Insights on marketplaces : HiPay gives you an overview

Now booming, marketplaces attract more and more e-shoppers. This business model is simple: merchants of all sizes sell their products on e-commerce websites in exchange for a commission. Recently, regulators looked at this profitable business in order to establish a better framework and secure transactions made every day.

A new acquisition channel based on results?

If marketplaces used to be mainly dedicated to individuals or very small businesses, many chains and brands are now benefiting from their growth. To be on these platforms is part of the marketing strategy of many of them because it allows for the arbitrage of their acquisition expenses.

At HiPay, we have noted that many of our clients or actors of the e-commerce market – other than e-tailers – tend to re-orientate their Adwords budget to a business model based on effective sales.

Sellers now prefer giving 15 or 20% of their sales instead of massively investing in a click or lead-based acquisition campaign. This new way of doing things is a radical shift from standard acquisition modes. Attracting new clients is indeed way different and customer loyalty is often less important, but acquisition costs are generally lower.

Buyers, for their part, benefit from a wider range of products. Since competition can be more important for some products, they get them at a better price. They also benefit from the marketplace secure purchase experience and from professional sellers they can fully trust.
Finally, marketplaces also win from this situation. Besides the commission system, implementing a marketplace model allows for activity-related management costs (stocks, logistics, marketing…) to be supported by sellers

Combining exponential growth management and regulators’ requirements

Fora long time, marketplaces were not on the regulators’ radar. Yet, over the years, they became an efficient model of distribution and consumption with a huge sales volume. This rapid expansion forced legislators and payment networks (CB, Visa, MasterCard…) to take a look at transaction security between all the ecosystem’s stakeholders. Marketplaces collect money for third-party merchants before giving the sales amount, minus their commission, back to them. Such transactions are regulated by several laws based on european directives for payment services. This regulatory framework appears as a new restriction now that marketplaces have to manage their exponential growth. However, it is supposed to secure the whole channel and ensure the sustainability of this model.
To comply with the regulations, marketplaces have two choices. The first one is to obtain an agreement from the supervisory authorities (ACPR, Bank of France…). This procedure, which can take up to two years, is expensive because it requires a lot of internal and external resources. The second option is to entrust an authorized partner with managing and securing all the ecosystem transactions.

Nabil Naimy, Product and Strategy Director, HiPay