HOW MARKETPLACES CAN LEVERAGE PAYMENT REGULATIONS & INNOVATIONS TO GROW

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1 HOW MARKETPLACES CAN LEVERAGE PAYMENT REGULATIONS & INNOVATIONS TO GROW

2 Receiving online payments sounds simple enough, but for many marketplace operators it s an increasingly complex minefield. This is especially true today as the new Payment Services Directive (PSD2) in Europe now makes it very difficult for marketplaces to remit payments to the third-party sellers they work with. While the logical answer for most marketplaces is entering into a partnership with a payment services provider (PSP), this too, can be a choice which requires extensive research and understanding into what differentiates PSPs and which one is the right one to choose. Choosing to work with a good payment service provider can bring with it many more advantages than just regulatory compliance, eased business and merchant services. A solid PSP partner one that understands the complexities of marketplace businesses and has dedicated teams to help can drastically reduce complexity and bring a lot of value to the payments process. They do this by making user checkouts smoother, helping to convert new customers to sales, streamlining operations and seller onboarding, and offering a safe and secure payment process. In this whitepaper, we ve outlined the key issues for marketplace operators to consider when reviewing their options and determining if working with a PSP is the right choice for their business. Working with the right PSP can make a big difference for merchants who are looking to improve their processes, increase sales and grow their businesses, but the decision should not be made lightly. So we ve created this whitepaper to save marketplace operators time and reduce confusion in choosing the right PSP for their needs. 2

3 ONLINE MARKETPLACES: UNIQUE (AND COMPLEX!) ECOMMERCE ENVIRONMENTS It s no wonder that online marketplaces have grown significantly. Marketplaces are unique in their ability to provide consumers with a wide range of products in one single online shop. They are also facilitators to a wide range of sellers who are working together, thereby creating a competitive buying environment. According to Amazon and PYMNTS, 64% of shoppers started their online shopping journey in a marketplace in , and that figure has only increased since then. Today, 97% of American online consumers shop on marketplaces, up from 85% last year, according to UPS and comscore 2. Of this, nearly 50% of US-based eshoppers purchased merchandise from international retailers 3. Similar trends can be found around the world: according to an ecommerce Foundation study conducted in 2016, marketplaces will account for nearly 40% of the global ecommerce market by This also holds true for Europe, where marketplaces continue to rise in popularity and are increasingly the first destination for online shoppers. 3

4 Marketplaces are both unique and complex by nature In ecommerce businesses in general, the customer is only one click away from buying from a competitor, says Michel Taoui, Deputy Chief Financial Officer of the Frenchbased online marketplace La Redoute. So you may as well offer competitive third-party items right on your own site, instead of being one click away from losing the customer 5. Online marketplaces act as an intermediary between sellers and buyers. The marketplace offers various sellers the opportunity to broaden their distribution spectrum, and for the website s operator to expand their offer, adds Taoui. Of particular interest to online shoppers is the ability to do all of their shopping in one location. By extension, sellers have the ability to leverage the marketing and sales vehicle offered by the marketplace operator. And marketplaces that sell their own products as well as others have the added benefit of dramatically broadening their range of products. Through the marketplace model, we have been able to bring winemakers together and to offer a wider range of choices to our end customers, without having to acquire the associated stock 6, explains Valentine Puiseux, Secretary General of France Gourmet Diffusion. Thus, in both theory and practice an online marketplace is a unique win-win-win for consumers, sellers and the marketplace itself. The complexities and risks come in when it comes to logistics and operations behind the scenes, particularly as far as payments are concerned. Handling shopping baskets that contain items from multiple sellers and sometimes also from the marketplace operator itself becomes more complicated when funds need to be remitted to multiple third parties, logistics partners and, occasionally, when returns also need to be processed. This process can be time consuming and become even more complex when variables such as multiple seller currencies come into play. 4

5 Trust as the key to success The key to a marketplace s success lies in trust and confidence on multiple levels. Marketplaces are held accountable by sellers, who are utilizing the marketplaces services and need to feel confident that the marketplace is handling their goods and funds safely and securely. And marketplaces are also held accountable by consumers, who will typically identify the marketplace s brand more than that of the individual sellers they are buying from. In turn, this means that the marketplace s trust in its sellers is paramount to its successful operations. This trust is particularly important for all parties involved in the payment chain. As explained in the previous section, the payment stage is where a marketplace s operations begin to differ greatly from that of a single ecommerce merchant or webshop, due to the variety of stakeholders and requirements for each. Up until now, (in other words, pre-2018 when marketplaces were subject to looser regulations), the funds would transit through the marketplace s bank account before being (often manually) paid out to the corresponding sellers. This system no longer works in the PSD2 world, so marketplace operators must make sure they are equipped to collect funds from consumers and then transfer the correct amounts to their sellers, while also managing their own fees and revenues. With so many people involved in the process, trust is essential. It s perhaps needless to note that this process is incredibly complex and can be quite time consuming. Nevertheless, it is now necessary to respect the changing landscape of marketplaces regulation, which we describe below. 5

6 The Payment Service Directive (PSD) is a European Union directive aimed at regulating payment collection and payment services in the EU and EEA. The first PSD entered into force in 2007 and under the original directive, marketplaces were identified as a commercial agent a facilitator between a seller and a buyer. Online marketplaces benefitted from a lack of detail in the way the text was written and as a result, they had to make relatively little effort in order to be compliant. 6

7 INCREASING TRUST AND COMPLEXITY: PSD2 However, the newly updated Payment Service Directive 2 (PSD2) covers a larger part of the online payments landscape and by design, the updated regulations are being rolled out to create a more secure and trustworthy environment for the consumer in particular. PSD2 has an expanded scope, leveling the playing field for financial institutions, and better protecting the funds used by European consumers making online payments. As part of this, PSD2 now clearly demands that marketplaces process third party funds to the same standard as a bank or other payment service provider. In short, the complexity of business operations is increasing, as marketplaces are now also obligated to be compliant with more stringent legislation. Marketplaces heavily rely on confidence and trust, in order to maintain their relationships with their sellers and their consumers, so in reality, PSD2 is actually beneficial for these businesses. However, upon its implementation, PSD2 presents a potentially costly dilemma that is both time consuming and requires significant changes for online marketplaces. Essentially, under PSD2, the management and remittance of third party funds collected through online purchases will now need to be carried out by a licensed payment services institution. In order to continue managing payments and funds in-house as they (may) have been doing up until now, marketplaces will be required to go through a lengthy, complex and costly licensing process one that requires upkeep and properly trained in-house resources to carry out the work. 7

8 WHY MARKETPLACES ARE TRANSITIONING to payment service providers The licensure procedure now required under PSD2 is not only costly and time consuming, but also detracts from most online merchants core work, making the option rather unattractive for most businesses. Luckily there is a viable alternative to be found in partnering with a payment service provider (PSP). The right Payment Service Providers (PSPs) will bring more than just compliance While PSD2 is driving the timing of marketplaces migration to PSPs, these merchants are gaining much more value from their partnership than only PSD2 compliance. Certainly, PSPs are helping marketplace operators meet the more stringent regulatory requirements for processing payment transactions, but the right PSP can also offer payment solutions that help marketplaces grow. In addition, PSPs can enable marketplace operators to better meet the needs of their customers - both sellers and buyers alike. Choosing the right PSP: What to look for Not all PSPs offer the same services and, in fact, many are unable to provide a full range of the value-added services that make partnering with a PSP a logical choice for marketplaces. The range of PSPs is broad, so it would be easy for an ecommerce merchant, let alone a marketplace operator, to get lost while comparing and deciding. Below is a basic guide to choosing a PSP. The criteria are listed in three categories: Absolutely Essential, Important, and Preferred. The ideal partner will have all of the criteria in these three categories: 7 8

9 Absolutely essential criteria for selecting a PSP While some things can be considered as nice-to-have payment features, others are nonnegotiable. These are the top three must-haves for any good PSP looking to support online marketplaces: Marketplace-specific solution. To support marketplaces, PSPs need to understand the environment in which marketplaces operate and the trends and best practices applicable to them. Therefore, in addition to its product offering for individual ecommerce merchants, the PSP should offer a marketplace-specific solution. This includes managing the process of splitting transactions to multiple sellers (mixed-item shopping basket sales), flexibly managing commissions, and assuring seamless and safe remittance of funds to multiple sellers. Full regulatory compliance. To be sure your PSP can help you be fully compliant, ask the right questions. Make sure your PSP has a license registered in EEA countries. Your PSP should be duly supervised, with no adverse report from any supervisory authorities since its registration. Your PSP should also comply with all European and local Anti-Money Laundering (AML) laws, as well as with the General Data Protection Regulation (GDPR 8 ). 3. Know Your Customer (KYC) support. A good PSP will accompany its partners in the Know Your Customer (KYC) verification process. This is particularly important for marketplaces who are constantly onboarding new partners. Working with a PSP that can assist with verifying the seller information and risk profile will save you time and money, and increase your peace of mind when it comes to your customers. 9

10 Important criteria in choosing a PSP Although the points below are non-essential criteria, selecting a PSP that can fulfill these requirements will help your business grow through the partnership Conversion-oriented. Due to their nature, online payments can either encourage customers to complete their purchase, or shake consumers confidence and cause them to abandon their carts. Payments are often overlooked in the customer journey, but they shouldn t be. Make sure your PSP has the right tools and expertise to help you increase or optimize conversion rates. The ability to provide data. Data analysis is key for online marketplaces and their sellers to manage conversion rates, marketing campaigns, and loyalty programs. A good PSP should be able to provide the marketplace with the full set of data to allow this. Furthermore, the marketplace should have access to data-driven insights that help identify future opportunities and grow the business. Preferred characteristics of the right PSP partner The points below are all the criteria that truly set a PSP apart from the rest. Many providers do not offer the items on the list below, and those who do will be better long-term partners for ambitious online marketplaces Strong cross-border footprint. For marketplaces with cross-border ambitions, look for a PSP with a strong foothold in the areas you d like to expand into. Your PSP should help you grow more easily across borders (even if it s still on the same continent), by adding additional local payment methods and currencies to your portfolio without having to worry about administrative hassle. This is especially important as you gain customers from new places and expand across different countries. A commitment to innovation. Look for a PSP with an advanced innovation strategy and road-map. This will allow you to benefit from trends and attractive options for enhancing the checkout process, future-proofing your marketplace as technology and ecommerce evolve. Partnering with a PSP that is on the cutting-edge of FinTech will enable you be at the forefront of new developments and customer journeys as well. Ancillary services and additional benefits. The best PSPs will have robust products and services that cover all of your needs, in order to provide you with end-to- end services related to transaction processing. They will also be able to give you access to a wide portfolio of added-value services that can help you turn payments into a competitive differentiator as your marketplace expands. 10

11 LOOKING AHEAD AT THE RELATIONSHIP BETWEEN MARKETPLACES AND PSPs With a plethora of online stores and marketplaces, today s consumers have the luxury of developing high standards for where they shop online and who they buy from. Brands are under more pressure than ever before to offer a smooth and innovative payment experience that encourages customers to complete their purchase, and those who don t are more likely to lose business to their competitors. The brands and ecommerce businesses with the greatest chance of long-term success are those that recognize the importance of speed, convenience and service, and prioritize those elements in their offering. This is especially the case with online marketplaces and their PSPs, who facilitate these seamless transactions for their vendors and customers alike. Innovation and customization Market-leading PSPs are looking ahead and are heavily focused on omni-channel payments, as well as new and exciting checkout experiences that increase customer loyalty and interest. Recent innovations such as payment-enabled chatbots and checkout gamification are good examples of upcoming trends in online shopping. Marketplaces that partner with PSPs with cutting-edge innovations will have an advantage within their own competitive landscape and be well positioned to stay at the forefront of online shopping. The right PSP should be responsive to marketplaces unique needs and will offer payment solutions that are tailored to marketplaces specific requirements. This is especially crucial for marketplaces that are looking for a full-service solution and who are seeking a strong collaboration with their PSP. PSPs that offer marketplaces the flexibility to select from a range of ancillary services and payment innovations will also be the most likely to support the marketplace in the changing ecommerce environment. 11

12 Changes in the range of services offered by marketplaces Historically, marketplaces were designed along the model of a virtual shopping center, where sellers each had their own personal online sales space. However, with the increasing popularity of marketplaces, the potential for more collaboration was discovered, enabling sellers and marketplaces to harness their collective strengths and create a more complete offering for their customers. Today, marketplaces are increasingly integrating sellers into deeper partnerships, incorporating elements such as global marketing programs that provide buyers with a unified end-to-end buying experience and facilitating increased visibility, centralized marketplace promotion, inventory and delivery management for all stakeholders. Consumer demand is shifting More and more, consumer expectations are shaping a new future for ecommerce which is fueled by advances in technology. One-stop shopping through online marketplaces and smooth mobile experiences are leading the way, and many experts believe we have only just begun to experience the effects of the on-demand economy 9. Online shoppers are increasingly looking for easy and personalized shopping experiences, and the ability to use whatever device, currency, and payment methods they want is a main element. In fact, one in five consumers would be willing to share their data in exchange for a personalized experience, and this goes up to more than one in four when it comes to shoppers between 18 and Offering these payment options and handling consumer data can be daunting, especially for marketplaces who want to deliver great value to their merchants and a seamless customer experience that increases loyalty, satisfaction and trust. Marketplaces that are focused on running a successful ecommerce business need technology partners who can accelerate their growth, including a PSP with a dedicated end-to-end solution. A personalized checkout experience with a seamless payment strategy can help differentiate your marketplace business and help you meet rapidly changing consumer demands, not to mention taking care of your PSD2 compliance. Because of this, marketplaces that partner with the right PSP from the start will be positioned to leverage regulations and innovations to grow their business into the future. 12

13 r If you d like to know more about how we work with marketplaces to grow their business, visit Sources study from PYMNTS.com and Amazon The UPS Pulse of the Online Shopper by UPS and comscore % of US online shoppers browse on marketplaces, by 360 Digital Commerce Democratization of Retail and the Rise of Global Marketplaces, E-commerce Foundation, Taken from an interview conducted by Syrtals ( on behalf of Ingenico epayments. 6 Taken from an interview conducted by Syrtals ( on behalf of Ingenico epayments. 7 To help you better understand Ingenico epayments Solution for Marketplaces, we ve included an annex at the end of this report, which explains the key benefits of our product according to this list. 8 This regulation applies to all companies processing and holding the personal data of data subjects residing in the European Union, regardless of the company s location. 9 The Future of E-commerce: The Road to 2026, Criteo Made-to-order: The rise of mass personalisation, The Deloitte Consumer Review, Deloitte - ch/documents/consumer-business/ch-en-consumer-business-made-to-order-consumer-review.pdf. 13

14 APPENDIX Ingenico Payment Solution for Marketplaces Simplify your marketplace payments and commission rules on a secure, compliant and reliable platform Fully PSD2 compliant Flexible payout to sellers Automated management of commission rates Multi-seller basket management Quick and easy onboarding of new sellers PSD2 14

15 Simplify pay-in and pay-out with full PSD2 compliance with Ingenico epayments Solution for Marketplaces Benefits Features Easy onboarding of new merchants We provide you with the tools and services to quickly onboard new sellers. Our marketplace solution enables you to grow and manage a network of sellers whatever their profile, in full compliance with all regulations. Offer your sellers reliability and security Ingenico provides a proven and secure environment, a wide range of payment methods and cutting edge fraud prevention tools. You keep control we do the work Electronic payment flows remain under your supervision but are managed by Ingenico epayments. Flexible You have full flexibility to manage payouts to sellers and automate commissions via API calls. Compliant Because we are a regulated Payment Institution, we can assist you in setting up your dedicated, PSD2 compliant payments environment....and give you access to a full-service platform, which includes processing, collecting, payout, and fully transparent reporting, as well as multi-currency management. Consumer Marketplace API calls for status, reports and money transfers (PSP) INGENICO MARKETPLACE SOLUTION BANK ACCOUNTS Allocation Marketplace operator Account of the Marketplace operator Seller 1 Issuing Bank Ingenico Financial Solutions Seller 2 15

16 About Ingenico epayments Ingenico epayments is the online and mobile commerce division of Ingenico Group. We connect merchants and consumers, enabling businesses everywhere to go further beyond today s boundaries, creating the future of global commerce. As industry leaders since 1994, our innovative spirit drives us forward across all channels. We are the trusted partner of over 65,000 small and large merchants who rely on us to make payments easy and secure for their customers. With advanced data analytics, fraud management solutions and cross-border commerce expertise, we help merchants optimize their business and grow into new markets around the world. For more information, visit or follow us on LinkedIn, Twitter and Facebook.