Marketplace infrastructure: Trade, Fintech and logistics

Ryan Lee, Founder and CEO of Nautical tradean on-demand marketplace platform for multiple vendors.

It is important to understand the distinction between multi-vendor and single-vendor e-commerce platforms. When marketplace operators minimize their differences, they make decisions that set their marketplace up for a future of technological difficulties, scaling issues, and hidden costs.

The difference comes down to infrastructure. Single-vendor e-commerce platforms focus only on the trading requirements of a marketplace, but fintech and logistics are equally important.

Multi-vendor marketplaces have high-maintenance fintech, logistics and e-commerce challenges that the right software can help overcome. Sure, traditional e-commerce involves some fintech and logistics, but their needs pale in comparison to multi-vendor marketplaces.

If a platform only focuses on commerce, you will quickly learn that you need to make significant investments to bridge the wide and burdensome fintech and logistics gap.

The three main components of a marketplace: Trade, Fintech and Logistics

To build a marketplace that is set up for success and efficiency, marketplace operators need to look at the whole package. Remember this: Marketplaces must operate at the intersection of trade, fintech and logistics.

Here’s why.

Marketplace trading components

Trade refers to the ability to buy. It begins with enabling a supplier to list an item or service for sale and ends with an order confirmation email to the buyer and a completion notification to the seller.

Marketplaces require the following trading functionality.

Payment with several suppliers: Marketplaces need the ability to check out from multiple vendors at the same time. Think Amazon. You can buy a blender, golf pants and a laptop from different sellers and delivery times in one order.

Supplier portal for uploading products: Sellers will require a backend where they can manage their store, upload products and update their inventory. Single vendor e-commerce requires only a single product management support for the store owner.

Purchase experience: The shopping experience is about browsing through an extensive product catalog intuitively, searching the catalog, easily adding items to the shopping basket and checking out efficiently.

Marketplace Fintech Components

Fintech refers to the complex accounting and payment requirements involved in running a marketplace. Deposits, payouts and reconciliation are key components of a successful marketplace and are far more involved than a single vendor’s e-commerce site.

Marketplaces require the following fintech functionality.

Payment processing and returns: Like all e-commerce stores, marketplaces must process payments, support a variety of digital wallets, and reverse transactions. Unlike single-vendor e-commerce stores, marketplaces must process returns on behalf of hundreds or thousands of vendors, adding complexity.

Supplier/seller payments: Unlike single-vendor e-commerce, which only takes in money, marketplaces take in money and pay out to suppliers. When multiple vendors are involved in a single transaction, marketplace platforms must also slice and dice payouts accordingly when paying commissions.

Revenue recognition: Adding the buyer’s money-in, seller’s payout equation, marketplaces must calculate operator’s income from products sold. Further complicating calculations, your cut may vary based on a provider’s contract.

Regulatory and tax compliance: Traditional e-commerce businesses pay the taxes to the jurisdiction of the head office. One region, one set of rules. However, marketplaces may have sellers that cross state and country borders, meaning they are subject to the sellers’ regional tax laws. Market platforms need the intelligence to split amounts due to several government bodies at the end of the period.

Marketplace logistics components

Logistics refers to the operations that take place after an item is purchased and until the product or service is delivered. In other words, execution.

Marketplaces require the following logistics functionality.

Inventory management: Marketplaces work with multiple sellers who all operate their warehouses. While single-vendor e-commerce solutions allow one vendor to sell from multiple warehouses, they are unable to handle the inventory scale required by marketplaces. Each marketplace vendor can have multiple warehouses they ship from, leading to hundreds or thousands of delivery locations for the marketplace.

Order management: A buyer places an order, but what happens next is critical to the continued success of your marketplace. Once an order is placed, your marketplace platform must communicate the order to the supplier. From there, the order goes through a workflow.

• Order received: The supplier’s delivery center receives the order and begins packing it for delivery.

• Order sent: The order is sent out to the buyer, and the supplier shares a tracking number with the marketplace.

• Delivery monitoring: Alerts are communicated as the tracked delivery journeys to the buyer.

Shipping integrations: In many cases, marketplace operators will not be responsible for the physical act of shipping. Instead, shipping will fall on the seller. But that does not completely absolve marketplaces of responsibility. Operators must still notify merchants of purchase details and provide a workflow for returns. You will also likely be responsible for communicating shipping details to buyers.

Returns: With a marketplace, returns involve more than reversing a transaction. You may be dealing with hundreds of returns and need to recalculate or reconcile your merchant payouts and commissions accordingly. A single supplier e-commerce system is not built for complex returns from multiple suppliers.

The Bolt-On Solution Problem

Most marketplace platforms require an underlying trading system to function, attached to an existing system. This means that fintech and logistics essentially do not exist in the basis of the marketplace.

Even when a marketplace is tied together in this way, it is difficult to scale. The flawed foundation sets you up for constant tailoring, custom coding and patchwork processes that will devour human and financial resources.

The future of commerce is interconnected. As more and more companies realize the potential growth opportunities of becoming a marketplace, technologies are becoming available to serve the specific needs of marketplace businesses. However, getting your marketplace infrastructure right is essential to setting your business up for success. Marketplaces should operate at the intersection of commerce, fintech and logistics to avoid technological difficulties and scalability issues along the way.

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