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Why classified marketplaces are rethinking the off-platform payment model.

The thing I love about introducing people to the problem we are trying to solve is that everyone we talk to gets it. They have, or someone they know, has experienced the pain of being left to your own devices to transact with people on classified or (online) auction sites, and have their own war story to tell.

On the flip side, that also means that lots and lots (millions) of people have experienced fraud to some extent when buying and selling online. I don’t love this bit. 

Items you’ve paid for never turn up. 

Or turn up not as expected. 

Sometimes there are just genuine accidents that happen in shipping or delivery.

Sadly, a lot of these examples are purposeful fraud. 

And it’s not all about buyers being defrauded. Sellers get their (un)fair share of fraud too.

Monies recalled after payments have been made.

Demanding refunds and fabricating the reasons why.

Or just simply never paying up.

We hear these war stories every day, and it’s what fuels us to not only help put a stop to online fraud, but to create a truly secure technological solution whereas the fraud risk is eliminated to minimum. Our mission is to make online the safest place to shop. 

If your marketplace takes payments already, you’ve probably got some fairly robust policies around refunds, chargebacks, disputes and appeals, and of course all of the checks you do on your platform users. There may be opportunity to take your payment game up a level when it comes to creating fully assured and protected payments, but we’ll come back to this later. 

Getting closer to the transaction

First, I want to discuss why we leave people to their own devices to pay for things they’ve bought from, or are selling to, a stranger on a classified site. And why we’re hearing more and more that marketplaces want to get closer to the transaction

What does getting closer to the transaction actually mean? Simply put, it means when a marketplace offers a buyer and seller a way to pay one another on the site. Somewhere for a buyer to enter their credit / debit card (or PayPal, Apple Pay etc.) details and pay for the goods or services a seller is offering. 

We have all become very accustomed to transactions online, so why isn’t this just standard practice now? Well, there are costs involved in delivering a payments service. Following changes to PSD2, marketplaces need a payments partner to facilitate the ‘money-in’ from the buyer and the ‘money-out’ to the seller. It also adds complexity to your tech stack, T&Cs, operations, accounting, customer service…

But in a world where success is measured in delivering great customer experience, whether it’s goods or services you’re trading, leaving your customers to fill in the blanks of your customer journey simply isn’t cutting it anymore. More importantly, those customers who unfortunately have been fraud victims when transactions happen off platform can hurt your business and brand more than investing in a great payment experience for your buyers and sellers. 

The classified model has traditionally been about advertising revenue, or listing fees as it’s more commonly termed now. But it can very successfully incorporate transaction commission % as part of the commercial model in offering a payment solution. Think eBay - they charge sellers a combination of listing fees as well as a monthly invoice to take a cut of your proceeds. Why do we accept the costs? Because eBay provides an enormous, diverse audience that provides you comfort of a better, quicker sale for your item. 

eBay, or any online marketplace for listings, auctions or classifieds, are not exempt from fraud, just because they provide a way to pay and get paid. 

“Fraudulent postings were rare through newspapers but due to the anonymous and fast- paced process of Craigslist and eBay, this is now a serious issue. The attraction of using these platforms is because of the vast selection of items and finding interest for them within minutes. Although screening is set up for Craigslist and eBay, it is very hard to catch scams when users can post instantaneously.”  The Evolution of Classifieds

The legitimacy of the old newspaper ad was always in the checks and balances performed by people before anything was published. They might not be truly ‘close to the transaction’ but do at least go some way in protecting buyers and sellers.  

So is getting closer to the transaction a double-edged sword? Does it just invite a whole new world of fraud? Well, to put it crudely - yes - it can do. But there is another way… and now we come back to my earlier point about how you step change even if you already offer payments. 

Buyer and Seller Approved Payments

Shieldpay as an FCA regulated company is pioneering a new era of trust online for marketplaces. We enable marketplaces to not only offer a simple, secure and safe payment solution for accepting payments from buyers and settling funds to sellers (and all the complicated calculations in between), but we also offer Buyer and Seller Approved Payments. In simple terms, we use escrow to hold funds between buyers and sellers until both parties confirm that the transaction can complete. 

And you can use these payment solutions however you want—simple payments in and payout only. Escrow payments only. Or a combination of the two. We’re all very accustomed to paying for premium experiences - whether that’s upgrading your flight seats to getting same day delivery or even insuring your gadgets because it’s worth the extra protection. It’s the same for payments. We see more and more that when you offer the ability for your buyers and sellers to get a tailor-made level of protection for their transactions, it’s the preferred option for many. 

Whether it’s a high value/volume item, a time-sensitive transaction or perhaps a service you’re buying online that should be settled after completion, holding funds until both parties are happy for the transaction to complete has endless use cases. And more importantly, protection against the fraud we unfortunately see in both ‘straight-through’ payments and off platform transactions. 

Getting there in stages

Digital transformation of any kind is always a big business decision that requires lots of different stakeholder alignment and prioritisation, so if you're going to make a change such as introducing payments to your platform, it's not something that's going to happen over night. That said, we're big fans of a finding ways to get going quickly with a minimum marketable product (MMP) to test, learn and evolve. 

Here's how I would recommend introducing payments for any Classified Site looking to evolve their customer experience:

  1. Start with Protected Payments as an option for buyers and sellers
    At an appropriate point in the customer journey, you can offer the option for buyers and sellers to use a payment solution that allows you to hold funds on their behalf until the transaction is ready to complete. Why this one first? It has the power to shape a USP for your marketplace, and one that you can effectively build on from here. Payment solutions have become a differentiator that many brands have used as marketing campaigns and tactics to entice audiences away from the competition, and to drive higher conversions. No doubt you'll have seen retailers promoting the use of Klarna for example. Protected Payments gives your customers a better way to manage their transaction, but only if they choose to do so. It's also something you can monetise as a value-added feature of your marketplace. 
  2. Add an additional option for a Straight-Through Payment
    Again, this is a choice for buyers and sellers, meaning they can still transact off-platform if they choose to, but it gives you further experience to learn from by understanding how this compares to protected payments, and just how many customers choose to use this feature. I'd be incredibly surprised if all of your customers didn't choose either of these payment options rather than transact off platform, but it's always good practice to go with the data. And you can monetise this too. 
  3. Straight-Through Payments become the default for all buyers and sellers, with Protected Payments remaining an optional extra
    Now you have all of your payments on-platform, with the ability to continue to leverage Protected Payments as your USP, and continue to monetise this as a value-add to users if that works for your business model.
  4. A full switch to Protected Payments as the default
    One for the data for sure, but creating trust in the transaction is something we hear more and more. Why not just go all-in with Protected Payments and lead the charge in delivering a transformed customer experience on your Classified Marketplace? Of course, led by the data in delivering stage 1 through 3 beforehand. 

What does that mean for the future?

The classified isn’t going anywhere. In a world where our resources are finite, we are therefore increasingly embracing the pre-loved, re-commerce, second-hand option of buying and selling. And where the solopreneur revolution continues to grow, and simply for the smart business owner who wants to reach bigger audiences, the marketplace model is the perfect platform for how we want to trade. But we have to evolve to make these transactions safe. 

There’s not much out there surprisingly on the transformation of classifieds to e-commerce. Lots on fraud. Lots on e-commerce trends and transformation. But nothing that talks specifically about evolving the classified platform into a fully payments-enabled platform to deliver a protected customer experience.

We believe that everyone deserves to have their hard-earned money protected, whether you’re paying or being paid. If you’ve got any experiences that you’d be willing to share, or have similar challenges with your classified marketplace, I’d be really interested to hear more. This feels like something that’s due some proper research and thought leadership. 

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