Ryan O’Holleran, Head of Enterprise, EMEA at Airwallex, discusses how marketplaces can keep pace with Amazon in an ever changing world:
Last month one of the world’s newest and fastest-growing marketplaces, Temu, announced it would be opening its platform to European and US sellers and even made its Super Bowl ad debut this year. For the increasing number of eCommerce marketplaces hitting the scene, rapidly attracting sellers and customers in new geographies is essential to accelerate growth and compete with Amazon.
However, this multi-market dream is too often impeded by legacy financial systems. Before businesses can attract loyal customers, marketplaces need to be set up with the right financial infrastructure to serve them. For marketplaces looking to scale fast into new markets, exploring modern payment solutions should be high on their list and something they consider early to support their growth.
Barriers to borderless growth
Expanding across geographies creates even more growth potential for marketplaces. After all, the most successful marketplaces connect sellers and buyers from across the globe. Despite international selling being a key feature of marketplaces, many don’t have the infrastructure in place to best support this. This can deter frustrated customers, affect sales conversions and hamper overall expansion efforts.
Due to their role in accepting payments from buyers and sellers in different geographies, marketplaces have some of the most complex payment requirements. This means they need to be able to let customers pay using their preferred payment method. For example, a UK-based eCommerce platform looking to expand in Southeast Asia needs to be equipped to accept payments via local, familiar payment methods such as GrabPay. Setting this up in each new market requires time to research and build in the right payment integrations. Without this, marketplaces may struggle to scale as they cannot tap into the full potential of diverse regional markets.
To compound this, marketplaces must be able to take payment in the customer’s preferred or local currency, and seamlessly payout to the seller. Traditional banking providers typically offer unfavourable exchange rates and charge high fees for currency conversions. As a result, this cost often gets passed on to the customer and even eats into the marketplace’s own profits. Currency conversions also create delays in settlement, meaning a seller could be waiting days after the sale is made, disrupting their cash flow and impacting their ability to maintain inventory and fulfil orders. Sellers will have little tolerance for disruption, especially when their expectations are set by the standard of other marketplaces such as Amazon.
Finally, one of the biggest hurdles slowing down new market entry is compliance. Marketplaces looking to expand into multiple markets have to comply with local regulations to verify customer identities and keep funds safe. These regulatory requirements vary from country to country, so marketplaces have to adapt differently to processes and information collected in each region. Ensuring compliance is a big undertaking and is resource-intensive, which can inevitably slow down new market entry.
So if fragmented financial systems are the problem, what is the scalable solution?
Scaling fast with modern payment systems
Increasingly we are seeing how marketplaces are shifting away from traditional banking providers to fintech platforms. With tech-led solutions, fintechs are able to tackle the majority of these cross-border commerce pain points, often via a single API integration.
By connecting an API to a global payments network, marketplaces can get set up instantly with a broad range of familiar payment methods for each region they’re looking to operate in. Once in place, shoppers are more likely to trust and proceed with transactions. This means marketplaces never have to lose a sale because they don’t offer a localised checkout experience.
The rise of feature-rich FX capabilities offered by fintechs is also empowering marketplaces to lock in FX rates. This means they can eliminate any nasty surprises driven by FX volatility. Greater transparency also prevents customers from browsing elsewhere for a competing store that does display their local currency and avoids sellers feeling out of pocket by uncompetitive conversion rates. This price stability reduces the financial risk of expanding into new markets.
Multi-currency accounts are also gathering pace as a solution to manage high volumes of cross-border payments involving different currencies. Traditionally, marketplaces have been forced to open and manage local bank accounts in each market they operate in. The beauty of multi-currency accounts is that the marketplace only needs one single account, removing the need for extensive financial relationships in each market. Effectively this means that a customer can pay into the account in Euros and the marketplace can pay out to the seller in USD or whichever their preferred currency may be.
Many marketplaces are also now seeking out support from fintech providers to guide them through Know Your Customer (KYC) and Anti-Money Laundering (AML) adherence in different markets. Fintechs are taking care of the hard bit, which removes the time and cost spent on compliance, thereby reducing the time frame to scale in new regions.
Each of these advancements in technology has the power to remove the technical and legal complexity facing marketplaces, and importantly, help to accelerate their multi-market strategy so they can scale quickly. With the right infrastructure in place, marketplaces can get back to establishing a strong brand identity, attracting a loyal customer base, and innovating to stand toe-to-toe with the likes of Amazon.
