All is not well in ecommerce marketplaces. Battlelines are being drawn. On one hand the marketplaces, on the other their merchant partners, with the issue of payments processes the chief bone of contention.
This July, for instance, Etsy made the decision to withhold 75% of payments to merchants for 45 days in order to “keep the marketplace safe” and ensure sufficient cash for refunds. There was an immediate backlash from merchants, many of whom said they would go out of business under these terms. At the time of writing, Etsy is reconsidering its policy with a reduction in the amount of money required from merchants seeming likely.
How different things once were. Not so long ago marketplaces held all the cards. They had a plan and it was working. By delivering exceptional customer experiences and building a strong base of users, they knew that merchants would soon follow the money and join their platforms. That’s why there’s so much innovation in consumer-facing payments processes – from one click purchasing, to Buy Now Pay Later, to digital wallet payment options. In contrast, merchant-facing payments saw little or no innovation of significance. The customer was king, and merchants were largely taken for granted.
Etsy’s troubles show that times are now changing. The balance of power between ecommerce marketplaces and merchants is shifting, and ushering in some important changes to how marketplaces serve their partners.
The key change driver is simple: marketplaces are proliferating. According to one study, third-party marketplace sales will account for 59% of all global ecommerce by 2027 up from 56% in 2022, during which time first-party ecommerce sales will reduce from 44% today to 41%. From merchants’ perspective, that means a greater number of potential partners. And with choice comes power – with consumers spread over a greater number of sites, marketplaces will increasingly need to do more to attract the best merchants.
The mood music in the industry has shifted as a result. Marketplaces understand that more needs to be done to win merchants to their sites. And, while it will always be important to innovate around the consumer payment experience, canny marketplaces are looking for growth from improving their relationship with merchants, often by offering superior payment tools.
Key areas of differentiation are often the speed, convenience, simplicity, and efficiency with which marketplaces pay their globally dispersed merchants. For large marketplaces, enabling friction-free payments is relatively easy, although when the payment layers built up over years go wrong locating and fixing the issue can still damage reputations. For smaller marketplaces – think of those with a gross merchandise value of $250 million or even $500 million – who struggle to find tier one global transaction banks willing to onboard them, the current choices aren’t overly attractive. They face a choice of either committing considerable resources to a large internal payments team or stitching together a complex patchwork of payment service providers. Either way, the cost of transactions shoots upwards coupled to complexity.
Today, however, there’s a third option. Innovations in global payments processing and API-based solutions from fintech innovators are rethinking how a flexible and fast solution to international payments can be approached. A particularly important innovation is the emergence of the payments “curation layer,” which uses an API to unify global payments systems on a single platform. This approach moves the complexity of international payments away from the marketplace and enables them to access a full range of global payments tools through one dashboard and contract.
Significantly, payments curation services sit in the flow of funds. Unlike traditional payments systems that are commonly based on a network of networks with heavily intermediated transactions. Payments curation also accelerates payments processes and delivers economies of scale and financial benefits that can be passed on to merchants.
Finally, curation streamlines processes through a single platform, which improves overall accountability. With just one relationship to manage, any disruptions to the payments supply chain can be solved faster. As well as reducing downtime, this frees time and resources within marketplaces, which can be better spent on improving their sell-side offering.
In a crowded market, ecommerce marketplaces need to do more to win the hearts and minds of merchants. Those that can provide frictionless, easy-to-manage, and cost-effective global payments infrastructure will benefit from a significant differentiator.
