The important role of the marketplace for online retailers

Marketplace for online retailers

This article highlights the role of the marketplace for online retailers, as well as the benefits of creating a streamlined approach between retailers, marketplaces and payment service providers.

Those who only think of the global marketplaces of American and Chinese operators are overlooking the opportunities that the business model offers medium-sized and smaller retailers. Merchants or service providers whose offerings complement each other can learn from the big players and serve customers better together rather than independently. 

Google and Facebook understood early that many people appreciate a single-contact point from which they can find everything they are looking for. Once customers have been lured in, it’s hard for them to get away again. This is why marketplaces are expanding faster than online trade overall, and providing fantastic opportunities, particularly for start-ups and smaller retailers or those looking to expand into new geographic markets. 

In Germany, for example, there are 73 large and small online marketplaces selling physical products, according to the business-information portal iBusiness. The UK, France, Spain and Poland also have significant players. “Alternative” versions have sprung up such as the classified ads and community site Gumtree, which was bought by eBay in 2005 and has since expanded to the US and is connecting local buyers and sellers all over the world. 

Enhancing the customer journey

Central to the marketplace model, regardless of their size, are processes that facilitate the customer journey at every step from browsing to checkout. Of course, the simpler and smoother this is for the customer, the more complex is the interaction between the retailer’s underlying IT systems, the platform and the Payment Service Providers (PSPs) involved. 

Theoretically, it has never been easier to enter online trade. Investments and fixed costs are marginal because everything is now available “on demand” or “as a service”. Digitalization even allows people to run an online business from their bedroom without renting a square metre of warehouse space, let alone going into debt to build up an inventory. 

The flip side to this is that an off-the-shelf web shop can get lost in the online traffic. Without intermediaries, without platforms, without online marketplaces and SEO knowledge, sellers would have limited chances of an acceptable ranking in the search-engine results. A single product in a single shop in the infinite expanse of the web is unlikely to be found easily. 

The notion of one-to-one marketing is a myth in most cases which is why retailers benefit so much from the marketplace model. This not only delivers all the infrastructure and processes but delivers a wide variety of customers too. Such is its success that a market is emerging in which well-frequented marketplaces with strong brand names are vying for tenants. If a retailer’s products are right and the prices are competitive, there is a good chance of piggybacking onto an established player. 

The Payment Services Directive (PSD2) also adds to the attractions for retailers — especially if they offer their goods across borders. It contains a huge package of regulations — to prevent money laundering and to protect consumers. While implementation requires a significant investment in time and effort, these are offset by rationalisation and value-creation gains that can be realised more easily if several or many smaller providers share a common infrastructure. A PSP can dock onto such a platform and provide a broad range of retail customers with a portfolio of payment types from all important sales markets. This minimises adaptation efforts and increases the conversion chances for customer enquiries from abroad.

Symbiotic relationship between marketplace and PSP

By co-operating with a networked PSP, smaller marketplaces can offer their retailers the optimal choice of payment methods without having to become financial services providers or fintechs themselves or acquire a banking license. In this division of labour, the software of the marketplace and the software of the PSP interlock. For each connected retailer, the PSP maintains a separate ledger account where it matches incoming payments and credit-card authorisations from a wide variety of sources against receivables. The PSP is also able to divide a customer payment among several sellers. 

This happens behind the scenes, so regardless of how many sellers’ products are selected and put in the shopping cart, the customer simply sees a bottom-line total. Large marketplaces such as Amazon set this up themselves, but smaller marketplaces should work with a payment specialist to make it happen. 

The digital marketplace is now an important part of omnichannel retail. It offers significant benefits for e-commerce companies and for buyers and sellers and considerable opportunities to increase cross-border sales. It underpins the new platform economy.

But it returns us to principles that pre-date the Internet and IT. The e-commerce pioneers, who prophesised a radical shake-up of business, ignored the complexities involved in transacting online, across multiple countries and jurisdictions. 

It cannot function without intermediaries, which make it easier for small retailers to be noticed and to ensure payment happens — between parties and between countries. To an extent at least, a digital marketplace will only be as good as its payment service provider.

Credit: Ralf Gladis, CEO, Computop