It's no longer a question if online B2B marketplaces will be major players in the ecommerce space. Connecting buyers and sellers through a marketplace platform, creates a faster and easier way to enhance both sides of the supply chain. It makes sense then why 60% of B2B customers are comfortable purchasing on a marketplace.
And it's reflected in the market—with B2B marketplace growing 7.2 times faster than all B2B ecommerce. A big part of that is thanks not only to an increased demand in digitalization, but to the platforms, infrastructure, and technology that have enabled marketplaces to move online.
Payments are an important part of that. Mariah Stewart, our Client Success Manager, has worked with hundreds of B2B marketplaces to launch and improve their payments experience.
In our latest webinar, she shares a guide to marketplace payments, along with plenty of real success stories. But first–it’s important to understand the vertical marketplace space.
What are vertical marketplaces?
Within online B2B marketplaces, there are a number of different classifications. For example, there are horizontal marketplaces like Amazon Business – where transactions are facilitated for a wide range of customers across different sectors.
Amazon Business has taken the B2B space by storm, going from $1 Billion in global sales in 2016, to $25 Billion in 2021, according to Forrester. Vertical marketplaces, aimed at one market sector to serve a specific category of products, are also a booming segment for businesses.
But there’s a lot that has to go on behind the scenes to enable buyers and sellers to easily and smoothly transact on a marketplace. Meanwhile, marketplace operators are up against their own challenges when it comes to monetization, compliance, and risk.
We’ve coined this as the three-sided dilemma. Where do B2B payments come in? Well, the right payment infrastructure ultimately benefits all three parties involved in the transaction– that’s both the complexity and the advantage of a marketplace model.
What are the payment challenges and opportunities?
Online B2B marketplaces need to bring supply and demand online and facilitate the buying and selling process. All while building a growth model that allows them to scale, monetize, and provide value.
On the demand side, buyers need quality goods that are convenient and easy to purchase. For buyers, finding goods at below market value, in a shorter lead time—can significantly grow margins. Suppliers on the other hand need to acquire demand online, in an efficient, fast, and safe way. For example, if sellers can get any excess materials or products off the inventory floor, more resources can go towards their most profitable goods in stock.
If done successfully, the marketplace opportunity is ripe for picking. Flexport, a B2B freight marketplace, moved $19 billion of merchandise across 112 countries in 2021. You can imagine that to reach that kind of volume, payments play a key role in enabling marketplace growth.
But even on a smaller scale, marketplaces quickly find themselves in a tricky spot without a way to facilitate, automate, and service the payment experience. In the following case study, you’ll learn exactly why.
Helping a lumber marketplace manage B2B payments
A B2B lumber marketplace came to Balance with the goal of scaling both their seller and buyer community. They had already launched their marketplace, but were looking to upgrade their online offering.
And this was no small feat. In a legacy industry like lumber, it’s not enough to have a great website. It’s about breaking 20, 30 year old habits of a sales process. For digital to see adoption, you need to demonstrate value and the reason to change or buyers and sellers simply won't.
That’s why investing heavily in those first few transactions is key to building trust. That experience has to be exactly what the customer wants – and in B2B, that starts with net terms. This marketplace knew that they wanted to offer net terms in order to help grow their buyer base, but didn’t have the expertise to handle risk underwriting, or the capital to help sellers manage cash flow.
To give buyers 30, 60, or 90 days to pay for their goods, means that the seller needs to have enough cash to wait for payment. For this marketplace in particular, the sellers wanted immediate payment, from even before the point the lumber was shipped.
With Balance, the marketplace was able to offer net terms to buyers, while we financed 100% of the transaction, while taking on full liability.
They were also able to decide how they wanted to distribute those funds to their sellers and when. Plus, by owning the payment transaction process and net terms, the marketplace could charge a take rate and create a new revenue stream by enabling buyer-vendor transactions.
Balance also manages collection of payment from the buyer, so the marketplace could remain completely out of the flow of funds.
This not only relieved them from any kind of compliance requirements, but they were able to grow the monthly volume transacted on the platform. Plus, easy access to net terms kept their buyers coming back to that digital experience.
Learn more about marketplace payments
Mariah works with all of our B2B marketplace customers, from chemical marketplaces to steel and freight, helping them customize and build a B2B payments solution that will best serve their business goals and their customers’ needs.
If you're a marketplace and you don't know where to start with payments, Mariah recommends thinking about a few things:
1/ Make sure to have a dispute policy in place
2/ Map out your payment flow end-to-end
3/ Understand cross-border payment needs
4/ Does your industry expect net terms?
5/ How customized of a checkout solution does your business need?