27 February 2019

How do payments work for online marketplaces / gig / sharing economy platforms?

Written By Dan Whale in Payments

How do payments work for online marketplaces / gig / sharing economy platforms?

Choosing the right payments option can be the best early decision your business makes.

If you are currently setting up your platform and are starting to think about payments, bear in mind, platform payments work differently than payments for more traditional e-commerce businesses.

For traditional e-commerce businesses, the payment flow is simple. Money is transferred from a buyer to a seller using a payment gateway and acquirer. We won’t walk you through the entire ‘four-party model’ (as it is known) now, but if you’re interested in how it works, this article explains it well. This is how online card payments have been made for decades, with the experience becoming sleeker and quicker for the customer in recent years.

But the payment flow of a platform business is different. Platform businesses do not usually sell their own products or services. Instead, they connect buyers and sellers and charge a commission on transactions between them. This means that payments need to be routed. This can be done in one of two ways.

The first method is to use a payment gateway and acquirer as traditional e-commerce businesses do. This entails taking in all payments from your buyers centrally, then calculating your commission, before finally manually transferring the remainder to each individual seller.

This solution is difficult to scale. The more successful your business becomes, the more operational overhead is required to handle payments. Furthermore, if your platform has different fees for different sellers, this becomes even more complex.

Not only this, but as of January 2018 firms acting in this way must become regulated as a financial institution. This is due to the regulatory changes of PSD2, which aim to protect consumers and businesses by only allowing regulated institutions to handle client money.

The second method works differently. By using ‘electronic money’ (eMoney), payments can be split automatically. With eMoney, all funds are held in one central bank account, with balances being reflected on an electronic ledger. More info on this can be found in this blog, but let’s look at how this works in practice.

You have a marketplace called ‘Nicethings.com’. A buyer goes on to your marketplace and decides to buy a pot from a particular seller (Paul’s Pots). The pot costs £25 and the buyer is happy with the price. You as the marketplace charge sellers 10% on any sales they make.

The buyer pays online by card, as with any online purchase. That £25 then goes to the central account. Due to the commission charge, £22.50 is displayed on the seller’s eMoney balance (Paul’s Pots), and £2.50 is displayed on your eMoney balance as the platform. When the seller chooses to withdraw their £22.50, it is debited from the central account and transferred to their bank account (again, automatically). When you as the platform choose to withdraw, the exact same thing happens.

The diagrams below explain how this payment flow looks. It works the exact same way for all merchants on your marketplace.

As you can see, this is a far easier and cleaner approach to platform payments. If a platform decides to use eMoney, they must either become regulated as an eMoney institution (a high-cost process which will take at least 6 months or possibly even years), or partner with a firm that is.

Paybase was built to serve these businesses. The Paybase solution not only splits payments however a client wishes, but ensures they are covered in terms of all current and future regulatory standards.

So, whilst there are various ways in which payments can work for platform businesses, using eMoney is by far the most efficient option. If an eMoney solution is what your business needs, get in touch with us today by clicking here.

Up Next ...
04 November 2024

Finance apps are in ‘need of improvement’, says a quarter of Brits

A recent survey by UK mobile specialists Apadmi reveals that ...

04 November 2024

Barclays acquires Tesco Bank

Barclays Bank UK PLC has completed the acquisition of Tesco ...

04 November 2024

fundcraft Increases Series A to €11 Million Demonstrating Strong Product-Market Fit

fundcraft has increased its Series A funding to €11 million, ...

01 November 2024

Mollie and Hyvä announce strategic partnership, launching Hyvä Commerce

Mollie, a leading financial service provider, has partnered with Hyvä, ...

More in Payments

Paymentology partners with Sopra Banking Software

25 April 2024

Aimed at delivering comprehensive card issuing services. In brief:- The strategic ...

Banking Circle Business AML team best-in-class

11 April 2024

Banking Circle Business AML team recognised for best-in-class strategy. In brief:- ...

Klarna launches data hub

05 April 2024

Including facts on how Brits use its credit products.In brief:- ...

Visa and Mastercard lower fees

27 March 2024

Visa and Mastercard reach $30bn interchange fee settlement with merchants.In ...

White Papers Payments

Deloitte and Mambu guide to Buy Now, Pay Later

02 October 2023

Buy Now, Pay Later (BNPL) is finance for the digital age. This report focuses on the online BNPL mar...

White Papers Payments

Building a business card program in today’s digital fist landscape

12 June 2023

For many financial institutions (FIs), the rapid transformation to a digital-first mentality greatly...

White Papers Payments

The Case for Payments as a Service

28 March 2023

The demands on financial services technology have increased significantly and the pace of change con...

White Papers Payments

How the rise of PayTech is reshaping the payments landscape

28 March 2023

PayTechs’ relentless disruption means that only banks and payment service providers that offer “valu...

There are no Events in this category