Jordan Graison, Head of Sales, Limonetik, talks about regulations, accountability, chargebacks and their impact on payments and marketplaces
The payment issue is undeniably tied to legislation. But how is it affected by all the marketplace turmoil? Considering the regulation puzzle and the challenge of accountability, have all the players involved in payment been dealt a fair hand?
Current situation in the midst of turmoil
Payments used to be simple: a value chain was established between buyer and seller and payment was a transaction between the two parties. Today, the marketplace model has caused disruption because the marketplace has become a middleman in the transaction. Granted, the marketplace system has been around for centuries. There is nothing surprising about a spot where sellers and buyers meet to exchange goods and services. What has changed is the context in which these exchanges are taking place: on an ecommerce platform, where cash is no longer used in the transaction.
Not only are products and terms of delivery so diverse, but marketplaces must also provide a payment service, because they bill on behalf of third parties. The transaction process involving a payment service provider (PSP) as intermediary between buyer and seller has changed. For instance, you have sellers A, B, C, etc. The payment method issuer provides the same function as before, for there is still only one buyer, but now several recipients are to be paid for the same transaction. How do you accommodate x number of different individuals, and therefore, x number of procedures and compliances?
A regulation puzzle
Payment gets complicated when a marketplace has to re-invoice everyone. This is actually right when the regulator steps in. Supervision is a real necessity: what happens if the middleman goes bankrupt? Payment Service Directives 1 and 2 (PSD1 and PSD2) are intended to monitor compliance and enforce the rules of the game – to strictly prohibit gaining profit and credit off the sellers’ money. So how does the market adapt?
The payment institution acts as a go-between, placing the funds in escrow, as in a real estate transaction. When an arrangement is compliant, the payment institution registered in an EU country, which in turn is monitored by the European Central Bank, protects the sellers and buyers. The marketplace can then choose to act as an agent or to register with regulators as a payment institution.
A regulation that seemed crazy in Europe ten years ago has gradually become a common standard. Use of an escrow account has become an international model. Just as no one can pay for an apartment with a suitcase full of banknotes, escrow is an accepted requirement in the world of online marketplaces.