I want to create a marketplace platform, how do I do it?
What do Alibaba, Uber and AirBnB have in common? They all operate marketplaces, a growing business model, targeted by many entrepreneurs, which has operational characteristics different from traditional e-commerces and, therefore, deserves special attention.
Maybe Uber and Airbnb don’t come to mind as easily as examples of marketplaces, so let’s think about Alibaba. On eBay. On Amazon. At MercadoLivre. In the Submarine.
Companies of this type provide an online platform for sellers to display and sell products or services in exchange for a fee, a percentage that is deducted from the value of each closed deal, referring to the platform’s intermediation.
Marketplaces, therefore, are like large virtual shopping malls, collaborative portals that connect customers/buyers and sellers/service providers in one place. On Alibaba, the “storefront,” or screen on your device, displays physical products. At Uber, private drivers. On Airbnb, rooms and houses can be rented.
We analyze the marketplace from the point of view of the entrepreneur who wants to create an e-commerce platform of this model, and cover everything he needs to know before operating it. In June, we will talk about the marketplace for sellers.
Breaking down the marketplace
The marketplace is a long-tail business whose main source of revenue is charging a fee as a percentage of each seller’s transacted volume. Currency volume, transaction volume and working capital management are the foundation of your revenue model.
The platform’s operation is characterized by intermediation. In other words, it must provide the means for buyers and sellers to close deals. Therefore, the core business of the marketplace must be technology and finance.
Technology because the platform is the “meeting place” for sellers and buyers. It is crucial that the platform has features capable of ensuring that products/services are configured, offered and edited by sellers.
Depending on the volume, the marketplace must offer an API for large sellers to upload their products/services to the portal. Having a scalable architecture will also allow the platform to adapt to this volume.
Dealing with money
As we said, financial management is the other aspect of a marketplace’s core business. And this becomes clear when we list the minimum number of parties involved in a business carried out on the platform: intermediary (marketplace), provider (seller) and end customer (buyer).
In traditional e-commerce, on the other hand, there is no intermediary, which makes the revenue distribution flow simpler.
The marketplace is responsible for carrying out transfers and commissions (distributing and passing on the amount paid by the end customer to the various merchants from which he purchased).
To avoid double taxation, the ideal is that only the amount relating to your intermediation operation passes through your bank account. To do this, you must operate under CNAE 74.90-1-04 (Intermediation and agency activities for services and businesses in general, except real estate).
Developing a solution from scratch to handle all these operations has a high financial cost and long development time. But you can count on one of the bold Brazilian financial infrastructures, such as the startup iugu, which has marketplace functionalities and offers APIs to automate all financial operations.
Barring possibilities of fraud
Ok, you’ve finally created a marketplace and are starting to host the first stores that want to use your portal to sell.
But the facilities offered by your marketplace to sellers can attract people with bad intentions who may only show themselves as fraudsters when it is too late. Implementing a risk analysis process is therefore imperative.
There are gangs that operate by creating stores on marketplaces and purchasing their products with stolen cards. The money from sales, without the marketplace operator’s knowledge, is then passed on to fraudsters. There are also those who receive payments and do not deliver the promised products or services.
Checks in the process of creating a seller’s account on your marketplace can prevent this and other types of malicious actions. When creating a store on your marketplace, ask the seller to send documents, such as CNPJ card, company articles of incorporation, documents of those responsible, bank receipts, etc.
Check the veracity of the personal and legal information shared by the user during registration. To do this, use solutions like Serasa Experian.
To analyze the veracity of the purchase, it is also recommended to hire an anti-fraud service. The Brazilian startup Konduto has a great solution, and the American SiftScience has an artificial intelligence algorithm that learns the risks of transactions for the first layer of analysis, which is done automatically.
And who issues the invoice?
The operation of a marketplace may cause doubts about issuing an invoice. Who is buying from whom anyway? Who has the obligation to issue the document?
The seller must issue the sales invoice to the buyer, while the marketplace operator must issue the document to the seller, only with the amount charged for intermediating the business.
If the cost of the payment processing fee is included in the intermediary’s discount, it will suffer double taxation, as your invoice includes the intermediation cost, plus the payment processing cost.
The ideal is to build the payment architecture with split payment, which automatically distributes the value to each party.
Remember: invoices are important in chargeback cases. As an intermediary, it is also the marketplace’s responsibility to deal with purchase disputes (when the end customer claims to their card operator that they do not recognize the charge and ask for the money back).
If the seller of your platform chooses to open a dispute against this customer’s position, he will have to provide all documents that prove delivery of the product/service (invoice, proof of delivery, email exchanges, etc.). But it is the marketplace, as an intermediary, that will present its seller’s documentation to the customer’s card operator.
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