliferation of buyers poses a few problems such as managing the payment methods – which vary according to each country – and dealing with the risk of fraud.

Highlight on legal and economic risks of a marketplace

Brands often get bogged down by installing mixed solutions that do not work well or even at all. Not only do they underestimate the issues and impacts of such a project, these businesses rely on payment service providers who often do not clearly explain all the issues with third-party collections and risk management. A business may wind up assuming the financial liability for the payment methods or even be responsible for account reconciliation (necessary for the business model to be viable) and handle requests for outgoing payments to vendors. This exposes the company to legal and economic risks. So, it is not uncommon to see companies go bankrupt because they have mismanaged the payment methods.

Recommendation and Tips for marketplace

Above all, remember that a marketplace is a strategic investment. At Limonetik we recommend starting on a limited scale before expanding and seeing big. The brand must set realistic goals and constantly question their business model to make it profitable within a restricted perimeter before expanding it.

Secondly, it is essential to “challenge” the provider by asking, “Who is responsible for collecting payment?”, “Do I have to change my ERP?”, “Who is in charge of auditing the vendors?” and so forth. If the provider is unable to comply, costs may skyrocket. In other words, the brand should only trust companies with a proven track record who have been working for a long time with the players in the payment chain, with financial and banking institutions, with members of payment networks and technology partners (processors and/or payment gateways). A provider must have a perfect knowledge of the regulations and rules of compliance for incoming payments (from buyers) and outbound operations (from vendors).

Innovative solutions do exist that integrate all the components of the traditional payment value chain but with value-added services such as account management, payment orchestration, marketplace fee management, and the rapid creation of vendor accounts. The provider must be able to take care of all stages of the project. A business must be able to focus on recruiting and promoting its marketplace to buyers and vendors.

 

Want to see a webinar on the subject ? Click here 


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