In the current era of the internet, we tend to shop online more often than ever before. We can attribute it to the fact that it’s infinitely easier to compare products from different sellers this way.
As a result we tend to shop at online marketplaces that connects providers of goods or services with clients. Businesses have much easier time acquiring customers that way and clients can find shops with best reviews, without a risk of getting tricked into a bad deal.
Marketplace Business Model
In this new world of centralised sales, we can distinguish two main approaches of conducting business. Marketplaces either act as brokers, charging providers commission for its services or they act as a final sellers, adding markup to vendors offer.
In a broker system, marketplace works as a marketing company. It charges vendors commission for each generated sale. Payments are either processed directly between sellers and buyers, or third party payment provider is being used.
In most countries, in this system, marketplace can’t really process payments directly, as an intermediary, unless it obtains a finance license required to do so. Therefore in order to process the payments through the platform, third party payment processor organization is needed.
In this scenario, responsibility for defective products can be shifted to actual sellers, since marketplace acts merely as a sales platform.
When marketplace acts as a distributor, it effectively buys goods or services from its vendors and sells them for a profit to its clients.
It’s the most traditional business model. Payment processing in this scenario is easy and can be simply done by a platform itself. All purchases from sellers can be deducted from marketplace income and all sales can be considered a revenue. Businesses operating according to this model can generate much greater revenues, since all operations are going through their books.
It’s also worth noting that marketplace takes all responsibility for defective products on itself, since it acts as a distributor.
Most Popular Payment Methods
Depending on the country, different payment methods and providers might be used. To simplify the current state, let’s go through some of the possible payment processors, depending on a marketplace business model.
Selected payment processors in the broker model:
Selected pay-in methods in the distributor model:
Selected payout methods in the distributor model:
Serving global audience is never easy. Different countries use different currencies, they have different cultures, languages and often different local payment methods. Nevertheless some provider tries to reconcile all of those obstacles.
PAYPAL FOR MARKETPLACES
Once again, international SWIFT wires are the easiest and most accessible option to use. The cost of a transfer is going to be a factor when deciding whether to use this method or not.
WIRES, ACH CREDIT, CHECKS
When it comes to accepting payments, the easiest way is to just accept bank-to-bank solutions. Paper checks, ACH credit, and wire payments are easily available. Despite availability, the time and cost involved in processing might be a serious issue.
ACH CREDIT TRANSFERS
This is one of the easiest ways of sending money electronically. Unfortunately, US banks charge high fees for both sending and receiving it. For that reason, they should be used only when transferring large amounts of money.
Using checks is one of the simplest ways of transferring money in the US. Unfortunately, it’s slower and more troublesome than other methods.
Within the European Union, the SEPA wire transfer is all you need when it comes to payouts. They are fast, usually same-day, and often free, even for international transfers.
Bank transfers are a free and fast method of sending money in the UK. They are accessible to everyone and easy to use. It’s the most convenient method of accepting large payments in a distributor model.
When it comes to payouts within the UK, wire transfers are really all you need. They are free, fast, and easily available. They will allow you to pay anyone in the United Kingdom.
When choosing your payment processor partner, you should check their reputation before you start working with them. Even some of the biggest providers can have terrible reviews.
For these reasons, it might be wise to keep your payment implementation generic so that it will be easy to switch providers if you happen to get shut down overnight.
If the problem isn’t solved, they might dispute this card transaction with their bank. If the financial institution finds that the customer was right, the money for this transaction is taken out of the seller’s account. Payment processor companies don’t like chargeback disputes because they are liable for all reimbursed transactions. Therefore, they are quick to drop high-risk merchants.
Such risk doesn’t occur when accepting wire transfers. Therefore, wire transfers may be the safest method when accepting large payments.
Local Is Often Better
Because of problems that might occur when cooperating with payment processor companies, it might be better to work with local providers. Compared to foreign-based providers, local companies often offer better cooperation, easier communication, and more trust in you.
Additionally, in case of serious problems or losing access to your money, it is always easier to start legal action against a local company than a foreign organization.
Alternative Crypto Method – USD Coin
Cryptocurrencies are becoming increasingly popular, though they are still not a common choice for online payments. Because of serious price fluctuations and volatility concerns, most cryptocurrencies are not suitable for day-to-day financial transactions.
Still, it might be worth looking into stable coins. One such example is the USD Coin (USDC). It’s an Ethereum-powered coin that is redeemable with USD at a 1:1 ratio.
It can be sent quickly and inexpensively anywhere in the world, which is a clear advantage that makes it a perfect alternative to the slow and often expensive international transfers.
For these reasons, an alternative cryptocurrency approach might not be ready for prime time just yet.
Simple Marketplace Payment Implementation
With all the information presented so far, let’s go ahead and create an actual marketplace for demonstration purposes!
It will be a simple, generic marketplace, using distributor business model. We will adapt it for US market, but it could be easily accommodated to work with other countries as well.
As a payment method, we will accept:
– ACH credit transfers
– Wire transfers
– Credit and debit cards using Stripe
Stripe was chosen as the payment processor because it’s available in many countries, its developer guide is great, and it takes just a few minutes to create an account. As a result, their services are easily available to a wide range of potential users.
As a payout method, we will simply use ACH payments, which – as mentioned before – can be easily provided by banks or TransferWise.
The marketplace supports admin users that are able to issue invoices and payouts. They also have access to the dashboard, where they are able to see the list of transactions and search through them. At the top of the dashboard, you can typically find a financial summary of all transactions.
Guest users have access to the landing page and are able to view and pay invoices as well as view payouts.
Upon activating the application, the user is prompted to create an administrator account. After that, they need to set up Stripe API keys and bank account details for ACH credit and wire payments.
At this point, we can start issuing transactions!
The administrator can easily create invoices and payouts from the dashboard. Information about them will be sent to a specified email address. Alternatively, an invoice or payout URL can also be shared manually with the recipient.
Customers can easily pay invoices using a debit or credit card. It supports 3D secure payments, which shields sellers from chargeback in the event that a stolen card is used.
This simple marketplace can be used anywhere where a distributor business model makes sense. Here are some examples of such businesses:
– Accounting services
– Marketing services
– Construction services
– Cleaning services
– Various B2B businesses
– Car rentals
– House rentals
Despite the simple design, it can greatly improve the lives of small business owners.
On the main page, we can see a list of all transactions as well as a table with a financial summary. From here, the user can add new invoices and payouts and edit the existing ones.
Once a new unpaid invoice is created, the client is presented with an option to pay either through a card payment or a bank transfer.
Card payment is a convenient way to pay the invoice. Once this option is selected, the user is presented with a dialog where they need to specify a few details and confirm the transaction.
PROCESSING CARD PAYMENTS
Once the card payment is confirmed, we need to wait until it’s processed by the payment processor. During this process, the invoice page is blocked with a spinner loader to indicate that everything is going smoothly and that the transaction will settle soon.
PAYMENT VIA BANK TRANSFER
If the client decides to pay with a bank transfer, they will be asked for bank account information, which should be sufficient to either send ACH or wire transfer. It can be easily copied with a button to the right in each row.
Invoices can be printed using the print button in the top right corner. It can be useful for accounting purposes or to execute a bank transfer in a branch.
Once an invoice is paid, the payment option is removed to avoid duplicate payments. A clear green status label is displayed.
The payout design is similar to the invoice. The status indicator and all the data are clearly visible.
Payouts can also be easily printed with the print button in the top right corner. Printouts can be used for documentation purposes.
As a database, it uses MongoDB. It’s a very popular NoSQL solution for storing documents.
On the UI side, it uses the Bootstrap library and SCSS for managing styles.
All the details are available in the project readme file so that it will be easy to deploy this application to production as well as continue development on your own.
The traditional online marketplace business structure is very popular because it provides a fast and safe shopping experience for customers. We can choose our approach from the two most popular models: broker or distributor system.
Depending on the country that you want to operate in, you can go with a payment processor that best suits your needs. In some cases, a bank account alone will be enough, but if you are catering to an international audience, you will need more payment options.
To kick off your journey with online marketplaces, you can use the basic implementation described in this article. I hope you will find it useful and that it will help you grow your business.