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How to build and scale an online marketplace

Think about the last time you ordered a meal to be delivered, or a ride home from work. Chances are you’ve just used one of the many multi-sided online marketplaces that are transforming our everyday lives. International marketplaces like Deliveroo have launched with huge success in Australia, while home-grown marketplaces like Catch.com.au and 99designs are gaining popularity.

In a study of hundreds of marketplaces running on Stripe over a two-year period, we found that the revenue of a typical marketplace increased by nearly 300 percent year over year. With progress this strong, online marketplaces of all sizes are going to play a role in nudging global economic growth. In fact, independent research from Nielsen found that half of Australians (50 per cent) prefer using online marketplaces for transportation, hospitality, and food delivery/subscription instead of going to taxis, hotels, restaurants directly.

But building a marketplace is no mean feat. Not only do you need to manage the balance between sellers and buyers (or supply and demand), you also have to manage the complex flow of funds and products — a challenge that increases as a marketplace scales.

Make it easy for sellers

By definition, marketplaces have multiple, distinct sets of users — typically buyers and sellers, but sometimes additional groups like couriers as well. For a business model that requires carefully balancing competing sets of priorities and expectations, where should a marketplace focus its resources?

It’s tempting to answer this question with the conventional wisdom of focusing on the demand side: attracting buyers. However, Stripe data reveals some of the flaws in this approach. Marketplaces with higher seller retention rates generate much greater revenue than others. Conversely, higher buyer retention is not associated with significant revenue increases. In fact, increasing seller retention by one percentage point predicts 10 times more revenue than the same one percentage point in buyer retention. This reflects the high stakes relationship between sellers and marketplaces, and their mutual reliance on complex platform functionality.

Analysis from Forrester Research suggests that the most successful marketplaces keep sellers coming back by offering superior revenue-generating opportunities alongside other valued platform services like fast and reliable payouts, seamless onboarding experiences, deeper security and responsive support. Think, for example, about how easy it is to set up a Kickstarter campaign and start receiving funds from backers online.

Optimise for mobile

It is no exaggeration to say mobile is defining the evolution of commerce over the next few years. To remain competitive, marketplaces need to adopt a mobile-first model. This means integrating mobile payment options like Android Pay or Apple Pay and optimising the checkout flow for a smaller screen. Nearly half (48 per cent) of Australians report a preference for digital wallets and regional payment methods when making purchases, which suggests there is a clear growth opportunity for Australian marketplace businesses.

On the flipside, sellers need to be provided with a sophisticated in-app experience to help them manage their side of things. Airbnb gets this right by allowing both hosts and guests to manage their bookings via their app or SMS.

Build security and trust

Building trust is paramount for an online marketplace where buyers and sellers never meet face to face. Both buyers and sellers want to be assured that their interactions on the marketplace are safe and secure. Ninety-seven per cent of Australians reported it is important for them to know their contact details are safe when using these platforms.

One way to do this is through tokenisation. For example, when a user takes a ride or orders takeout, Stripe Connect securely collects and stores their payment information, and generates a one-time-use token for each purchase or order thereafter. This is inherently more secure than sharing usable credit card numbers with each transaction, without compromising on convenience for the end users.

Additionally, tools like Twilio can facilitate communication between buyers and sellers on a platform, while keeping contact information like phone numbers and email addresses anonymous. Another way to build trust is by keeping the entire transaction on the platform, ensuring users stay in a familiar setting to complete the payment.

Take it global

In relatively smaller markets like Australia, thinking global from day one is paramount to success.However,marketplaces with global ambitions have traditionally been confronted by the complexity of various banking systems around the world and the need to set up different local accounts in each country to handle sending and receiving payments.

Implementing a payment solution that allows marketplaces to seamlessly accept multiple currencies is a sure-fire way to attract sellers eager to unlock new markets and bring buyers from around the world onto the platform. Thankfully, complex international payment flows are no longer the secret expertise of giant corporations. Stripe Connect, for example, works behind the scenes to take care of the complexity around local merchant accounts, identity verification and compliance requirements, making it possible for marketplaces to expand internationally and immediately support sellers in any of the 25 countries where Stripe is live.

In Australia, we’re just at the beginning of the explosion of marketplace business models. Using the right technology tools and thinking globally will be vital to gaining the scale required for surviving in this thriving and competitive new kind of commerce.

Mac Wang, Head of Growth, Australia and New Zealand, Stripe


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