Deep Dive: How Marketplaces Use Market-Based Approaches To Recruit Sellers

Many shoppers who make purchases online rely on eCommerce marketplaces to discover items and connect with trusted sellers. Fifty-eight percent of worldwide eCommerce transactions were made using these platforms in 2018, for example, and consumers have since become even more accustomed to them. Platforms that help shoppers find their desired goods typically claim the greatest shares of online purchasing activity, with a recent report noting that consumers favored marketplaces with “expansive, curated” selections.

Robust international operations require winning over many sellers and operating smoothly around the world, activities that can be challenging for platforms. Countries have different regulatory requirements, and platforms must please sellers by paying them in convenient and locally appropriate ways to avoid losing them. Marketplaces must likewise work to ensure that sellers provide high-quality, reliable products and services.

This month’s Deep Dive examines how eCommerce platforms can appeal to merchants worldwide by catering to sellers’ preferences and tailoring their compliance approaches to different locations.

Domestic Seller Currencies

Some marketplaces try to pay all vendors in U.S. dollars, but the practice can be inconvenient for sellers in many international markets. Those that do not receive their payments in local currencies must often wait longer for funds to settle in their accounts, as banks can take up to two days to make cross-currency payments available. Sellers can also struggle to swiftly reconcile payments in currencies that do not match those listed on invoices. These pains can negatively affect merchants’ opinions of certain platforms, especially if alternative marketplaces can solve these issues.

Some markets have also made delivering sellers’ payments in local currencies a legal requirement. Currency-restricted nations may prohibit residents from keeping or using foreign currencies or limit how much can enter their countries, so payments in nonlocal currencies could be more complicated for these sellers to accept and process.

Complying With Payments Regulations

Global marketplaces must follow numerous regulations when issuing payments. Those working with buyers or merchants in the European Union, for example, must abide by the revised Payment Services Directive (PSD2), which requires marketplaces to obtain licenses before they can manage payments between buyers and sellers. eCommerce platforms that wish to avoid the costs of purchasing these licenses — or the fines attached to operating without them — can turn to authorized payment platforms to handle the process. These payment partners accept payments from buyers and then distribute the funds between sellers and marketplaces based on fee agreements. This approach provides marketplaces with seamless, hands-off experiences. Marketplaces that want more control over their customers’ experiences could instead continue to handle payment acceptance from buyers and then deliver the funds into accounts with their payment partners and work with the latter to deliver sellers’ payouts, as this method also adheres to PSD2’s requirements by keeping the two sides of the payments process separate.

Marketplaces must also operate according to the sanctions lists in each country they serve. Nations maintain lists of different countries, individuals and organizations with which transactions are forbidden or restricted to prevent money laundering, terrorist financing and other crimes. Marketplaces that fail to obey these stipulations could face fines of up to $20 million, and their executives could receive prison sentences of up to 30 years.

It is thus crucial that eCommerce platforms stay aware of each jurisdiction’s sanctions and regulations and refer to them when conducting know your customer (KYC) checks on sellers. Marketplaces that are expanding internationally could find it challenging to comply with these rules, but third-party payments platforms could help them tackle such responsibilities.