As digital commerce continues to grow, businesses are seeking innovative ways to meet customer needs and access new revenue streams, such as online marketplaces. According to a report by Grand View Research, global online marketplace revenue is expected to reach $27.1 trillion by 2027. Online marketplaces such as Amazon, Airbnb and Uber have disrupted their respective industries, proving the effectiveness and scalability of this business model.

Building an online marketplace involves careful planning, strategic decisions and meticulous execution. The process can be complicated by compliance for multiparty funds flows, marketplace facilitator tax laws, seller Know Your Customer (KYC) checks and cross-border payments.

Despite the challenges, the rewards of establishing a successful online marketplace are significant. They offer businesses a chance to facilitate commerce on a larger scale, generate consistent revenue and build a strong digital presence. Below, we'll cover what you should know as you begin scoping, planning and launching a new online marketplace.

What's in this article?

• What is a marketplace?
  
• How to create a marketplace website
  
• How are marketplaces different from e-commerce websites?
  
• Types of online marketplaces and business models
  
• Marketplace payment processing: Considerations for choosing a provider
  
• How to choose a payment provider for a marketplace
  
• How Stripe Connect can help
  

What is a marketplace?

A marketplace is a type of e-commerce site where multiple third-party providers offer products or services and the marketplace operator processes transactions. Online marketplaces are the digital equivalent of a physical market or shopping centre, where multiple vendors gather to sell their products.

These platforms can be B2B (business-to-business), B2C (business-to-consumer) or C2C (consumer-to-consumer), depending on the nature of the transactions. Some popular examples include:

• Local services
  Platforms that connect customers with people who perform specific tasks, such as food delivery on platforms like Doordash or handyman services through marketplaces like Taskrabbit.

• Physical goods
  These platforms connect makers or resellers of physical items with customers. Popular examples include Etsy, Depop and Amazon.

• Travel and global services
  Platforms like Airbnb that connect users with short-term rentals, travel experiences, accommodations or rideshare services

• Digital goods
  Some marketplaces connect customers with digital creators. This can include online course platforms like Udemy or subscription-based membership platforms like Patreon.

How to create a marketplace website

Creating an online marketplace involves several steps, from defining your idea to launching and promoting the platform. Here's what that process looks like:

1. Define your idea
   Start by defining the core concept of your marketplace. What type of products or services will be sold? Who are your target buyers and sellers? What's your unique selling proposition that sets you apart from existing platforms?

2. Conduct market research
   Understand the existing market, competitors and customer needs. Look at successful marketplaces to understand what they're doing well and where gaps exist that your marketplace can fill.

3. Develop a business plan
   Decide how you'll generate revenue and create a business plan that includes key components such as target users, growth strategy and marketing plans. During this step, you should also consider revenue models, such as transaction fees, listing fees, subscriptions or a combination of these. Also think about your pricing strategy and how it compares with competitors.

4. Define the platform's functionality
   Outline the key features and functionality your platform needs. This often includes search and discovery tools, user profiles, product listings, a secure payment system and checkout flows, review and rating systems and in-app communication tools for buyers and sellers.

5. Choose your technology
   You can choose to build your marketplace from scratch, use a prebuilt platform or use marketplace software. Some "low-code" options include Sharetribe, Bubble, WordPress + Dokan or Webflow. Consider your budget, timeline and technical capabilities when making this decision. There are also various solutions for integrating payment processing, like Stripe.

6. Build the platform
   Whether you're developing a marketplace from scratch or using a platform, you'll need to implement the functionality you've defined. If you're not a developer yourself, you'll need to hire a development team. Between development, design, hosting and payments integration, small marketplaces might cost between $15,000 and $60,000 to build. For medium marketplaces, the price tag can be $60,000 to $200,000. For large marketplaces, development costs can reach $200,000 to $500,000.

7. Research and ensure regulatory compliance
   Operating an online marketplace requires navigating a complex legal landscape. There are marketplace facilitator laws for tax collection and rigorous data privacy standards like GDPR and the California Consumer Privacy Act (CCPA). Platforms must also architect precise seller contracts to define their liability and comply with payment, customer identity verification and Anti-Money Laundering (AML) regulations.

8. Test your platform
   Before launch, conduct thorough testing to ensure everything works as expected. This includes testing the buying and selling process, the payment system and all of the platform's features.

9. Attract sellers
   Before you can attract buyers, you need sellers. Reach out to potential sellers who would be a good fit for your marketplace. Consider offering incentives to join, and use strategies like promotions, early seller onboarding and marketing campaigns.

10. Launch your platform
    Once you've tested every aspect of your platform and have some initial sellers, you can launch your marketplace. Start with a soft launch where you invite a small group of users to test the platform in the real world and provide feedback.

11. Market your platform
    Use a variety of marketing strategies to attract buyers to your platform. This could include SEO, content marketing, social media marketing, paid ads and partnerships.

12. Iterate, grow and scale
    As your marketplace becomes more established, gather feedback to understand what's working and what's not. Additionally, consider strategies for growth, which could include expanding into new markets or categories, building community features or using data for personalisation and recommendations.

Creating a successful marketplace involves building trust and handling interactions between buyers and sellers. This process requires constant iteration and improvement based on user feedback. Investing enough time in the beginning will help you create a solid foundation that will pay off as your marketplace launches and grows.

To learn more about how Stripe has powered payments for leading marketplaces, go here to read case studies.

How do marketplaces differ from e-commerce websites?

While both marketplaces and regular e-commerce websites operate online and facilitate the buying and selling of goods or services, they differ in several ways:

• Variety of sellers
  A marketplace aggregates products or services from multiple third-party sellers, service providers and creators, providing a broad selection and variety for customers. A traditional e-commerce site, on the other hand, generally sells products or services from a single business.

• Inventory management
  In a physical goods marketplace, individual sellers manage the inventory and the marketplace platform itself does not own any of the inventory. In contrast, a traditional e-commerce site often manages its own inventory and supply chain. One exception is the dropshipping model, which is a retail fulfilment method where a store sells products without keeping the items in stock, instead purchasing the product from a third party and having it shipped directly to the customer.

• Price competition
  Because a marketplace hosts multiple sellers, service providers and creators, there is often direct price competition for similar products. On a traditional e-commerce site, the prices are set by the business and there's no direct competition on the same platform.

• Revenue model
  Marketplaces typically make money by charging a commission or fee for each transaction made through the platform. Standard e-commerce sites earn revenue directly from the sale of their products or services.

• Responsibility for fulfilment
  In a physical goods marketplace, the sellers are usually responsible for shipping their products to the customers, although some marketplaces may offer centralised fulfilment services. In a traditional e-commerce model, the business running the site is responsible for fulfilment.

• Customer relationship
  In service-based, digital goods or physical goods marketplaces, the customer relationship is often shared between the marketplace and the individual sellers. For a traditional e-commerce site, the relationship is solely between the customer and the company running the site.

• Reviews and ratings
  Most marketplaces have a system for customers to rate and review individual sellers, creators and service providers, which helps to build trust and provide information for future customers. While e-commerce sites can also have review and rating systems, these are generally focused on the products, not the sellers.

Businesses need to understand these distinctions before deciding whether selling in a marketplace is the best fit for their near-term and long-term goals. If a marketplace is the right choice, then the next step is to understand the different types of marketplaces and the business models that support them.

Types of online marketplaces and business models

There are different types of online marketplaces, each with unique characteristics and business models. These include:

• Business-to-consumer (B2C) marketplaces
  These are platforms where businesses sell to individual customers. Amazon is an example of this type of marketplace: many different businesses sell their products to customers and Amazon takes a percentage of each sale as a commission.

• Consumer-to-consumer (C2C) marketplaces
  These platforms allow customers to sell goods to each other. eBay, for example, allows individuals to auction off items to the highest bidder. These marketplaces typically make money by charging a listing fee or taking a small percentage of each transaction.

• Business-to-business (B2B) marketplaces
  These platforms facilitate transactions between businesses. An example is Alibaba, where manufacturers and wholesalers sell products in bulk to businesses around the world. They usually generate revenue by charging membership or transaction fees.

• Services marketplaces
  These platforms connect service providers with customers who need those services. Examples include Uber, which connects drivers with passengers, and Upwork, which connects freelancers with clients. These platforms often take a commission from each transaction.

• Vertical marketplaces
  These platforms specialise in one type of product or service. For example, Etsy focuses on handmade and vintage items, while Zillow focuses on the US property market. Their revenue models can vary, but often involve transaction or listing fees.

• Horizontal marketplaces
  These platforms sell many types of products and services across different industries. Amazon and eBay are good examples, as they offer a wide range of product categories. They typically generate revenue by charging sellers a commission on each sale.

• Peer-to-peer (P2P) rental marketplaces
  These platforms facilitate the temporary rental of goods between peers. Airbnb is an example of this, enabling individuals to rent out their homes to travellers. They typically make money by charging a service fee on each booking.

• Decentralised marketplaces
  This is a newer type of marketplace that uses blockchain technology to facilitate peer-to-peer transactions without a central authority. Examples include OpenBazaar and Origin Protocol. They usually don't charge transaction fees but might make money through other means, such as selling proprietary tokens.

• Hybrid marketplaces
  These are platforms that combine different types of marketplaces. For example, Amazon is primarily a B2C marketplace, but it also has B2B (Amazon Business) and C2C (Amazon Marketplace for used items) components.

• Two-party marketplace
  Many P2P or B2C marketplaces are two-party platforms, which directly connect a service provider, seller or digital creator with customers.

• Three-party marketplace
  A type of hybrid marketplace that connects at least three parties. The most common example are food delivery apps, which connect restaurants, consumers and couriers in a single transaction.

The variety of marketplaces demonstrate how the marketplace model can adapt to different types of transactions and interactions, between different types of users. To gain the benefits of this flexibility, businesses should choose the most advantageous marketplace model based on their unique strengths and target market.

Marketplace revenue streams

Modern marketplaces usually rely on a variety of revenue sources. Some popular revenue models include:

• Commissions
  A common model where the marketplace takes a percentage of every sale or service. This is often a percentage of each transaction.

• Listing fees
  A flat fee charged to sellers for posting a product. Along with generating revenue, this also acts as a filter to prevent the marketplace from being flooded with low-quality items or services.

• Subscriptions
  In this model, sellers, and occasionally buyers, pay a recurring monthly or annual fee. In some cases, a subscription might also include premium features, better analytics or reduced transaction costs.

• Advertising
  Some marketplaces allow in-app advertising, while others allow sellers or creators to promote listings for a fee.

• Service fees
  Revenue generated from value-added services like payment processing, shipping insurance or fulfilment logistics

Marketplace payment processing: Considerations for choosing a provider

Payment processing and payments infrastructure play an important role in online marketplace operations. They facilitate transactions between buyers and sellers, which is at the core of the marketplace business model. An efficient, secure, reliable payment processing system can build trust, improve the user experience, increase sales and drive business growth.

Here are some factors to consider when vetting potential payment processing providers:

• Global reach and currency support
  If your marketplace serves international customers, you'll need a payment processor that can handle multiple currencies and is available in many countries. Stripe, for example, supports more than 135 currencies and is available in 46 countries around the world.

• Ease of integration
  The payment system should be easy to integrate with your marketplace platform. Many platforms offer application programming interfaces (APIs), which allow platforms to integrate features without additional software engineering. Stripe, for instance, offers APIs that are known for their flexibility and ease of integration.

• Payout options and scheduling
  Depending on the nature of your marketplace, you may need flexible payment options for your sellers, including instant payouts. Stripe, for example, offers customisable payout schedules and multiple payout methods, making it a good fit for different types of marketplaces.

• Security
  The provider should use robust security measures to protect sensitive financial data. Stripe uses machine learning for fraud detection and is a certified PCI Service Provider Level 1, the highest level of certification in the payments industry.

• Cost
  Fees charged by the payment provider can include setup fees, transaction fees, monthly fees and chargeback fees. Some providers may also charge for additional services like fraud protection. For instance, Stripe charges a percentage plus a fixed fee per transaction, but doesn't have setup or monthly fees.

• Regulatory compliance
  The payment processor needs to be compliant with regulations, such as data protection and privacy laws, in the regions they operate in. Because marketplaces operate on multiparty flows of funds, compliance is both crucial and complex. Stripe maintains strong compliance standards, including Know Your Customer, 1099 tax generation for US customers and GDPR compliance for European customers.

• Customer support
  Good customer support is important for resolving any issues that might arise. Stripe offers 24/7 support options including email, chat and phone support.

How to choose a payment provider for a marketplace

Unlike a standard payment gateway, a marketplace payment gateway must support multiparty payment flows. With this in mind, here's a general process for choosing a payment processing provider:

1. Define your requirements
   Understand your business model, your target audience, the countries you'll operate in, the currencies you need to support, your budget and other specific needs.

2. Research
   Research different providers to understand their offerings, costs and reputation in the industry. Read reviews and talk to other businesses that use their services.

3. Compare
   Evaluate different providers based on your requirements and their offerings. Consider the factors mentioned above: cost, global reach, ease of integration, payout options, security, compliance and customer support.

4. Test
   Many providers offer sandbox environments for testing. Use these sandboxes to understand the user experience and test the integration with your platform.

5. Choose and integrate
   Once you've evaluated all the factors and tested the options, you can make an informed decision. Choose the provider that best fits your needs and integrate it into your marketplace.

The right payment processing solution can not only ensure smooth transactions, but can also have a significant impact on the user experience, trust and growth of your online marketplace.

How Stripe Connect can help

Stripe Connect can help you onboard, verify and pay out your freelancers, sellers or other recipients at scale. It offers quick seller onboarding, global payouts, marketplace management tools, and more. Additionally, it simplifies compliance and allows you to avoid the hassle of obtaining a Money Transmitter License (MTL).

Connect can help you:

• Launch in weeks: Use Stripe-hosted or embedded functionality to go live faster and avoid the up-front costs and development time usually required for payment facilitation.

• Manage payments and payouts at scale: Use tooling and services from Stripe so you don't have to dedicate extra resources to margin reporting, tax forms, risk, global payment methods or onboarding compliance.

• Grow globally: Help your users reach more customers worldwide with local payment methods and the ability to easily calculate sales tax, VAT and GST.

• Build new lines of revenue: Optimise payment revenue by collecting fees on each transaction. Monetise Stripe's capabilities by enabling in-person payments, instant payouts, sales tax collection, financing, expense cards and more on your marketplace.

Learn more about Stripe Connect or get started today.