08 September 2020

Challenges in marketplace development

Technology

Challenges in marketplace development

During the period of Fresh Design Agency existence, our company has taken part in the development of many marketplaces. In this publication, we would like to share our experience on what problems (both technical and organizational) the team is facing when working on such a project.

What is marketplace

Marketplace is an online platform where proposals from various suppliers are presented. The visitor can review the offers and either go to a third-party resource to make a purchase or get services/ goods directly on the marketplace. On the other side, suppliers can actualize information about their propositions and promote their goods and services.

Every year marketplaces are becoming more and more popular for obvious reasons. It is much easier to buy and compare offers on the marketplace than to explore many individual stores.

Marketplace types

There are a rather large number of marketplace variations, but in the planning and evaluation process, we divide them first of all into services and product sales services.

In the opposite direction, the services marketplaces are categorized into local and remote services. In local services, the provider and consumer of services must be at the same point to provide the service. In remote - the provision of services is possible remotely results transmitted via the Internet Botkin.pro.

 as a service of medical video consultations Botkin.pro.

Organisational requirements

There are organizational issues that need to be resolved by the owners of a marketplace, from the point of view of business and organization of the marketing place functioning.

Most of the difficulties occur precisely because at the phase creating the business idea of the marketplace, the owners simply did not take into account the issues that we will explain below and did not put them into their business model. As a result, in the future, we have to change the process and look for ways to bypass operational activities. 

Logistics 

There is an important question in the product marketplace - how to organize the delivery of goods. Especially when we are dealing with international marketplaces. For example, the supplier is in South Korea, and the buyer is in Poland. The user reviewing the offers on the site should understand - from where to order more profitable. In this regard, the service should provide him with a preliminary delivery cost, and at the moment of placing an order to calculate the exact cost of delivery. It is essential to organize the delivery itself from South Korea to Poland. And yet it is important to remember the customs legislation of each country.

The easiest way to solve the problem, in this case, is transferring the responsibility for the delivery cost to the seller of goods - so that it is them to fill in the approximate cost of delivery to this or that country, taking into account the risks, and the system only specified the calculated values.  

 Currency conversion marketplace

Payment systems

In case you work with different markets, an important aspect that is often ignored is the connection of a payment system that will not only accept money from buyers but ideally organize automatic refunds and payments to sellers. While most markets have strong local players, there are few platforms that allow you to work on the international market with comfortable conditions - first, it is Stripe and Adyen, but it is difficult to connect to these platforms due to legal restrictions.

Marketplace payment systems should work with all currencies supported by the marketplace, and with the most popular payment methods in those countries where the marketplace provides its services. If you work with over one local payment system there is balancing funds in the accounts. For example, if most buyers pay for services through liqPay, and payment to sellers you made in Spain through PayPal - there is a need to balance funds in the accounts to ensure a smooth-running platform.

Taxes

The next issue directly related to payment systems is the tax treatment in different countries. We have previously talked about a system like Stripe, namely Stripe Connect. The advantage of this payment platform is that you, as a marketplaces absolutely do not need to spend all the funds through your own company, as all incoming payments are fixed and distributed at the level of Stripe. At the time of payment you distribute the financial flows like what part of the payment should go to the account of your company as a percentage, and what payments should be made to the accounts of sellers for goods or services. In this way, you significantly reduce the workload on your accounting.

 Marketplace taxes

Legal restrictions

In the European Union, for the last 5 years, quite a large number of legislative acts have been adopted that affect the rules of marketplace work. Thus, if earlier all questions concerning the quality of products or services provided by the buyer could be presented to the seller, the last few years all questions concerning refunds, compensations and quality of services are entrusted to the marketplace as the site of the actual seller. In addition, depending on the location of the buyer, there may be additional taxes charged on the buyer for the purchase and it must also be monitored by the representatives of the marketplace.

So before starting work in any country be sure to consult with lawyers, who can provide more information on this question.

Returns and refunds

As we said earlier, it is the platform responsible for the return of goods and money from marketplace. It is important for you to make clear and understandable rules for all participants of the process, so both buyers are satisfied and suppliers are interested in working with your platform. And you also need to protect yourself from fraudsters, which exist both on one side and on the other.

In addition, there is another question - the actual organization of return from the one who pays the cost of a return shipment of goods (if any) to the capabilities of payment systems with which you work to make payments to customers (refunds).

Synchronization of balances

The necessity to update the base of proposals is most important for product marketing. It is necessary to envisage a system that will motivate suppliers to keep their price lists and the list of items in the catalog up to date.

Various suppliers may keep the base in their own accounting systems, so the best way to make them synchronize the price is to make the import process as simple as possible. Your system shall select matches / try to resolve conflicts (SKU, color or some other characteristics mismatch), and if a user manually solves a conflict, save his choice.

Payments to goods and services suppliers

One more important point, which has both technical and organizational difficulties. On the organizational side it is essential to make the periodicity of payments frequent enough for suppliers to be interested in working with you. On the other hand - you need to organize a safe “gap”, when the supplier receives payment only after the service or goods are delivered. And in this case, the most critical issue is to find a balance between the desires of the various participants in the process. Making a refund to the client in case the finances have already been withdrawn from the marketplaces accounts to the supplier's account is much more difficult, both technically and legally. 

Technological aspects

In this case we are talking about the difficulties faced by the development team.

Currencies

In case your marketplace is represented in more than one country, there is a question of service work with suppliers and consumers in different countries, when the seller specifies prices in Euro, and the buyer pays in dollars, kroons or hryvnia. In this case, it is important to synchronize the exchange rates, while converting both in one direction and in another. In addition, there is financial calculation point - payments to suppliers, maintaining internal history of payments, providing a list of offers to the buyer in the currency of his office.

You have internal user wallets in the system, the question becomes even more interesting - what to do if a user wants to change his currency, and his account has a non-zero balance in the old currency? Won't the difference in rates create a vulnerability in your service that will allow attackers to convert currencies and earn on the difference. In our experience, there have been cases when users used such differences in exchange rates to organize international transfers on the basis of one cybersports site. The best option in this case is to allow currency exchange only at zero balance.

Refunds and internal accounts

Yes, this item appears both in organizational and technical aspects of the project. Not all payment systems allow to make payment back to the buyer's card. In addition, there are cases when the user wants to cancel the service at the moment when it causes inconveniences for the provider, let's say, on the day of service provision. In this situation, the service rules can only mention a partial compensation - for example, the buyer receives 50% of the cost of the service, and 50% is paid to the supplier's account.

Marketplace refunds organization

The optimal technical solution for the organization of returns are internal accounts in the marketplace system. However, in this case, new questions arise - what shall the user do if the account is not enough money to fully pay for services and many other “nuances ”. You should understand the organizational advantages. The user will be able to spend finances only within your site.

However, there are also other issues that affect, for example, the rules of refunds. If cancellation of the reservation is not possible on the day of providing services, the concept of this “day” will be different for the provider and the customer. So in this situation, it is better to say that cancellation is allowed 24 hours before this moment. 

Bonus programs

Many platforms include an internal bonus account on which the user can accumulate scores for activity - referral program, purchases, reviews, repost.

The problem with bonus accounts starts at the following stages:

  • Payments for purchases
  • Payments to suppliers

As for the purchase payment everything is clear. I can pay for part of the purchase with points, and part - with real money. In this case, in different currencies. The bonus points are connected to some base currency in your system, for example, it can be euro, dollar or the national currency of the marketplace.

But from another side like payments to suppliers everything becomes a little bit more complicated, when a user makes a payment with bonus points. If you use a system similar to Stripe Connect, you need to use some intermediate account of the marketplace, from which you will pay this order to suppliers, because at the moment of the transaction there will be no revenue from the buyer to the company's accounts, as they are calculated by bonuses.

Search and categorization

This question is critical for all Internet catalogs. It is most important to organize a high-quality and convenient search for customers. But if in the case of online stores the content is filled by a limited number of persons content managers who have received preliminary training. In case of marketplace we are dealing with content that was generated by different users. 

When it comes to marketplace search and categorization, it's important to set a clear framework. You just reduce the chances that suppliers will do anything wrong. And at the same time, depending on the direction of the marketplace, there is a high probability that different sections of your catalog will have completely different sets of filters. It is still important, where possible, to keep the number of filters limited.

Catalog synchronization

The question of product items` selection when synchronizing the catalog by suppliers is an important aspect both from the organizational and technical sides. If the content of your marketplace's catalog is filled by content managers, and suppliers only update the availability, there will be a question - how to determine by sets of parameters (color - size - form factor) which product is available in the supplier's price. At the same time, this information is stored differently mainly in the supplier's prices. There is a very low probability that the content of the supplier's parameters and your marketplaces will be identical.

Marketing catalog organization

Another technical difficulty is the time of price update. If suppliers have tens or hundreds of thousands of items, import into the system will take some time and it is important that orders created at the time of import work correctly. Either to register, or to get to a special temporary status, or at least not to display offers from this seller for the time of its price synchronization.

Multilanguage

The issue of multilanguage is important for all web projects. And when it comes to user-generated content, it becomes even more complicated. Product descriptions, comments and reviews - all this content on the marketplace should be presented in a language that is convenient for the customer.

In order to solve the problem of multi-language, there are a number of options, like fixing one language as the main one for the system, or more complex - automatic translators, filling the directory with content-moderators of the site in different languages. The solution that suits you depends first of all on the specifics of the marketplace, and secondly on the terms and budget of the project.

Service availability

Another technical aspect that covers all projects with a large global reach is the speed and availability of service in different regions.

For global marketplaces, the location of project servers is critical, as is the availability of CDN (Content Delivery Network), which is responsible for rapid data delivery in the regions. Different CDNs from Amazon, Microsoft, Cloudflare have their own coverage maps, so it is necessary to determine in advance (considering the project geography) with the network architecture of your project.

The problems we have faced in terms of service availability concern not only the speed, but also the actual access to the project in different regions - such as China or Saudi Arabia. If your project is to work in one of these countries, server and CDN hosting becomes an even more important issue.

Conclusion

There are many complexities and traps in developing a marketplace. That is why it is extremely important to spend quite a lot of time thinking over the business idea of the project and drawing up a competent technical task. At the same time, you should try to launch the MVP version of the project as soon as possible and collect feedback from the audience. It is possible to change processes both for suppliers and buyers, market realities will correct your plans. 

After developing more than a dozen projects, our team will be glad to help you in creating your new project.

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