Acting as digital trading posts, online marketplaces provide businesses and freelancers with platforms to buy/sell services and goods. Whether it’s Uber, Etsy or Upwork, the result is a direct-to-consumer channel that brings new income and exposure to people around the world. In fact, the effect of online talent marketplaces alone has the potential to add $2.7 trillion to global GDP by 2025, according to McKinsey.
It’s not all sunshine and high revenues for marketplaces, however. Increasingly, marketplace businesses are battling user disintermediation. Defined as the removal of the “middle man” in a supply chain, disintermediation in the online marketplace means that buyers and sellers who meet on the platform later opt to go “off platform” and conduct business directly.
Specific reasons for this trend vary by marketplace and industry, but disintermediation generally boils down to fees and frequency outweighing the perceived value of the platform. For example:
- A freelancer looking for recurring projects from a client may suggest entering into an independent contract to avoid the fees charges and rigid scheduling levied by the platform.
- Alternatively, a homeowner may use a popular home-sharing marketplace to promote a property but will circumvent the platform’s fees when it comes time to finalize the booking – abandoning the very marketplace that connected buyer to supplier.
Increasing Perceived Value through Payments
To tackle disintermediation, marketplaces have taken to boosting perceived value through tactics such as ratings, member communities and customer service.
Another weapon in marketplaces’ disintermediation arsenal is payments. For suppliers and buyers, communicating the advantages of an intermediary facilitating the payment experience can be one of the most valuable assets a marketplace can offer. Here are three examples of why:
- Security: As many marketplaces have embedded payment service providers and processers, layers of security are “baked in” to protect buyers from fraudulent transactions or charges. Marketplaces that excel at communicating their ability to protect their buyer’s payments, particularly at a global level, will boost their perceived value.
- Speed and automation: Marketplaces alleviate the hassle of the payout and settlement process to suppliers. A freelance platform like Upwork stores payment methods, validates payment totals and automates payouts weekly. For both freelancer and client, detailed reporting on jobs paid is also available. On the other hand, manually processing payouts is a time-consuming and costly task that requires keeping track of various payment details, bank wires or Paypal fees and disparate reporting.
- Global access: As marketplaces expand globally, they are more readily equipped to navigate cross-border payments. Marketplaces understand the available payment types and regulatory requirements in specific countries where they operate. That detailed knowledge will help them offer a mix of preferred payments methods for both supplier and buyer, including payouts in local currencies.
Marketplaces are shrinking the world and changing the way we shop and work. As they fight to remain at the crossroads of suppliers and buyers, leveraging payments can be the difference maker for keeping users on platforms and engaged.