In response to heightened living costs, some have turned to credit cards, bringing Americans’ total balance to record highs. Others have taken on extra jobs and “side hustles” to make up the deficit.
A recent Bankrate Survey found that 39% of Americans have a second income, and even more in younger generations. This has taken on several forms, but in some cases, people are selling old clothes and items to make some extra cash.
In years gone by, to sell second-hand items, you would turn to the garage sale or flea market- in-person stalls to sell your wares, but, as with many things, now the process has been digitalized into the sector of recommence.
Increased engagement from the payments sector could drive it even further.
Payment Processing Can Bring Revenue Opportunities
“Marketplaces used to make money by selling advertisements and promoting paid-for posts,” said Francesc Altisent, VP of Payments at Mangopay. “So basically, it was based on the model of classified ads. But innovation in the payments side can create new opportunities to make money.”
He explained that marketplace’s engagement in the payments processing side could allow them to offer new integrated products. These could help the customers with the useability of the platform but also present instances for marketplaces to diversify their revenue streams.
“This is where the whole fintech space is valuable for these marketplaces,” he continued. He explained that there were opportunities to offer a number of value-added services spanning the fintech industry.
“There is demand for instant payouts, so merchants have funds credited directly into their accounts…You may be able to offer a cash advance to regular sellers… and partnerships with banks to offer online wallets could present opportunities to offer interest on the balance the wallet holds,” he said. “Really, this merges a lot of fintech opportunities that exist out there.”
“And then, of course, the marketplaces don’t do it for the glory. They take some commission. They diversify their source of revenue from being advertisement-based to financial-based type of revenue. Typically, when you move from a fixed amount of euros per advertisement to a percentage of your transaction volume, certainly, your flywheel actually gets an additional gear because it moves much faster.”
Recommerce Platforms face a number of issues
For the customer, e-commerce marketplaces pose a new way to shop and make money easily. However, the appeal is chipped away by payment friction and lack of trust.
“People want to still have the same things they could get two years ago, but they have less available funds,” said Altisent. “On recommerce sites, they can get the same thing at a cheaper price. It might not be the latest, but they can still have it and use it.”
He explained that while the demand is there for the items, customers, now accustomed to the ease of e-commerce shopping but ever more aware of online scams, can be put off by issues on the marketplace’s sites.
“These are customer-to-customer websites. Anyone can post goods online. That’s its appeal,” said Altisent. “But marketplaces face challenges when making them easy and safe to use. These challenges are found in two main areas – processing payments and creating trust.”
“For me, the largest challenge that those marketplaces face is the lack of trust between buyer and seller.”
As the facilitator of the transaction between marketplace users, the platform and any associated payment processors take on the responsibility of creating trust. Altisent said that fraud and customer protections were paramount to the success of marketplaces and involved implementing parameters for KYC and AML like other payment processors.
“There is a very simple rule of thumb in the financial industry: I cannot pay anyone unless I know that that person is a legitimate individual or company,” he said. However, instead of just onboarding single merchants, the controls have to be applied to thousands of platform users. Money flows also have to be monitored to protect against possible money laundering or terrorist funding, which can become overwhelming as the platform starts to grow.
In addition, the items sold have to be monitored to protect customers against fraud. Instances of online misrepresentation of items can be an issue. Marketplaces have had to implement protections so that customers can trust that if the items arrive with a problem, they won’t be out of pocket, and neither will the platform when issuing a refund.
“To support these marketplaces as a regulated entity, all these controls have to be implemented and extended to individual merchants,” he said. “This can become very complicated, very quickly.”
For many e-commerce sites, payment orchestration has been the point of call, allowing for a number of payment providers to be directed into one place. However, recommerce has, for the most part, been excluded from accessing these solutions due to the number of issues involved.
“That made many marketplaces have a very stiff approach into what they can or cannot do,” said Altisent. However, he explained that providers have started to emerge that offer payment orchestration with additional compliance capabilities. “That enables marketplaces to evolve and innovate from where they have been traditionally.”
Isabelle is a journalist for Fintech Nexus News and leads the Fintech Coffee Break podcast.
Isabelle's interest in fintech comes from a yearning to understand society's rapid digitalization and its potential, a topic she has often addressed during her academic pursuits and journalistic career.