Launch your e-retail marketplace with the right PSP
Choosing the payment solution that will accompany the development of your marketplace has both operational and strategic implications. What to consider when launching your platform as an e-retailer? Mangopay has the answers.
As an e-retailer, launching a marketplace makes good business sense: it offers the possibility of reaching more customers, diversifying your catalog, and boosting brand awareness. Companies can leverage their existing e-retail site to meet these objectives for a fraction of the cost of managing additional inventory and logistics.
However, as third-party intermediaries, marketplaces have a different legal status to that of traditional e-retailers.
To accept and process payments on marketplaces, e-retailers can either:
- Apply to be a licensed third-party financial institution, and in effect become their own payment service provider (PSP). This is a lengthy and complex process that requires approval from local banking authorities.
- Contract a licensed PSP with relevant expertise and technology to guide them through the process.
More often than not, e-retailers enlist a PSP to anticipate their needs and overcome the challenges ahead.
Classic PSP vs Marketplace PSP
One of the main differences between operating a classic e-retail site and a marketplace model is the payment flow.
An e-retailer will sell its own inventory to multiple buyers, meaning that, once a sale is processed, the e-retailer is the sole beneficiary of all transactions.
A classic PSP is only responsible for connecting acquiring banks, card and payment networks and ensuring transactions are processed safely and securely.
In a classic e-retail scheme, all processed payments flow from the buyer to the e-retailer.
Contrary to e-retail sites, operating a marketplace involves complying with strict regulatory requirements and more complex payment workflows.
As third-party intermediaries, marketplaces connect multiple buyers and sellers, take a commission on the service they provide, but are not themselves the ultimate beneficiary of a transaction.
In a marketplace model, the role of a PSP is to ensure payments flow safely and smoothly from buyer to seller, and as a result, they need to be carefully managed.
Why choose a specialized PSP for your marketplace?
- Adapted payment flows
Every marketplace is different and requires unique payment flows. This means holding funds in an escrow account until the transaction has been completed, splitting payments among vendors, routing them to the different issuing banks, and taking commissions on behalf of the marketplace.
- Compliance on all levels
A marketplace PSP, like Mangopay, has an Electronic Money Institution license and is required by law to comply with the latest marketplace payment regulations, such as PSD2, PCI-DSS, and GDPR.
- Risk and fraud management
Marketplaces are responsible for their users’ activity and at risk of experiencing fraud which is damaging financially and reputationally. A marketplace PSP will help determine the best security and anti-fraud strategy with custom rules based on the payment flow. In addition, European anti-money laundering regulations require marketplaces handling funds to verify their users’ identities, a labor intensive task, which can be entirely shifted to a marketplace PSP.
- Operational gains
By outsourcing reconciliation and compliance, you will be able to fully focus on operating and growing your marketplace. E-retailers like Rue du Commerce, who initially opted to manage these tasks themselves, have reported saving days of manpower and yielded visible gains in their marketplace operations.
- Scaling your platform
A PSP specialized in marketplaces knows your platform will be a work in progress. If your aim is to expand your e-retail brand by diversifying, your PSP will accompany you in finding the right solutions and partners to continue scaling your business. PSPs offering a broad range of payment methods and currencies, and process pay-outs globally will prove precious allies in growing a business internationally. And of course, because attracting the best merchants is crucial to gaining the competitive edge, a PSP can help facilitate and automate the onboarding process.
Marketplaces are a real driving force for e-retailers, but to harness their full potential and ensure your platform experience is a success, it is essential to understand the crucial role a PSP plays in building a business.