Marketplace payments: The complete guide

Most modern marketplaces want to offer online payments in order to provide more value in the transaction process and capture a commission.

The field of online payments is complicated and heavily regulated, which means that for most small (or even large) businesses, it doesn't make sense to build your own payment infrastructure and make agreements directly with banks or credit card companies. Doing so would simply be too costly and time-consuming. Instead, most businesses choose to partner with a payment service provider (PSP).

Payment service providers (or payment processors or payment gateways) are third-party companies that specialize in building payment infrastructure and offering it to other companies in exchange for a service fee. Several contemporary PSPs have recognized the opportunity provided by online marketplaces and the sharing economy. These industries are growing extremely fast, and at the same time, they typically have very specific needs for their payment infrastructure. This means that payment service providers can offer a lot of value by building offerings specifically focused on this target market by supporting transaction flows typical to marketplaces.

As more and more PSPs enter this market with new offerings, it becomes increasingly difficult for marketplace companies to figure out which payment solution is right for them. This is a problem—choosing the right payment service provider can be crucial for the success of a marketplace business.

This article series helps you navigate these murky waters and choose the right payment solution for your specific situation. First, you need to understand which payment service providers have a relevant offering for marketplaces.

There are hundreds of payment service providers out there, and talking to all of them would take way too much time. You first need to understand which PSPs are relevant enough to be included in the comparison.

The world's largest conventional payment providers Worldpay, Chase Paymentech, and Fiserv each handle transactions worth $1 trillion annually. However, none of them offers tailored infrastructure for online marketplaces. Instead, marketplace entrepreneurs are usually better off using solutions from smaller, more nimble players.

At the same time, choosing an early-stage PSP startup can be a risky move. Many marketplace startups experienced this first hand when Balanced Payments—one of the first payment service providers to focus exclusively on online marketplaces, backed by the seed accelerator Y Combinator—suddenly announced it was closing down in 2015. Balanced Payments offered innovative features nobody else did, but they were not enough to compete against giants in a market where margins are narrow, and profits are only possible with large volumes.

Many PSPs are regional and often only serve people with bank accounts in a single country. While in some countries a regional service provider might be the only choice due to specific local regulation, marketplaces striving for international growth need to choose a partner with a wider global reach.

For the purposes of this article series, we've chosen to take a closer look at four payment service providers that match the following criteria:

• They operate globally (at least in 10 countries and 2 continents).
• They offer a payment solution specifically tailored for marketplaces.
• They are unlikely to go bankrupt within the next 12 months.

Stripe is one of the best-known payment service providers in the startup world. The Y Combinator -backed company has raised almost half a billion dollars and was valued at close to $10 billion during its last funding round. Stripe hasn't released its transaction volume figures, but several sources estimate it to be in the tens but not hundreds of billions of dollars annually.

Stripe has a product called Stripe Connect, which is built for the needs of online marketplaces and other platforms that need to connect multiple Stripe accounts. Well-known marketplace unicorns like Lyft, Instacart, Postmates, and Thumbtack use Stripe Connect on their platform.

PayPal is the largest and most well-known company in our comparison. It's a public company with a market capitalization of over $100 billion, and in 2017 it processed over $450 billion in transactions.

PayPal has been used by online marketplaces for years. Its original success came from a close partnership with eBay, which ended up buying it in 2002. Despite all this, for a long time, PayPal didn't offer a product tailored specifically for the unique challenges online marketplaces face. This changed recently when PayPal introduced a new PayPal for Marketplaces product, which tackles many marketplace-specific challenges. It is still a young product, and PayPal doesn't yet disclose whether any big unicorn marketplace companies are using it. For the moment, we're told that PayPal for Marketplaces is limited to large enterprise merchants.

In 2013, PayPal acquired another prominent payment service provider, Braintree. For a while, the two companies continued to offer their own marketplace products, but recently Braintree Marketplace has been merged into PayPal for Marketplaces.

Adyen is the most important payment service provider you've never heard of. The Dutch company has never enjoyed the limelight but has instead focused on winning market share, using as its competitive advantage the unique technology approach that has allowed it to offer lower fees than its competitors. In June 2018, Adyen went public, and as of this writing commands a market cap of over $16 billion. In 2017, Adyen processed $122 billion in payments.

For a long time, Adyen was counted among the more traditional PSPs, but in 2015 it introduced MarketPay, now Adyen for Platforms, a payment solution tailored specifically for the needs of marketplaces. The list of well-known marketplace companies using Adyen's solutions is nothing short of impressive: they count Uber, Airbnb, Etsy, and Upwork among their customers. This year, it was announced that Adyen would replace PayPal as eBay's default payment service provider.

MANGOPAY is a lot smaller than the other companies discussed here: it processed €1.1 billion in transactions in 2017 and recently announced it's on track to processing €2 billion in 2018. The company is likely in a relatively stable position since it was acquired by the French bank Crédit Mutuel Arkéa in 2015. It is included in this comparison because it focuses purely on marketplace businesses and crowdfunding platforms, and it's a relatively well-known alternative to the giants, particularly in Europe. It also boasts some functionality none of the others can offer, such as support for multi-vendor shopping cart functionality.

As of this writing, MANGOPAY has just over 2,500 customers, and more than half of them are marketplaces. The most well-known examples are Plentific, Vinted, WeTravel, Chrono24, and The Food Assembly.

There are a bunch of other companies that offer online payment solutions tailored specifically for marketplaces. It's beyond the scope of this article to thoroughly review them all, so we had to leave out some less well-known options. However, you might want to also take a look at the following companies:

• WePay. Founded in 2008 and acquired by the online banking giant J.P Morgan Chase in 2017 for $400 million, WePay is a US-based company that focuses exclusively on payments for marketplaces and other multi-sided platforms in the US and Canada. It counts the popular crowdfunding site GoFundMe among its customers.
• Assembly Payments. Previously known as PromisePay, Assembly Payments is an online payments startup from Australia with a strong focus on marketplaces. It has some of the most well-known marketplaces from its home market as customers, including the Australian freelance platform Airtasker.
• Lemon Way. Lemon Way resembles MANGOPAY in many ways: from their French origins to similar company size, marketplace focus and key features, and even down to the delicious name. While MANGOPAY has managed to gain a bit more traction—especially in the sharing economy scene—Lemon Way is worth taking a look at as well, especially if you're building your platform in France.
• BlueSnap. BlueSnap has been around as a payment service provider since 2002 and raised more than $100 million in funding. They recently launched a marketplace product that sounds promising, but so far there aren't many case studies. They have a strong international presence, so if you require a large number of supported countries, BlueSnap might be worth taking a look at.
• trustshare. trustshare from London is a new player on the scene. Their core value proposition is flexible escrow infrastructure. While traditional marketplace payment providers need sellers to sign up and get verified when they publish their listings, trustshare allows sellers to verify after their first transaction. This helps marketplaces ensure all their listings offer a payment option from the get-go.

Online payments are a heavily regulated field, so partnering with a payment service provider (PSP) to handle payments is usually the best choice for marketplace startups. PSPs are third-party companies that specialize in payment infrastructure. Choosing the right provider can be crucial for the success of a marketplace.

Because of the hundreds of payment service providers out there, you first need to weed out the ones that don't cater specifically to marketplaces. In this article, we chose to look at four companies: Stripe Connect, PayPal, Adyen for Platforms, and MANGOPAY. We also briefly listed five smaller companies you might want to consider.

Stripe is one of the best-known PSPs in the startup world, with customers like Lyft, Instacart, Postmates, and Thumbtack. PayPal has been used by online marketplaces for years and has recently introduced a product designed specifically for marketplaces. Adyen, though less well known, boasts customers like Uber, Airbnb, Etsy, and Upwork, perhaps thanks to its low processing fees. MANGOPAY focuses purely on marketplace businesses and crowdfunding platforms and offers features that are not available on any of the other three companies.

In the next article, we will discuss the key features marketplaces need in a payment service provider, and how well each of the four companies is able to provide them.