With more industries embracing the sharing economy each day, such from pet sitting to DIY, is it time that payments caught up? Anna Tsyupko, CEO of Paybase, assesses all the different options for these companies, from Gumtree to Etsy and discusses to pros and cons of each.
The rise of the sharing economy is increasingly prevalent in our everyday lives. More and more people are booking taxis, renting rooms and buying and selling directly from each other through websites and apps. Companies like Uber and Airbnb have become synonymous with their respective industries, showing that the sharing economy is challenging more traditional business models.
Online marketplaces such as Etsy, Depop and Gumtree have rapidly become popular, and there’s an app for almost any task from cat-sitting (Cat in a Flat) to DIY jobs (TaskRabbit), with a whole host of willing people ready to help.
Why is this form of trading so successful? It removes the middleman between merchant and consumer, benefiting them both. Merchants are able to sell their products and services more easily and consumers have access to a larger, more diverse market.
So what is holding the sharing economy back?
Although the sharing economy is booming, payment processing still poses a significant challenge to online marketplaces. Entrepreneurs will often divert much of their time and resources to the development of a marketplace app or website, and underestimate the difficulty involved in creating the payments component.
Due to the antiquated nature of payment processing, the options available for marketplaces are limited and all result in different challenges.
Option 1: The easy option
Firstly, they can avoid the hornet’s nest altogether by creating a platform that does not support payments, as Gumtree has.
However, organising the payment and delivery then becomes the responsibility of the seller or buyer which can discourage some customers. This can affect a marketplace’s reputation as it cannot guarantee safe or secure payments.
Option 2: The PSP/Acquirer Route
Secondly, marketplaces can decide to take payments by partnering with a Payment Gateway and Acquirer.
The difficulty is that the marketplace has to receive funds centrally and then disburse them to their individual merchants. As a marketplace grows, ensuring all sellers receive their profit in a reasonable timeframe can require large amounts of work and become costly.
Option 3: PayPal
The option of using PayPal – especially for a smaller marketplace – normally involves leaving a platform to make a payment, which can be a jarring experience for a customer and can result in loss of sales.
According to research from SaleCycle, on average, 76% of online transactions are abandoned and as such businesses are starting to focus on improving their conversion rate. Perfecting the customer experience and allowing for the smoothest payment possible is an important tool for ensuring each transaction is completed.
Option 4: The DIY way
Finally, a marketplace can develop its own electronic money (eMoney) infrastructure to create a smooth user experience, as Airbnb did. EMoney infrastructure allows you, as a marketplace, to easily open individual eMoney accounts for every merchant of yours so that they can receive funds directly whilst you have complete visibility and can easily collect your fees.
This is a solid option although you do need to be prepared to assemble a team with a high level of knowledge, spend months coordinating integrations with multiple providers, wait for your EMI (EMoney Institution) licence to be granted and assemble an internal risk and compliance team.
What does the sharing economy need?
Currently so much time and resources are being poured into payment components which could be much better spent on focusing on development within the marketplace and the user interface itself.
User experience is vital in the sharing economy space, due to the highly competitive nature of the sector. In order to be able to stand out from the crowd in such an innovative, rapidly developing space, you need to have a smooth customer journey and a well crafted product. And payments need to be easy, intuitive and not take up too much of the platforms’ time.
Option 5: Paybase
This is why we developed Paybase: the end-to-end eMoney solution in one unified API. We created the Paybase Platform so that marketplaces can concentrate on their core offering, knowing that they aren’t going to lose time, money and sales over their payment system.
With Paybase, businesses can get their payment component up and running within a matter of days rather than months, and track all the transactions and data via the Paybase Console.
The sharing economy has already opened so many doors for innovation and disruption. Imagine how much more could be achieved if these innovators didn’t have to battle with the issue of payments and instead were able to channel all their efforts into creating the next big game changer.
By Anna Tsyupko