Online marketplaces have become the beating heart of e-commerce, enabling customers and sellers to connect in ways previously unimaginable. From global-spanning corporations to niche providers of specialised services, every marketplace requires an effective seller management platform to ensure its success.
The blog aims to explain the exact function of a marketplace, how they utilise payment systems, how sellers make their profits, and what a seller management platform does for all facets of the spectrum.
What is a marketplace?
Online marketplaces serve as intermediaries connecting consumers and sellers within a unified, platform-branded space. Many people use marketplaces, including Amazon, Etsy, and eBay, daily without thinking about it.
Unlike traditional e-commerce websites that directly handle buyer payments, marketplace owners are responsible for processing payments. They earn a commission on each transaction. This approach increases retailers’ and sellers’ reach and creates a diverse ecosystem with multiple vendors. It becomes a hub offering various products or services, creating an expansive and diverse consumer shopping experience.
The role of marketplaces is becoming increasingly pivotal in our digital age. By 2027, third-party sellers through marketplaces could account for 59% of global e-commerce sales.
What payment methods are used in marketplaces?
Marketplaces accept a diverse range of payment methods, but the most common are:
Credit and debit cards
Cards remain the most ubiquitous way people pay online. It stands to reason any marketplace worth its salt would accept card payments. These can be further modified by implementing recurring payments, instalments, or split payments.
Digital wallets
Digital wallets are increasing online, improving customer experience through one-click purchases. (Pismo has written on digital wallets’ benefits and increased adoption.)
Prominent digital wallet providers include Apple Pay, Google Play, and PayPal. These are integrated into the checkout process, with consumers redirected to apps or pop-ups to authenticate themselves.
Localised payments
As mentioned, marketplaces can exist as globe-spanning operations or smaller regional hubs. In the latter case, catering to local payment preferences makes sense. This could include bank transfers, direct debit, cash on delivery, or prepaid cards.
It’s essential for a marketplace to offer flexibility to both the end purchasers and the hosted sellers and a straightforward processing procedure to ensure payments are streamlined, no matter the method.
How do marketplaces process payments?
In traditional e-commerce, the payment process is straightforward: money is transferred between buyer and seller using a payment gateway and acquirer. The flow for a marketplace is slightly different depending on the method used.
Split Payments
Marketplace split payments offer revenue-sharing and facilitate transparent distribution among multiple transaction participants. With streamlined transactions and automated fund allocation, scalability is enhanced, enabling the efficient onboarding and management of many sellers. How it works:
1. Buyer makes a purchase
When a buyer initiates a transaction, signalling a purchase within the marketplace.
2. Marketplace calculates the distribution of funds
The platform assesses the total transaction value and determines how the funds will be distributed among involved parties.
3. Payment is executed, deducting fees or commissions
The payment process is initiated, with the platform deducting any applicable fees or commissions to cover transaction facilitation.
4. Funds are allocated to the respective parties
Following the deduction of fees, the remaining funds are allocated to the relevant entities, such as sellers and the marketplace itself.
Commissions
1. Marketplace charges a commission or fee for facilitating transactions
The platform imposes a commission or fee structure to facilitate transactions.
2. Commission percentage or amount is applied to the total transaction value
The commission is determined as a percentage or a fixed amount applied to the overall value of the transaction.
3. The marketplace deducts the commission from the payment received
Upon receiving payment from the buyer, the platform deducts its commission before further distribution of funds.
4. The remaining funds are allocated to the seller or service provider
After the commission deduction, the balance is allocated to the respective seller or service provider.
Commission can be collected in three main ways:
- Fixed commission
A predetermined, flat fee, ideal for low-value transactions - Variable commission
The rate is chosen by percentage of the transaction value. More product categories or sellers means more variation in percentage calculation. - Compound commission
A combination of the above. A fixed fee on top of a variable percentage. This ensures the marketplace has a steady income from sales.
Balance Transfers
1. Marketplace maintains a balance for each seller
The platform keeps track of individual balances for sellers or service providers based on their sales or earnings.
2. When a seller generates sales or earns funds, their balance increases
With each successful sale, a seller’s balance experiences an increment.
3. Sellers use their balance to make marketplace purchases or withdraw funds
Sellers can utilise their marketplace balance for internal purchases or withdraw funds to their designated external accounts.
4. Funds moved from the seller’s marketplace balance to their preferred payment method
Sellers can transfer funds from their platform balance to their chosen payment method, streamlining access to their earnings.
Payouts
1. Transferring funds from the marketplace to sellers or service providers
The platform initiates funds transfers from the marketplace to individual sellers or service providers.
2. Payouts are scheduled daily, weekly, or monthly, or sellers request manual payouts
Payouts are scheduled based on the platform’s policies, ranging from daily, weekly, monthly, or even allowing sellers to request manual payouts.
3. Payouts are manual or automatic, transferring the seller’s earnings to a chosen payment method
Marketplace operators can opt for manual or automated initiation of payouts, directing the seller’s earnings to their specified payment method, such as a bank account or digital wallet.
4. Applicable fees are deducted
Deductions may occur during payouts, accounting for relevant fees or ensuring compliance with minimum balance requirements.
What is seller management, and how does it work?
Seller management solutions are designed explicitly for marketplaces, crowdfunding platforms and models that need to handle payments between multiple parties. They are built to handle the complex interactions between sellers, buyers, and central marketplace owners with scalability, flexibility, and straightforward processing.
Pismo provides a market-leading seller management platform proven to provide next-generation processing capabilities. It is tailor-made for ambitious marketplace providers looking to take the next step or established organisations seeking greater efficiency.
Pismo’s all-in-one platform was designed as cloud-native from the very first second. API-focused and built around microservices allows gradual deployment of new features and easy integration with other systems.
What does Pismo’s seller management platform offer?
Pismo’s seller management platform offers a comprehensive suite of capabilities, including:
- Unified vendor and buyer management:
Seamlessly manage vendor and buyer accounts on a single, intuitive platform. - Transaction handling across models:
Effortlessly handle transactions from on-us and off-us transactions, ensuring swift and accurate settlements - Customised seller records:
Add any identifying information to your seller’s record, creating a comprehensive and personalised database. - Flexible fee structures:
Register and manage sellers with dynamic fee structures, offering flexible or fixed rates. - Split payments capabilities:
Enable split payments, allowing seamless transactions involving multiple sellers with diverse payout requirements. - Channel-specific seller management:
Tailor conditions for each channel, providing a nuanced approach to seller management. - Receivables advancement with variable interests:
Offer innovative receivables advancement options, complete with charging variables and interest customisation. - Innovative settlement schedules:
Introduce a sophisticated settlement schedule with rules based on different days or hours, providing unparalleled flexibility. - Diverse settlement options:
Settle transactions through regular bank transfers or leverage Pismo-processed accounts for efficiency. - Front-end capabilities:
Manage sellers effortlessly with user-friendly front-end capabilities, easily overseeing schedules and settlements.
Experience the power of Pismo: discover our seller management platform today by downloading our product briefing.
