Transaction flow can be complicated to understand. When you first launch your marketplace, as strange as it may sound, the most important thing isn’t how many users sign up, but whether you are satisfying their needs. Your marketplace is all about transactions – you are facilitating transactions between your vendors and your customers – and this process needs to be as smooth as possible and well thought out.
You should be aiming for high liquidity, or put more simply, lots of successful transactions. To reach this goal you’ll need to ensure transactions are seamless, think back to how you want searches to be completed and displayed and what works best for your business. Even if you have that perfected, and customers can easily find what they’re looking for, a transaction is still not guaranteed. Here we’ll talk about giving yourself the best chance to ensure it is.
A standard transaction flow is usually made up of a customer payment, money (less the marketplace commission) being moved to the vendor, and reviews being given on both sides.
Taking these stages one at a time, let’s start with the payment. Will your marketplace transaction involve an online payment? The answer is usually yes, and with that can come problems. Fortunately though, as previously discussed in ‘which online marketplace payment solution is best?’, there are a number of excellent payment services vendors with solutions designed specifically for marketplaces. Begin by selecting a payment method, how you want the checkout process to work, and when payment will occur.
One of the most frequently used methods of payment online is with credit cards. Not only can they be used globally, they also provide a level of cover with regards to fraud. After credit cards, Stripe has been considered the most well-known method of payment on marketplaces globally. They too offer an element of protection for both buyers and sellers and most people are already comfortable with using them.
It won’t surprise you to know that online payments are heavily regulated. That means it can be simpler to use existing software rather than creating something new and all the compliance that that will involve. With many payment service vendors specialising in the marketplace arena, it can be the easier option to use one of them. Going back to Stripe, as they are already PCI compliant means you don’t need to be.
Each existing supplier will have its advantages and disadvantages – some charge lower fees, some are easier to integrate, some will provide more buyer and seller protection. Do your research, work out which is the best fit for your business and make sure they can deliver everything you need to give your users an exceptional experience.
Once a customer has chosen a product (or service) they then need to complete a number of steps in the marketplace checkout process. Historically online, this process has involved a shopping basket and once you’ve finished adding to your basket you proceed to checkout. If your marketplace is such that customers are likely to make multiple purchases this is probably still your best option.
More recently, however, marketplaces haven’t found the need for a basket as it adds an unnecessary step to the process. The key is to only have as many steps as you need and no more so, if you can buy something or book something by clicking on it and instantly going to payment, all the better and no basket is required.
Research has also found that baskets get abandoned – a lot! – so the quicker you can complete the transaction process the more likely it is to go through to completion.
Some sites like people to register before completing transactions, think about whether it will be beneficial to you to have people sign up and if the additional information is worth lengthening the process the first time.
Most eCommerce sites have traditionally transferred money as soon as checkout is complete, particularly on sites that sell physical products that are then posted out.
This system isn’t such a good fit for sites that rent out or provide a service where the vendor may want to take time to approve and review the request to purchase. In this case, along with instant booking there may be options for pre-authorisation, where credit card details are added but the money isn’t transferred until approval is given by the vendor. If approved the card is charged, if not no transfer is ever made. Bear in mind, if you want to accept bank transfer, pre-authorisation won’t be an option.
Sometimes the sale can be more complicated, such as charging a service at an hourly rate for an, as yet unknown, number of hours. The final price will only be known when the job is complete and it may therefore be easier for the transaction to take place independently of your marketplace, or consider adding a payment system that will generate the invoice on the vendor’s behalf.
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The next thing you’ll need to consider is at what point you move the money to the vendor. The simplest answer to this is to do it as soon as payment has been made, but there are exceptions to this. It could be that a big part of the value you add to customers is that they are trusting you to ensure they get what they have ordered. You could do this by delaying payment to the vendor until receipt is confirmed, in other words, you’re holding onto the payment for a little while.
Alternatively, you could complete all transactions directly between yourself and your customers and receive invoices from your vendors. This could cause you problems though as it means you will be entirely responsible for every aspect of your marketplace, and it’s impossible to guarantee the service of a third party that you have no control over. Aside from that, it turns your vendors into employees or contractors, a big responsibility and risk for you. It is a much preferred route to have the financial relationship directly between your vendors and customers.
Assuming that is the route you take, it is still possible for you to delay payments through escrow. In other words, you are in effect a third party who is holding the money for the other two parties. Escrow is heavily regulated so, unless you’re willing to fulfil the necessary criteria, this might not be the best choice for you. That said, there are some payment gateway vendors such as Stripe Connect that offer an escrow solution as part of their offering thus reducing the legal responsibility of the marketplace owner, i.e. you! A simpler route may be to use a vendor that, rather than offering escrow, has a protection program for buyers, such as PayPal.
The actual process of releasing money to your vendors is something else that is regulated to prevent the possibility of money laundering. Checks will need to be made on your vendors through a process called Know Your Customer (KYC).
Charging commission can work in a couple of ways – the two easiest being that you either split a transaction into two with one part going to the vendor and the other to you, or the vendor is paid the entire amount and you then charge them the agreed commission fee.
Following a transaction, customers and vendors are often asked to provide reviews for each other. This serves a dual purpose. Firstly, it means that reviews can only take place after purchase and negates the possibility of a fake review. Secondly, a reviews system incentivises all parties to supply a good service.
Most review systems allow a numeric evaluation (often giving the appropriate number of ‘stars’) and a more detailed evaluation using text. You may want to split the review into particular topics and make this quantitative and qualitative rating available for each category.
Reviews can be left immediately (if the customer isn’t waiting for a physical product to arrive in the mail) or after the vendor has supplied the product. Either way, it’s a good idea to remind your customers to leave a review via email.
To recap, a transaction flow undergoes a number of stages. The first involves online payment and how you manage that. Money should only move from the customer’s account (be that card, PayPal, ApplePay, Stripe or similar) when the transaction has been agreed.
Subsequently moving money to vendors can pose problems due to regulations, although using a partner such as ourselves who use Stripe Connect will deal with that for you, simplifying proceedings. The last stage in the transaction is an important one, reviews will build trust so ensure, to your best ability, that they are completed by both customers and vendors upon completion.