Thought Leadership

The Role of Mass Payments in Marketplace Buyer Trust

Imagine you’re shopping at a popular big box store. As you walk through the aisles, you recognize the names of familiar brands: Sony, Nestle, Kraft. You probably even have some of their products at home. Unless you’ve had a bad experience with the store or the brand already, you trust that whatever you purchase will be up to your standards in terms of quality. Besides, these are big companies with extensive complaint resolution processes in place—if something goes wrong, you can reasonably expect that they’ll replace the product or return your money.

Making purchases through a two-sided marketplace (rather than a brick and mortar retailer or their online store) is different because there are additional, lesser-known actors involved in the transaction. Rather than buying well-known products from a well-known company, you’re buying from another user—and unlike a traditional storefront, the marketplace has very little direct control over the product or service being provided.

That dynamic obviously poses some problems. Trust and safety remain the cornerstones of successful marketplaces—not only because constant customer disputes slow down procurement and require significant administrative resources to manage, but also because people aren’t likely to buy from a marketplace again after they’ve been burned. In another article, we explored some of the ways to build loyalty with marketplace sellers. Here, I want to talk about creating trusting (and, hopefully, long-lasting) relationships with marketplace buyers.

The Marketplace Relationship Triangle

There are three relationships that are tested in every marketplace transaction: buyer and marketplace, seller and marketplace, and buyer and seller. Marketplaces can comfortably manage the first and second because they’re directly involved. With the buyer and seller relationship, though, they’re one step removed. As such, getting buyers to trust sellers requires proper protocol and process.

A quick aside. Too often, marketplaces see the sort of work required to establish this trust as a trade off against growth and scaling: do I invest this extra dollar into screening the different actors on my platform, or do I invest it in my marketplace expansion? We’ve talked about this decision as the difference between marketplaces and matchmakers. Matchmakers—which connect buyers and sellers but don’t tend to become involved in the actual transaction—will often choose to put that dollar into their growth. Marketplaces, though, need to solidify their platforms’ trust before expanding. After all, marketplaces are providing more than just a matching algorithm; they’re adding value to the customer by serving as the transaction intermediary, dispute arbiter, and safety layer.

Most marketplaces approach the buyer and seller relationship through a ‘carrot and stick’ policy. They might reward sellers who follow the rules while levying strict penalties against those who break them. For example, Lazada imposes penalties against users found selling counterfeit or damaged goods. Other marketplaces take it a step further, becoming even more involved in the transaction by taking possession of sold goods before passing them onto the buyer: platforms like GOAT have a team of experts who will accept every consignment and verify it prior to delivery. While this approach provides an added measure of quality control, it does come with a slower path to growth as centralization requires greater resources when a marketplace begins to scale.

He Who Controls the Payments…

One of the most powerful approaches to building buyer trust in the seller is for the marketplace to take control of the payment flows. Rather than buyers and sellers exchanging money directly, marketplaces can institute their own explicit rules as to when the seller gets paid, deterring potential bad actors while not necessarily making it difficult for them participate on the platform. Some marketplaces will withhold funds, acting almost as an escrow agent, while others will offer financial rewards (e.g., lesser fees, more prominent listing) to sellers who have received positive feedback from buyers. This approach reassures buyers that their purchases will be honored while maintaining speed in the transaction. From our own conversations, we know that marketplaces in control of their payment flows can more readily establish buyer trust without impacting their scaling efforts.

Another advantage of taking control of payments is that a marketplace can protect sellers by guaranteeing payment to them, even if the buyer defaults. Some marketplaces have a default rate as high as 10 or event 15 percent because of return policies, security policies, and so on. As a seller, that impacts your bottom line directly. Marketplaces should ideally pay out from an independent source of funds, rather than just acting as a settlement to the seller for a buyer’s payment.

Payments Help Build Buyer Trust Online

Controlling payments is obviously not the only method of building buyer trust, of course. Marketplaces also need to ensure that their customers have a clear path to conflict resolution which is equally fair to buyers and sellers (always siding with the buyer is a recipe for supply-side revolt). Additionally, marketplaces should work to standardize their onboarding requirements and provide customers with confidence in the quality of products or services on the platform. Nevertheless, controlling payments remains a simple and effective means to maintain buyer trust—and unless you’re happy staying a matchmaker, you really ought to be doing it. After all, a marketplace’s revenue depends on the value it is bringing to the transaction, and nothing builds value as quickly as ensuring the financial well-being and safety of both the buyer and the seller.

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