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Online marketplaces are the answer to consumer demand for choice and comparison. Whether you are scheduling a tee time, ordering takeout for delivery, booking a trip, shopping for insurance, or need to ship across the country, an online marketplace shows all your options. This also provides consumers a way to compare prices, details, and make a selection within one easy view. The consumer chooses, gives the marketplace platform their payment information, and the end supplier gets paid. But, how? In an era of digital, efficiency, security, and innovation, why do payments have to be so clunky for these widely used intermediary companies? What exactly happens with the consumer’s payment information? Below we’ll walk through the traditional way marketplaces deal with payments, as well as outline the pros and cons and discuss a better way to pay.
1. The Pass-Through Model
There are some online marketplaces that choose not to process their customers’ payments. In other words, they do not act as the Merchant of Record for the transaction. When they collect payment from their customer for a trip, the insurance premium, or another good or service, they simply pass the consumer credit card information through to the end supplier to process the card transaction. In order to make money with this model, the marketplace company either charges a service fee to the customer’s card or they receive commission from the supplier after the sale.
PROS:
- The marketplace doesn’t pay a merchant processing fee (at least not for the bulk of the transaction amount if they are charging a service fee).
CONS:
- Customer payment information being passed is at risk for being compromised by data breach or human intervention. In many scenarios, an agent or employee has access to full card information in order to pass through to the supplier.
- The marketplace does not have full control and insight over customer service or experience when it comes to payments (i.e. questions about refunds, incorrect charges, etc.).
- If charging a service fee, the customer sees exactly what the markup is and they receive multiple charges on their card– one from the marketplace company, and one or more from the supplier(s).
- If receiving commission from the supplier, the marketplace company is often waiting weeks in order to realize profit generated from a sale.
2. The Multiple Payments Providers Model
Other marketplaces do choose to accept card payments from their customers and be the Merchant of Record. When they collect payments from their customers, they first process them on their merchant account to collect the funds, and then they pay the end supplier for the goods or services. In this model, there are two steps to the payments process and the marketplace makes money by simply marking up the good or service. For example, a consumer pays for a flower delivery at an online marketplace that costs $100, the marketplace charges the consumer’s card for $100, and then pays the florist $90 to make a $10 profit. This model traditionally uses two (or more) payments providers, one for processing the consumer’s card and one for sending a payment to the florist (via ACH, wire, or Virtual Card).
PROS:
- Because the marketplace is the merchant for the consumer, they can respond to customers’ inquiries about payments (refunds, wrong amounts, etc.) without relying on a third-party supplier.
- The marketplace has control over their profits by having the ability to set their own prices and bundle items if desired.
- If the marketplace is paying their supplier(s) with a virtual credit card, they will receive a rebate and have chargeback rights if their supplier doesn’t provide the good or service and is refusing a refund.
- Consumers’ payment information is not passed to other companies or exposed to human intervention.
CONS:
- This model uses at least two payments providers—meaning two contracts, two pricing and risk structures, two integrations, and two vendors to manage. Many marketplaces need more payments processors to support high transaction volumes as their current processors have limits.
- When the marketplace accepts consumers’ payments, they are now susceptible to fraudulent transactions and will need a technology or third party to monitor for fraud. This usually means another vendor is needed.
- After a consumer’s card is processed, the marketplace doesn’t have access to the funds until the transaction settles (usually 1-3 days later). This settlement delay often causes a cash flow issue if the marketplace needs to make a payment to the supplier immediately (think food delivery, booking a seat on an airplane, or any supplier who doesn’t provide net terms for payment).
- If the marketplace is paying the supplier with anything besides a card (i.e. ACH, Wire, Check), they don’t have chargeback rights or supplier payment protection if the supplier goes out of business or doesn’t provide the good or service owed.
- Reconciliation is a headache with two or more payment systems for incoming and outgoing payments. Once you add in refunds and voids, matching payments gets messy.
So, what’s the third option? Until ConnexPay, there wasn’t one! ConnexPay is a payments gateway that removes risk and reduces costs by connecting the incoming payment from the consumer to the outgoing payment to the supplier in one comprehensive process. The solution was built specifically for marketplaces to throw the cons of traditional models out the window.
3. The ConnexPay Model
With ConnexPay, marketplaces receive a payments technology built for their unique needs:
- ONE PAYMENTS PROVIDER FOR THREE PAYMENTS FUNCTIONS: Unlimited merchant processing, a state-of-the-art antifraud solution, and a supplier payment process.
- AUTOMATED RECONCILIATION for all incoming and outgoing payments, including refunds and voids.
- GUARANTEED LOWER MERCHANT FEES than your current merchant processor. Yes, we can guarantee this because we have removed the risk from the payment flow that your current provider incurs.
- SECURITY for consumers’ payment information with suppliers, employees, agents, etc. Information is masked by the limited use virtual card number and ConnexPay is Level 1 PCI Certified.
- ACCESS TO INCOMING FUNDS IN REAL TIME in order to pay suppliers immediately—no settlement delay.
- REBATE REVENUE when paying suppliers via virtual cards.
Although there are multiple ways to make payments work for marketplace companies, there are clear pros and cons for what has traditionally been available. Learn more about new payments benefits for marketplaces by discovering the ConnexPay way.
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