For decades, complicated and expensive infrastructure requirements have impeded small and micromerchants from accessing the electronic payments system. Many just didn’t have the resources they needed to obtain the business tools and capabilities available to larger companies.
But the emergence of new payments acceptance models has made it easier for these traditionally excluded businesses to expand their reach and offer their customers a variety of payment options. Marketplaces and payment facilitators are just two of the ways the payments system has evolved to meet this gap in service availability.
While both the payment facilitator and marketplace models serve to enable payments acceptance for a wider variety of merchant types and sizes than ever before, they are not the same thing.
Answers to a few key questions can help explain the differences between the two models:
- Who do consumers think they’re dealing with, and who do they interact with for customer service, refunds and chargebacks?
- Can consumers put multiple items from multiple sellers into a single checkout?
- Who holds title to the goods and recognizes the full revenue of the sale on their profit and loss sheet?
- Who receives the settlement from the transactions?
- How are contracts and relationships with acquirers structured?
The requirements for marketplaces are defined by Visa rules; Visa is the only card brand with a specific marketplace program. Fundamentally, a marketplace exists to connect consumers and retailers on a single website or app (a marketplace must be an ecommerce business; Visa rules do not allow for a card present “marketplace”) that traditionally would not have had an ability to interact. A payment facilitator, on the other hand, provides onboarding, processing and settlement solutions to a range of merchant types and may offer solutions in both a card present and an ecommerce environment.
Those different purposes lead the two business models to appear and operate very differently.
The marketplace is presented to the consumer as the seller of the goods or services, and the checkout process will allow the user to purchase goods from multiple entities within a single transaction. A marketplace name or brand is always displayed more prominently than the underlying retailers’ brands on its website or app, and its brand is part of the app name and/or its URL.
Marketplaces also handle all consumer inquiries through their own customer service channels. They have their own refund policies, and they are liable for resolving disputes between cardholders and retailers. When consumers have an issue, they contact the marketplace for resolution, while the underlying retailers are the true owner of the goods/service and are the ones performing the fulfillment or delivery.
The differences extend beyond appearance and consumer interactions to contracting and operations, as well. A marketplace has a merchant agreement directly with an acquirer, and it recognizes all sales from its underlying retailers as top-line revenue. Funds from the transactions must settle to the marketplace, which in turn handles payments for sales and refunds on behalf of the retailers that use it to sell their goods and services.
All of these conditions exist as Visa views the marketplace as the merchant and treats it as such.
The payment facilitator may be largely invisible to the consumer. The merchant, referred to in the PF world as a submerchant, presents itself as the seller of the goods or services to the consumer. The submerchant name is the name the consumer recognizes. Different purchases from different submerchants will take place individually and through different web sites.
Typically, PFs do not handle customer inquiries, product or service issues, or refunds – those are usually handled by the individual submerchants. The submerchants have their own refund policies as well, so the PF has little to no contact with the consumer.
That doesn’t mean that the PF is off the hook regarding issues that submerchants might be having with consumers, however. A PF is financially liable if the submerchant goes out of business or otherwise cannot make the consumer whole.
In a payment facilitator model, the acquirer has a payment facilitator agreement with the PF, and the PF has a submerchant agreement with the submerchant. (The acquirer must be a party to the PF / submerchant agreement when the submerchant exceeds Visa or Mastercard processing thresholds.) The PF typically recognizes only its own fees or service charges as top line revenue.
An acquirer can settle funds to the PF, who in turn reconciles settlement and pays its submerchants. An acquirer can also make payment directly to the submerchants, potentially based on instructions from the PF, utilizing an FBO (for benefit of) account or a similar setup.
Risk / liability for Payment Facilitators and Marketplaces
Both business models assume all liability for the transactions that cross their platforms, because in both cases, transactions are treated by the acquirer as those of the entity facilitating them – either the PF or the marketplace.
However, risk monitoring and reporting are handled somewhat differently. An acquirer will monitor transaction activity on a marketplace’s platform as a homogeneous bucket—all transactions are viewed as those of the marketplace itself and there may only be a single merchant ID assigned to the marketplace volume. The marketplace will provide its own internal monitoring and reporting on the activity of the retailers utilizing it for connecting with consumers to sell their products.
In the case of the PF, however, the acquirer will expect the PF to be able to conduct and provide monitoring and analysis of its submerchants’ activity on an individual basis with merchant IDs and transactional insight distinguishing between separate submerchants. In this case, the acquirer provides oversight of the PF’s individual submerchant risk monitoring processes.
Similarly, the acquirer will underwrite the marketplace itself and board it alone to its platform and may process all of its retailers’ disparate transactions via a single account as mentioned above. In the case of a PF, the acquirer underwrites the PF with the PF subsequently underwriting and contracting with the submerchants – again, with acquirer oversight. The PF will then board submerchants to its own platform, which is integrated to the acquirer.
Visa and Mastercard also have different processing limits, prohibited merchant types and other technical and contract requirements for both business models (Visa rules speak to both models while Mastercard only speaks to payment facilitators), which are important for businesses considering either model to understand in more detail.
Despite their similarities as platforms that enable multiple merchants to accept payments, the differences between payment facilitators and marketplaces mean that the two models serve very different market needs. But together, they’re part of a tech-enabled ecosystem that is adapting to help streamline the payments acceptance process for millions of underserved merchants.