Where do people go to buy stuff online these days?
Do they carefully research, find the producer’s homepage and place their order in the official online shop? Or do they head straight to a big marketplace, like eBay or Amazon, and use the search option to compare the options available first?
The answer is: both.
But the second behaviour is way more likely to occur on a daily basis.
The Evolution of the Market
There was a time, long ago, when tradespeople and their clients gathered once a month or a week (in larger settlements) to buy and sell various products. Now marketplaces exist online, twenty-four hours a day.
Yes, things have changed a lot, but they are not THAT different. Customers always flock to places where there is a choice. A choice when it comes to pricing, a choice when it comes to products. And so, there is a future for digital marketplaces. It’s simply written in the stars.
As you have probably noticed for yourself, it’s not every day that you have the time and enthusiasm for checking out numerous retailers spread around the web.
Our time is scarce after all.
Let’s say you need to make a purchase, and you’re not really even sure what you need. And you don’t want to pay too much for the thing that can be bought for a lower price, do you?
What usually happens is that you end up browsing through billions of products on one of the market giants’ pages.
You rarely leave disappointed.
The Blueprints of a Marketplace
The marketplace business type is nothing more than using in practice the model we were talking about last time. (Read our previous blog post about third party processing.)
Most often the term indicates a service that helps people sell their products and services to others, and, of course, make money from those sales. The most popular portals of this type are eBay and Amazon. (There are also ones that are popular locally, like, for instance, Allegro in Poland.)
The aforementioned pages, most recognizable for both consumers and merchants, offer a vast range of products. But there are also some smaller marketplaces, concentrating on a niche, like selling handmade goods, shoes, computer parts etc. In case of this type of marketplace we have a wide choice of a specific type of products. Among the most widely known examples you’ll surely recognize, e.g., Etsy selling vintage crafts and DIY items.
Before deciding on the marketplace to sell products on, the merchants have to think through their audience and company’s infrastructure. Selling there is much more than just posting new products all the time! If merchants decide on a few selling platforms, there has to be an inventory management system in place, and they have to keep in mind the different sets of rules for how you are allowed to list your products. Every marketplace varies here a little. There are differences in categories, requirements for product details and so on.
So You Are Starting Your Own Marketplace
Yes you are! (Only for the purposes of this blog post for now, don’t worry.)
Let’s see. While planning out your business, what are the main areas of your interest, when it comes to money changing hands?
Generally, marketplaces have to deal with all of the issues we mentioned earlier, while we dissected third party processing.
A quick reminder:
- third party processing takes place when you get payment on someone else’ s behalf and pass it on; it’s not legal, as it creates fraud risks;
- if the acquirer of PSP does not have a direct connection with parties processing the payment and getting the money, it has to be created somehow. MasterCard and Visa do not authorise third party processing in their regulations;
- merchants can’t sell things that are not in their possession or services performed by anyone outside their company; they have no influence over such product or service, which means they can’t take any responsibility for it; there’ s no chance of getting this activity authorised by card institutions;
- you’d be setting yourself against the law if you used third party processing in your business without having a payment institution license, which also means being a regulated financial entity.
You have to find a way to take care of these matters and stay on the safe side, if you want your endeavour to be success. It’s possible, and some very popular companies (like Uber) use this model. If they can do it, you also can do it!
How to Make Things Work Smoothly
First of all, you need to eliminate the possibility of money laundering or any illegal activities. In this business model you have to take the same approach as with the 3rd party processing. And what I mean by that is that you have two options: either you become a regulated payment institution, or make arrangements for your company to avoid the funds that belong to others. Your platform may not process this money. What’s more, you can’t take any responsibility for the product itself, as it’s not yours, it’s not you who sells it.
The best way to take care of things on the legal end is to ensure a direct relationship between the seller and the PSP.
This way your customers will always pay their contractors through the PSP. As the marketplace page’s owner you won’t come into possession of their money, which is precisely what we’re after: a payment made without engaging the platform as a middleman in the process.
What the marketplace itself may and should provide is a technology platform for selling and buying.
How will it earn money then, you could wonder. It’s possible for the platform to get payment for the service it provides through PSP or through commissions paid for every sold item. There’s also a possibility to collect funds directly from the seller, with a separate accounting document, e.g. an invoice.
For more detailed information – don’t hesitate to contact us! We’ll be delighted to guide you through the whole process.
Read more: Third Party Processing