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How to Design a Reliable Payment Process

INSPIRED & WRITTEN BY Arcadier

Before a transaction is completed on your marketplace, there are various factors at play that could impede or even cut off the entire checkout process. If your marketplace draws in throngs of unique visits but fail to see a correspondingly significant rise in sales, then transaction flow is one key area you should pay attention to.


The transaction flow is often overlooked even though it underpins the checkout process and sees through to the completion of a transaction. By making the transaction flow in your marketplace reliable and seamless, it would further incentivise both buyers and sellers to transact on your marketplace.  

Aim for high liquidity

High liquidity is integral to the success of every marketplace, which is the exact goal you should have in mind as you get into the thick of evaluating several payment methods to ensure the most optimal checkout process for your marketplace.


A study done by UPS has shown that 25% of customers did not proceed to checkout as their preferred payment methods, such as Paypal or bank transfer, are unavailable. Another 28% did not want to create or register an account just to make a purchase. When such seemingly inconsequential factors are rectified, it gives customer conversion rates a boost, plausibly giving you better returns than new sources of customer acquisition.


So as we strive towards a seamless and reliable transaction flow, we zero in on some of the basic and imperative features to have.

Lay out different options for payment and choose the best ones

Online payment comes hand-in-hand with marketplaces these days. In spite of that, there are existing marketplaces that take payment offline to abate the friction online payment can sometimes bring to a checkout process. This brings about the need to minimise friction at every point along the way in a checkout process, especially at the payment stage.


If your marketplace involves online payment, you can take a 4-step approach as a reference in designing a well-thought out checkout process and transaction flow:


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Know the payment process well before moving the money

In this day and age where you see payment service providers constantly coming up with novel payment methods, there are plentiful options for a marketplace operator like you. But the catch here is to filter out payment methods that do not add value to the checkout process.


For instance, if the bulk of buyers on your marketplace is from China, you might want to think about incorporating a Wechat payment function into your payment system. Given how Chinese consumers are all plugged into the Wechat ecosystem, you have to tap into their playground to reach them. So it is imperative to know how the customer shops before pinpointing the best payment method for them.

Common payment methods

Amongst some of the most commonplace payment methods are credit cards, bank transfer and Paypal. Credit card payment is accepted internationally as it has been certified to be safe and reliable, with the guarantee by credit card companies that in any case of fraud or any unlikely hacking, the transaction amount would be insured. As such, customers trust these credit card companies and feel safe in using them.


However, one bane to using credit card payment is that not everyone owns a credit card, an example would be young students and low-income groups in emerging economies. Your customers’ accessibility to credit cards may be extremely low if your target market is in developing countries. In fact, amid the booming market for online shopping in developing countries such as Indonesia, cash-on-delivery is preferred as many feel unsafe transacting online.


Another reliable payment method used worldwide is none other than Paypal, which is the most well-known payment service provider in the world. It helps  customer who do not have credit card to transfer money to another account either domestically or internationally. At marketplaces, Paypal is ubiquitous for users, be it buyers or sellers, because both parties do not have to worry about any issues or conflict arising from the payment flow.


In cases where the provider reneges on his promise and fails to deliver the item to the customer, Paypal provides an assurance where they will help either party in resolving the issue and have the money returned to its rightful owner. Others use Paypal as it can minimise the number of sites with which they divulge or share their credit card details and other confidential information.


The next option is bank transfer, but it is not as ideal compared to credit card payments for marketplace operators, reason being they lack the infrastructure for security and pre-authorisation of payments, and to keep fraud at bay.


When considering online payments in marketplaces, a marketplace operator will be faced with a plethora of complex transactional issues to deal with. If your sellers choose to accept credit card payment, it is necessary for your marketplace to become PCI compliant — meaning that you are required to maintain a secure environment as indicated in the Payment Card Industry Data Security Standard (PCI DSS) — which is a rather perplexing process.


Another option is to use payment service providers such as Stripe and  BrainTree. If your marketplace caters more to a specific market, using Stripe, Braintree or WePay would work, since they operate only in certain countries. Otherwise, Paypal would work better for an international audience.

Transfer of payment to the provider

Usually, the payment in a transaction flows directly from the buyer to the seller with no hindrance in the middle. But that entails a high level of risk, especially when service marketplaces come into the picture.  There needs to be some sort of coverage in place to prevent the seller from bailing on you, so the payment should be moved from the customer to the seller only when you are sure the transaction will be completed.


Take for instance the gig marketplace. At Upwork, payment is not released to the provider until there has been official records of the freelancer delivering satisfactory work. This way of pre-authorising payment on the marketplace can prevent any discrepancy in what the seller promises and delivers. The only caveat is that it can only be done via credit cards and payment service providers like Paypal and Stripe.

How to guarantee safety in releasing payment to the seller

While one of the most straightforward ways to pay the seller on your marketplace is to release payment directly after the customer makes a payment, it is inadvisable given the very nature of marketplaces these days. Trust constitutes the bedrock of your marketplace; without its very existence, customers would not be willing to give your marketplace a try.


In a bid to build trust with the buyers on the platform, there needs to some sort of guarantee for them that sellers would not renege on their promise the moment they get their hands on the money. It is pivotal for you to be a reliable intermediary for transactions to take place.

Escrow

One plausible transfer method is via escrow, where your marketplace acts as a middleman and holds payment until it is safe to release to the parties involved in the transaction. However, this brings about a whole new level of problems because escrow services face disparate regulations across the world. It makes it tougher to expand into a new region as there is a high chance you would get on the wrong side of the law.


Instead of being a direct middleman as with escrow, your marketplace can take advantage of using other payment services such as Braintree. As for Paypal, it does not offer escrow, but their strong suit lies in their exemplary protection plan for the buyers, guaranteeing payment for them in case of fraud.


Otherwise, with other payment gateways, credit card details can be filled in before the transaction. Payment will then be released to the seller upon approval. While it entails lesser legal considerations, it may not be as efficient and convenient.


Unless there are plans to be a service provider like Grab, employing escrow via other payment gateways should suffice. Bear in mind the need to deal with legal complexities that come with offering services as the provider, as opposed to being a financial middleman between the buyers and sellers on the marketplace.

Legal considerations in the transfer of payment

There is a multitude of legal considerations to take into account before making a legitimate transfer of payment. To prevent sellers from hounding you, there are a few pre-emptive measures to help you safely and smoothly release payment to the providers.


It is instrumental to be well-acquainted with the laws of the country your marketplace operates in, as usually there is a protocol sellers have to undergo before they can be verified to accept payment. It differs from country to country and even from state to state. Laws could require them to expend a significant amount of time and efforts, which would diminish their incentive to transact on your marketplace. So here is a concise outline on the fundamental aspects in selecting the right payment gateway.


You can also think about whether it is easier and more convenient to have payment split into separate transactions, going to your marketplace and the seller, or to the provider at one go before charging them your commission fee.

Summary

In designing a seamless transaction flow for your marketplace, the payment has to be reliable and safe at every point before it reaches the provider. Also, less is more in making the checkout process and transaction flow a breeze for the customers.


As payment is being released to the seller, the transaction needs to be insured to ensure the seller keeps to his side of the bargain. A review system can also be established to reinforce the trustworthiness of the seller, with attention being paid to the intricacies of the various payment methods in order to further boost the credibility of your marketplace.


Chapter 15 will discuss in detail two important elements that will help you boost credibility and conversion rates: the checkout process and review system.

After reading our article, these are the questions that should pique your interest:
Which are the most preferred modes of payment to the customers that you are targeting?
Can the steps in your marketplace’s checkout process be reduced further?
As part of your transaction flow, how can you integrate your review and checkout system to better elicit immediate action?

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