New research commissioned by Nuvei Corporation highlights the importance for marketplaces to build a future-proof payment strategy to maximize the opportunity for growth. The report “The Evolving Needs of Today’s Marketplace“. The report also analyses best practices for marketplaces to optimise payment processes and increase profitability.
The research was undertaken by strategy consulting firm Edgar, Dunn & Company. The company specialises in payments and digital financial services.
The growing importance of marketplaces
A Nuvei report published in 2017 predicted that by 2020, around 40% of the world’s online retail market would be controlled by marketplaces. An analysis conducted by Digital Commerce 360 estimated the marketplace share of total global web sales was 62% in 2020. Accelerated by lockdowns during the pandemic, marketplaces grew 81% in 2020, according to marketplace platform provider Mirakl’s Enterprise Marketplace Index. To capitalise on this faster than expected growth, many marketplaces now seek to create an entire ecosystem. These ecoystems will include large product choice as a means to retain and increase customer loyalty.
“Marketplaces face numerous complexities and need to constantly look at how the changing requirements of buyers, sellers and various external stakeholders impact their business model”, says Greg Toussaint, director at Edgar, Dunn & Company. “Being at the centre of this intricate ecosystem, marketplaces now need to introduce new payment functionalities and solutions. These solutions will be needed to cater to the needs of their local and global audiences,” Toussaint added.
“Online sales have accelerated due to rapidly changing consumer behavior, coupled with the increased accessibility and convenience of digital payments. This has created unique opportunities for marketplaces,” said Philip Fayer, Nuvei’s Chair and CEO. “Leveraging key payment best practices can support marketplace expansion to meet ever-increasing demand from both sellers and customers,” Fayer added.
The report highlights key payments challenges that have become central for marketplace ecosystems. These include:
An often highly manual and time-consuming process that needs to be compliant with regulations. This can be problematic, in particular when onboarding non-local sellers.
Pay-ins and pay-outs:
Managing transactions is challenging in terms of tax issues, reporting and reconciliation if the pay-in and pay-out providers are different. Equally, currency management and frequency, delay and cost of pay-outs significantly impact engagement and loyalty.
Marketplaces need to offer a frictionless, secure and efficient payment experience. This includes local payment methods and emerging payment methods as these can significantly increase conversion rates.
In Europe, marketplaces are facing regulatory challenges including from PSD2 – imposing the regulatory requirement for handling funds between a seller and a buyer -, a European Regulation review of VAT payments for purchases made via marketplaces, and Strong Customer Authentication (SCA). In North America, marketplaces are accountable for fraud committed by sellers, and are responsible for verifying seller information.
Mixed baskets (one order including multiple sellers) can create issues of financial reconciliation at the time of delivery. Equally, split payments can involve high costs depending on the payment model when conducting settlements to multiple sellers rather than for the entire transaction.
Due to the significant increase in online payment volume, marketplaces have become increasingly attractive to fraudsters. This includes seller fraud and fake identities, money laundering and credit card theft.
To navigate the challenges, the report lists seven best practices related to payments and how these can be implemented. They are based on interviews with marketplaces as well as platforms and fraud and payments solution providers. The report recommends that marketplaces assess their current state of payments first, by conducting a 360-degree payments diagnostic. This enables them to focus on payment initiatives based on business priorities and to develop a roadmap to support their strategy.
“A boom in eCommerce sales and the evolution in customer behaviour, following the COVID-19 crisis, have created attractive opportunities for marketplaces”, said Yuval Ziv, Nuvei’s managing director, digital payments. “Optimizing the customer journey through frictionless payment experiences will be more important than ever in order to remain relevant in this competitive environment.”
The report ‘The Evolving Needs of Today’s Marketplace. Leveraging payment technology as a growth catalyst’ is based on a series of interviews with industry experts and marketplaces.
Enterprise Times: What this means for business?
Marketplaces today account for the majority of global online retail sales and the pandemic has further propelled the growth. Nuvei findings reveal the significant growth of online marketplaces and how they can further capitalise on changing consumer behaviour. With this rapid growth comes new challenges. Nuvei’s new report contains a detailed analysis of the current state of marketplaces and best practices related to payments. The report also contains a collection of insights shared by leading marketplaces, platforms, and key players in the marketplace space. The report provides strategies to future-proof your payment strategy. To maximise the opportunity for growth in today’s competitive marketplace space.