Five steps to tackle the payments challenges of fast-growing E-commerce Businesses

With many consumers still feeling the squeeze of the cost-of-living crisis, retailers are increasingly looking to e-commerce marketplaces to drive revenue. It's easy to see the draw; marketplaces require lower upfront costs compared to setting up a standalone online platform, provide access to a larger pool of potential customers, and increase the visibility of the brands that use them. As a result, e-commerce marketplaces continue to grow – according to one forecast, the gross merchandise value (GMV) of Marketplaces is expected to reach $3.832 trillion this year, a 10% increase on 2023. 

However, for many e-commerce marketplaces, this growth, while welcome, can throw up challenges. As marketplaces win over new consumers, merchants, and investors, and as they look to target new markets, they can be hamstrung by one of the most important enablers of any retail business: the global payments system. 

In this regard, established e-commerce marketplaces have it relatively easy. They need only to sign on with a tier-one global bank to take care of their cross-border payments. But unless the business is bringing in USD 1 billion in revenue or more, that's not always an option. For smaller marketplaces, with just a small number of cross-border payments to make, a lightweight, off-the-shelf solution may suffice, although the capabilities are likely to be limited, transactions slow and the fees higher than would be ideal. 

For most e-commerce marketplaces – the neglected middle – there are just two, equally unattractive options: either commit considerable resources to building out a large internal payments team, or stitch together a complex patchwork of local payment service providers. Either way, the cost and complexity of international transactions is only going to increase.

However, thanks to recent innovations in payments technologies (more on this shortly), ambitious e-commerce marketplaces can eliminate cross-border payments as a barrier to growth by focusing on five key steps: 

1. Avoid networks of networks. International payments infrastructure and laws are so fragmented that marketplaces often build networks upon networks of interconnected third-party payments providers to accelerate expansion into new markets. However, this approach removes marketplaces from the flow of funds, so they have limited control over their payments system, and it racks up the costs for scaling the business. It's important for businesses to reduce their reliance on multiple networks and find a simpler path to accessing emerging payment technologies.  

2. Own your user experience. Many businesses work with third-party payment processors to handle transactions. That's fine, but it can mean that customers are sent to third-party sites to make payments. In some cases, this process can put the customer experience at risk – particularly if an e-commerce marketplace is using differing payment processors in different markets. Managing disputes and complaints also becomes more difficult when using third-party payment providers as accountability can be harder to determine. Marketplace owners must ensure that they keep control of the customer journey at all times – after all, it's a key factor in building the brand and keeping customers coming back for more. 

3. Cater for a range of local payment options. Today’s consumers enjoy a wealth of choice when it comes to digital payments. From Buy Now Pay Later (BNPL) to local digital payments programmes and digital wallets, there are more payment options today than ever. However, it is important that marketplace owners keep in mind that the ways in which people want to pay will vary from market to market, so if they are targeting a specific region they should first research how shoppers prefer to pay there. This approach removes any potential barriers for consumers wanting to make a payment to any given merchant. For many markets, this means focusing on much more than traditional bank card payments, particularly in emerging markets where open banking initiatives are bearing fruit and firing up fintech innovation. 

4. Don't neglect merchants. Increased competition in the e-commerce marketplace arena means that winning merchants is every bit as important as winning customers. Marketplaces can differentiate by offering friction-free payments across all dimensions of the transaction. Of course, marketplaces want the end customers’ experience to feel fast, simple and secure. But there is the merchant's own payment experience to consider. There have been cases of high profile brands attracting unwanted attention due to delaying and withholding their payments to merchants. E-commerce marketplaces would do well to remember the extent to which their success relies on happy merchants.

5. Look beyond payments orchestration. Payments orchestration software may help Chief Technology Officers (CTOs) to manage payment providers, gateways, and methods. But, sadly, these are only part of the solution. While such services may be great at getting various settlement service providers working as one, they do nothing for collections or payouts processes. That's two major legs of marketplaces' payment requirements that remain completely unaddressed. Marketplace owners should instead look for a solution that can handle all elements of the payments mix. 

To enable these five steps, marketplaces need to consider their approach to payments technology. They should be looking to move away from networks of networks and replace the tangled mess with a unified, streamlined infrastructure layer – one that can coordinate all international payments through a single  platform and handle collections and settlement as well as payouts. 

This infrastructure layer in effect curates global payments and hides the complexity of international payments so that marketplace owners can focus on their core competencies rather than managing technology – enabling marketplaces to lower costs, scale more easily, and better control the payments experience. 

Over the past twenty years, digital payments innovation has largely been focused on the consumer experience. Today however, the focus of innovation is shifting elsewhere to include the global payments processes of marketplaces and merchants. As this happens, the convenience, simplicity and speed associated with modern consumer payment experiences are increasingly being found on the business side too. This change promises to unlock growth for marketplaces of all sizes and will be a key driver of commercial success for the digital marketplaces emerging today.