Marketplace Payment Solutions: Complete Guide

Marketplaces have been central to commerce for centuries, from Istanbul's Grand Bazaar to Barcelona's La Boqueria. The modern age, however, has moved marketplaces online.

These new digital marketplaces - Amazon, AliExpress, Etsy, the list goes on - connect buyers and sellers, just like traditional markets. As of April 2023, Statista reports that 35% of all online purchases were made on marketplaces. That’s more than double the 14% on direct-to-consumer websites.

Yet serving as a touchpoint between multiple sellers and customers may have its drawbacks. Managing payments for marketplaces is complex, involving both efficient pay-ins and payout systems. Here, we take a look at different marketplace payment solutions and what may be the best system for your marketplace business

What Are Marketplace Payments?

Marketplace payments refer to transactions on third-party platforms that connect buyers and sellers under one marketplace brand. These marketplaces can be general, like Amazon, or niche, like ASOS for apparel or Vinted for vintage and second-hand clothes.

How Do Payments for Marketplaces Work?

Unlike e-commerce sites that take payments directly from buyers, marketplaces interact with both buyers and sellers. When a buyer makes a payment on a marketplace, they pay the marketplace first. The marketplace then takes a commission and pays out the seller.

On the technical side, there are key differences as well. E-commerce websites require a relatively simple payment gateway. In contrast, a marketplace payment system must support features like pay-ins, payouts, commissions, and split payments.

Marketplace Commissions

Marketplaces usually charge sellers commissions for sold products or services. This fee covers the cost of providing the platform and connecting sellers with buyers.

There are three types of commissions: fixed, variable, and compound. Fixed commission is a set amount or flat fee per transaction, ideal for low-value sales. Variable commission is a percentage of the transaction value, like 5%. Compound commission combines both a fixed fee and a percentage-based fee on the transaction value.

The commission process generally works like this:

1. The marketplace charges a fee for facilitating transactions.
2. This fee, either a fixed amount or a percentage, is applied to the total transaction value.
3. The marketplace deducts the commission from the received payment.
4. The remaining balance is then paid out to the seller or service provider.

Marketplace Split Payments

Marketplace works with multiple vendors. This means a buyer can simultaneously add products from various vendors into their shopping basket - as they would do in a physical grocery store. Once the marketplace receives the total payment from the buyer, it should deduct the commission and then distribute the remaining funds to the respective sellers accurately and efficiently.

This is where split payment solutions come into play. They are crucial for marketplace payment systems, allowing automating the division between each seller and taking out your business commission.

Here is how split payments typically work:

1. Buyer completes a purchase.
2. The marketplace determines the distribution of funds.
3. Payment is processed, with fees or commissions deducted.
4. The remaining funds are allocated to the appropriate parties.

Marketplace Payouts

Payouts are the feature that is key to marketplace payment systems. They involve sending money from the marketplace to the seller’s bank account. The marketplace may set up a payout schedule, like weekly or monthly payout, or after the transaction is complete. It might also let sellers request a manual payout.

Marketplaces often maintain a balance for each seller, which increases as the seller generates income. Sellers can use this balance to make purchases within the marketplace (an example of this is Vinted), or withdraw funds to their bank accounts.

Marketplace Payment Options

A successful marketplace business needs to offer a variety of popular payment methods for both buyers and sellers to avoid shopping cart abandonment. These methods often vary by region and demographics. However, some of the most widely used options worldwide include:

• Digital Wallets: Wallets like PayPal, Apple Pay, and Google Pay allow users to store and use their payment cards securely online, on both mobile and web interfaces.
• Cards: Credit and debit cards are widely accepted and trusted by consumers. They offer fraud protection and are commonly used for online shopping.
• Open Banking Payments: Open banking payments allow users to pay directly from their bank accounts via account-to-account (A2A) payments – commonly referred to as pay-by-bank - avoiding card networks. This method is secure, fast, and often has lower transaction fees.
• Buy Now Pay Later (BNPL): BNPL services like Klarna and Afterpay let customers purchase items immediately and pay for them in instalments over time. BNLP payments have gained momentum since the global pandemic.

Payment Solutions for Marketplace

From a technical standpoint, there are several ways of setting up a payment system. The common online marketplace payment solutions are bank transfer transfers, customised payment gateway and partnering with a marketplace payment service provider, like Noda.

Manual Bank Transfers

Using manual bank transfers puts you in control of receiving and distributing payments. This typically involves direct bank transfers to sellers. While it might work for a new marketplace, there are several issues with this solution, especially as your marketplace grows.

Firstly, this approach is manual, labour-intensive, and time-consuming, slowing down your team. Secondly, user fees can be quite high. The sender often bears a hefty cost for bank transfers, making it expensive to initiate transactions.

Lastly, processing times can be lengthy. For instance, BACS payments in the UK can take up to three working days. In the EU, some SEPA transfers may take one to two business days to reach the recipient's account.

Customised Payment Solution

It’s possible to build your own marketplace payment system, tailored with all the features and functionalities you need. However, there are several considerations.

First, development time and cost are significant. Creating a custom payment solution can take several years and would involve hiring specialists.

Security and compliance may become a problem, too. You'll need a specific license from the regulator to be able to process payments, complying with PCI DSS, PSD2 and soon PSD3. Obtaining these licenses is a complicated process.

Parenting with a Marketplace Payment Provider

Partnering with a third-party payment processor like Noda simplifies payments for marketplace businesses and offers numerous benefits.

They typically provide a wide selection of popular payment methods such as cards, digital wallets, BNPL, and open banking payments. Integration is straightforward and requires minimal effort from your team, thanks to clear documentation and technical support.

Additionally, licensing is easier since the processor controls the funds, reducing risk for your platform, sellers, and buyers. Leading providers also offer transaction monitoring tools to prevent fraud.

When choosing a payment solution for your marketplace, consider their expertise in your market, the payment methods they support, scalability, pricing, and the advanced features they offer.

Marketplace Payments with Noda

​​Noda is a global open banking provider that assists online merchants with end-user KYC, payment processing, LTV forecasting and UX optimisation. We partner with 2,000 banks across 28 countries, spanning over 30,000 bank branches. Noda supports a wide range of currencies for globally-minded clients. We offer scalable plans to fuel your business growth and e-commerce plugins for easy integration.

With Noda's advanced Open Banking API, online businesses can easily integrate direct bank payments, offering their customers a seamless and secure payment experience with lower fees. Whether you're looking to enhance customer verification processes, optimise payment systems, forecast long-term value, or refine the user experience, Noda is your partner in growth.