eCommerce

Places to sell: The guide to online marketplaces

September 2, 2020 4 min read

What are the marketplaces and why they are booming? Learn about the benefits of using marketplaces for your business and how the marketplace payments work.

Unlimint team
Your payment experts

by Marco Campos, Senior Sales Manager –  Brazil

Ever since there’ve been goods or services to sell, there’s been a marketplace – an opportunity for vendors and buyers to make a deal.

Amazon, eBay, and Alibaba are the first things that people usually associate with an e-commerce. However, when it comes to vendors, the size doesn’t really matter – there are hundreds of large global sellers as well as smaller businesses that have benefited from the marketplace boom. And no wonder. Marketplaces create a win-win situation by providing a wider choice of products for customers and facilitating vendors for selling online. 

What is an online marketplace? Participants and key players

An online marketplace is an e-commerce website, a mobile app, or both, where shoppers can buy goods or services from various third-party retailers. Marketplaces can sell anything to anybody while at the same time processing transactions and managing logistics. Because they offer real convenience to all parties, the number of marketplaces has increased dramatically over the last decade.

The biggest marketplaces of today are able to offer true convenience to shoppers as they have almost unlimited resources, technological capability, and huge potential. Amazon, the leading US online website, now maintains 56.1% of the segment’s traffic and continues to grow. Its biggest competitors, eBay, Walmart, Wish, Houzz are also increasing their delivery capabilities to better respond to a ‘super-high’ demand.

The trends have been changing over time, and now we see many adaptations of marketplace models. We can commonly categorize them into three main groups depending on the target audience: B2B (business-to-business), B2C (business-to-customer), and P2P or C2C (peer-to-peer or customer-to-customer), which now is on a boom for sure. Few people have not heard about Airbnb, Uber, or Upwork – the most popular P2P marketplaces worth billions of dollars.

Regardless of the type, the foundation of any marketplace is created by sellers, buyers, and a payment processing company.

Online Marketplace: How it works

Sellers

An effective marketplace allows sellers to create an account easily, make lists, and update their products. Such profile pages should have an interface like their own website and provide tools to upload and manage their products.

Whereas customers get a better service and product range, sellers have their own benefits. 

  • First of all, an extra channel to sell their products. Leading platforms have a huge customer base and are trusted by many people. Vendors who need to promote their listings can also buy sponsored product ads and even get opportunities for overseas sales.
  • Secondly, it is much faster to start selling on an online marketplace as you don’t have to build your own website. Once you have set up an account as a third-party vendor, you can list the products and manage them.
  • And lastly, you can operate 24/7 and not worry about time zones or trading hours.

Buyers

Buyers can search for a needed product in a sea of sellers and around an endless list of goods or services. The goal of any marketplace is to help visitors locate the desired product and convert them into purchasers. There are a number of ways to do so and attract more customers, including a great selection of products, superior customer support, fair prices, fast shipping, and more.

What do customers expect from a marketplace?

  • Better choice. Consumers don’t like having lots of apps or visiting multiple websites owned by different retailers. They are much more likely to use one website that hosts products from different stores. 
  • Competitive prices. One of the reasons why the biggest marketplaces can offer cheaper prices is the smart algorithms that predict how much products will be ordered in a particular region where they already have warehouses. 
  • Fast delivery. Once a customer submits an order, the marketplace routes it to the fulfillment center where the product is packed and then placed in waiting for delivery status. The full process can take several minutes from the moment a customer confirms an order. The shipping time largely depends on the destination, but the good news is that a customer can choose the shipping speed, i.e. have a Two-Day Shipping through Amazon Prime or choose a free shipment and have a standard delivery. 
  • Simple returns are among the main strengths of a successful marketplace. However, sometimes good support can solve a customer’s problem by quickly replacing the damaged items without arranging returns. 
  • Various payment methods. One of the tasks of a marketplace is to reduce friction in both selling and buying and create a convenient payment flow. Thus, customers can choose payment methods they are used to (such as PayPal), or methods that are available in their regions, i.e. local payment methods.

Marketplace payments in a nutshell 

Incorporating various payment systems is a basic feature of any marketplace. It would be impossible to handle transactions between vendors and customers without them. Online marketplaces need to have split payment functionality. It means that a customer can collect products from different vendors and then make one payment that is automatically divided among the vendors. From the customers’ perspective, the shopping experience doesn’t change at all as they smoothly proceed to checkout after they’ve reviewed items in a Shopping Cart. 

How this payment solution works:

  1. A customer completes a transaction.
  2. The payment provider (or acquirer) withholds the fee.
  3. The marketplace withholds commission according to the category and/or product.
  4. The net value is divided between sellers. In most cases, the net value stays frozen until a product is delivered to guarantee chargeback costs or cancelations.
  5. After the above-mentioned steps are completed, the net value is released and sellers receive payment.

Conclusion

An online marketplace is a great green-field opportunity for retailers. Whether it is clothes or food delivery services, an e-marketplace connects vendors and buyers in a more effective and convenient way. Vendors can have access to a greater volume of traffic, outsource secondary tasks such as payment process, logistics, and advertising, whereas customers can get fair prices, better choice, and great customer service.   

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