Why Marketplaces Need Payment Service Providers?

The ecommerce industry has been growing rapidly since 2014. In 2022, the global ecommerce industry is worth over 4.9 trillion U.S. dollars. According to Statista, it is estimated that the industry will grow around 50% and by 2025 be worth 7.4 trillion dollars.

Ecommerce industry is projected to grow 50% in the next 3 years.

With this rapid growth comes the requirement to ensure that all payment needs are met for both parties, the retailer and their customer. To better navigate this field, teaming up with a payment service provider is a sure way to make it easier.

First we need to unpack why it is important that online marketplaces make use of payment service providers. Below we outline the many benefits of such a partnership.

Benefits of using Payment Service Providers (PSPs)

Being able to make use of a service provider that makes payments easier is beneficial to any ecommerce organisation. Some of the many benefits that they bring include; simplicity, up-to-date compliance, enhanced security, growth to international markets, and NEW REVENUE STREAMS.

Simplicity of use

Firstly, simplicity is usually the highest requirement on the list for any organisation. When setting up an online marketplace, it is essential to have a payments platform from the moment that the business goes live. This is so that consumers are able to make payments effortlessly from the first experience, without having to experience a frustrating first impression of your brand.

When making use of a payment service provider, an online marketplace is instantly released from these duties:

  • Collecting payments
  • Monitoring risk and AML
  • Transferring funds to merchants

This means that as a marketplace, you can focus on what you do best, creating and selling products and services that can be purchased by consumers with a preferred payment method.

Manage your marketplace payments with ease using a payments service provider.

Always be compliant

Once an organisation starts dealing with cash flow, it is important to stay compliant with all laws involved with handling money, no matter in which country the marketplace trades in.

For this reason, making use of a payment service provider will ensure that an organisation always trades in a compliant way. It becomes easier to stay compliant because the payment service provider keeps their documentation up to date, and performs AML, KYC, risk monitoring processes.

Because the payment service provider is a financial institution, the focus is on them to keep all their documentation up to date. Organisations that make use of payment service providers benefit from:

  • Avoiding the application process to become financially compliant. This is a long and tedious process that requires many steps and rules to comply with before it is granted. 
  • Built in AML (anti-money-laundering) and KYC (know-your-customer) tools that ensures that fraudsters are detected, keeping the business safe.

Security

Payment service providers are aware of the risks that online payments face, and have the know-how to ensure that these risks are mitigated. Making use of a payment service provider also means that both the retailer and the customer’s personal information is protected from digital fraudsters.

Access to international markets

Expanding into new markets is oftentimes associated with heavy upfront investments. Oftentimes this is true because there are costs associated with administrative things that need to be done before expansion. However, for too long companies have been experiencing additional costs from an operational standpoint, especially – payments. The age-old process for many online marketplaces is to find a payment provider in the local market, which leads to more time and money spent. However, there are several payment service providers that focus on international markets and already have developed solutions that can support you anywhere in the world. Today, PSPs can assist organisations to expand their sales and operations in a different country without incurring additional costs because all payment solutions are available under one roof.

What should you consider when choosing a payment service provider?

What should you consider when choosing a payment service provider?

Needs & goals

Before starting the process of employing a payment service provider, it is important to know the needs and goals of your organisation.

Once you have set guidelines for yourself, it narrows down your search for a solution that best fits the needs of your organisation. Luckily, most payment service providers create solutions that are customisable for the needs of the organisation.

Fees

It is best to do some homework and compare the different solutions that are out there. After that, it is important to compare the fees and charges that will be charged to the customer as well as the organisation.

For best customer satisfaction, make use of a service provider that offers lower and more affordable fees. This will help with customer satisfaction and contribute to a larger return client rate.

Countries & regions

Make sure that your chosen PSP covers your markets and can support you if you wish to expand to different countries.

Payment options

Sometimes more is less. You might think that more payment methods are more attractive. In some cases it is not true because the quantity of payment methods can damage the quality of your user experience. It is crucial that your PSP is able to deliver and support popular payment methods in the highest quality.

Security features

When choosing a payment service provider, you should ask about the security features that are in place and how the payment service provider deals with possible fraud. This will give you a clear idea of how secure the platform is and give all parties peace of mind when making and receiving payments through the platform.

Read more: Embedded Payments in Businesses

Industry Example: Shopify – a payments business???

What is the first thing that comes to mind when hearing the words – online marketplace?

I bet some of you thought Shopify.

So, what is Shopify?

Well, it is an online marketplace platform but this answer does not fully represent the company.

Over the past few years, Shopify has increasingly morphed into a payments company.

Shopify was launched in 2006, and for more than a decade of its life its been known for its Subscription business model.

However, in 2013, the company launched Shopify Payments — an easy checkout solution for merchants. The fee on a basic plan is 2.9% and 30 cents per transaction.

While a small business at launch, the payments business has grown significantly, according to analyst Ben Thompson:

  • 2015: In the year Shopify went public, revenue from Subscription ($67m) was nearly 2x Payments ($38m)
  • 2020: The results flipped: revenue from Payments ($2B) was nearly 2x Subscription ($909m)

Why Shopigy is a payments business?

How can you do the same as Shopify?

PayPugs offers an embedded finance solution for organisations. It is a solution that easily integrates with your API to ensure a smooth and effortless road towards accepting payments.

Are you looking for a payment service provider with a smooth onboarding process? PayPugs can offer you a thorough onboarding experience and a unified view of your finances with PayPugs issued IBAN accounts. You get access to several payment rails to allow your customers to transfer funds.

For example, you can launch SEPA payments in your ecosystem. The cost of the transactions could be 0.2%, but you can put your own margin on top of it. Let’s say you charge 0.5% for each transaction. That means that your business has gained another revenue stream as you earn 0.3% on each transaction. Your revenue will scale directly with your business.

Interested? Book a call with an expert to discuss your business needs and how you can become a fintech.

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