“The moment of inspiration is now critical because it is fragile,” Bishopp said. “When I have that moment when I want to buy or donate something, I don’t want to have to jump around to a bunch of different websites or move around [to] a bunch of different screens. I want to be able to do it here, where I am.”
For the platforms that connect consumers with the merchants that could potentially serve them, the competitive pressure has evolved. It’s not just about bringing groups with mutual commerce interests together, but about making them able to seal the deal with a transaction. Now, platforms are increasingly adding payments to the mix and becoming marketplaces.
It’s a development that one can see all around the industry as of late.
In the last week alone, Zillow adapted its platform so that landlords and tenants could handle rent payment via its portal, and acquired a mortgage lender so users could directly arrange financing while browsing for homes on the site. Instagram has spent much of the last year upping its commerce capacities on-site, most recently by expanding shopping into Instagram Stories from its historical home on the newsfeed. On the other side of the world, a Chinese parenting platform called Babytree snapped up a $2.19 billion valuation, and investments from Alibaba, as it attempts to build the all-in-one content-and-shopping platform for parents.
In the past, Bishopp noted, there had been an attitude from platforms that expanding directly into the commerce and payments side of things was too risky, too difficult and too expensive. However, these days, those “perceived roadblocks are being eliminated,” as third-party payment-technology solution firms are stepping in to clear these historical hurdles in the way.
That, he noted, is making it easier for marketplaces to get into the game, which is changing the nature of the game itself from the inside out.
There are, and always will be, challenges and risks when getting involved with payments, simply because of the nature of the business and, particularly in the early days, because “marketplaces often don’t know what they don’t know,” Bishopp noted.
There is a lot of work in those early days to overcome that knowledge gap — firms need to work with trusted advisors, do their research and have a very clear idea of who they want to attract to their marketplaces. That’s all work, he said, but it is very doable, especially with the glut of market resources out there.
What is holding a lot of platforms back, though, isn’t the real difficulty; it’s areas where they perceive there to be insurmountable obstacles that don’t exist, or at least not to the degree it is believed they exist.
Bishopp explained, “They don’t want to do payments because it seems like all of it [is] so difficult — onboarding, installing checks and balances, all of the transactions security risks themselves. They are worried about being on the hook and about being fined, and are not sure what it really means to be responsible for payments.”
However, that is changing, as third-party providers and white-label solutions are proliferating, and the excuses are dropping away. A good provider, he noted, can manage some 90 percent of that dreaded back-end and front-end complexity away — and make it fairly easy for a marketplace to become up and ready to go on accepting payments pretty quickly.
“Lightning strikes” can happen, he added, but it is becoming much easier and more cost-effective for merchants to get a clear-eyed version of likely risks, and how they can be reasonably managed and mitigated. Meanwhile, the service and payout side has gotten faster and less friction-filled, as banks and acquirers have caught on to the fact that they need to move money faster so that people who are providing the goods have more reason to want to enter into the relationships.
“Competition between marketplaces and solutions providers is forcing everyone in the area to want to get good at this, which means the conservative players that continue to hold back aren’t going to win this,” Bishopp said.
The Development Of Marketplaces
The evolution toward the marketplace models that are becoming so ubiquitous today is long in coming, Bishopp noted. The first forbearer is eBay/PayPal in the late ’90s and early 2000s, which kicked off the evolution of the internet payment provider and payment facilitator models. But marketplaces as we understand them now were really developed and had their rules written by companies like Amazon, Uber and Lyft.
“They are not a payment facilitator, but your entire experience is with them, and that is where the difference is now. [That is] when a consumer is working directly with an entity that is really selling nothing, but is bringing suppliers of goods together and a venue to buy it — like Instagram and the other players that are coming up,” said Bishopp.
As the model has worked for those early players, he added, services and service providers have sprung up to make it easier to get a marketplace up and running, without having to develop a full-service stack to manage it all like Uber, Amazon and Lyft essentially did.
Security has also developed robustly throughout the process so that marketplaces can do a better job of policing not only transactions themselves, but the merchant and consumer onboarding. That way, everyone in the marketplace can feel confident about everyone else’s identity.
It’s a more competitive space in many ways, particularly as acquirers are expanding their efforts toward playing directly in the third-party payment provision space, and for fear of being squeezed entirely by technologists and being relegated to commodity status. However, Bishopp noted, it’s also a more cooperative space, as the players involved are increasingly clueing in to the idea that this is necessarily going to be a collaborative effort.
“Acquiring banks realize they are losing market share to the technology guys. They want to play more and so they are making investments, and doing great partnerships and investments, to provide those deep technology plays to marketplaces. And they are all going after this high-growth area of third-party payments or complex payments, or anytime a third party is helping buyers and sellers conduct transactions,” Bishopp said.
It’s a good environment to get into, he said, because there is a lot of growth and room for improvement. The good news is that, unlike the earlier inventing-the-wheel days of marketplace payments, there is also now a large and growing amount of adult payment supervision in this area for when firms want and need it.
Where It’s Going
One of the more interesting things about watching the rapid evolution of the marketplace space, Bishopp told Webster, is the unexpected paths of evolution it has taken. Local chambers of commerce are setting up marketplaces because it makes sense, given their role as a hub for local businesses, and from which local businesses may connect their digital platforms.
Quick service restaurants (QSRs), he noted, make up another area of quick growth because there are a lot of mobile apps and technology plays, like tableside kiosks that these restaurants often use. These services are all white-labeled so that, from the front end, the consumer always feels like they are interacting with the food vendor of choice. However, on the back end, there is a complex third-party process that routes the payment from the mobile app or kiosk back to the store where the sale was made.
Bishopp said, “A lot of the good marketplace platforms are very behind the scenes, and very white-labelable to make sure that the goods and services being conducted are what the brand is front and center.”
The Coming Evolution
As there get to be more marketplaces, Bishopp and Webster noted at the end of their conversation, and as it gets easier and more efficient to build a solid and secure one, oversaturation in the market becomes a problem. Bishopp likened it to the earlier days of mobile wallets, when it seemed every brand that could find a way to affix “pay” to the end of its name rolled out a product.
Too much saturation eventually breeds consolidation because consumers don’t want to navigate too many options. In fact, oversaturation damaged adoption overall, since consumers get caught up in the paradox of choice and find it hard to select anything.
The change, he noted, is already afoot in the industry: Acquiring banks are buying up technology plays as they are working to hold their place of relevance and importance in the payments value chain. The space is evolving quickly, he noted, and is going to continue to do so as payments are turned on in more environments, and as consumers are enjoying more contextual interactions.
“I think you will see more change for the financial institutions [FIs] sector, of really helping merchant[s] enable payments through a marketplace [in] some form or fashion. You’ll see them in the conversation more than you do today,” Bishopp said.
He also believes the players there will begin to play better together — with banks collaborating with each other to build marketplace networks to service very specific vertical plays.
“Kind of like how we saw them come together for P2P payments,” Bishopp explained, “I think they will look to come together to lead a marketplace platform because they realize no one institution can do it themselves.”
As for where to look for those large alliance plays, with or without acquisitions, Bishopp noted that hospitality and healthcare are the two most likely candidates, as they have the biggest and most front-facing consumer positions in the market.
“There’s two big needs there, and no one bank can do it. But marketplace[s] and banks together are well-placed to pull that together,” Bishopp said.
We’ll check back a year from now to see if he was right.