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How to develop a mobile payment system?

Does it make sense to launch a services market place without a payment system in place?

  • I'm working on a marketplace startup. The service providers (sellers) in my marketplace usually take a 100% payment upfront.  Allowing this increases the possibility of fraud on my system, so I dont know if I should go to the pain of building this payment system out. Can I launch my services market place and then have sellers and buyers figure out payment by themselves? What are the advantages and disadvantages?

  • Answer:

    The risk in avoiding the payments process altogether is that it collaterally raises the question of what value you add. I think a good model for this dilemma is the online travel business. When aggregators came along, brands like Expedia and Travelocity were concerned because they obviated search and could usually produce better pricing. But, in the end, they didn't make much of a dent. The reason was simply that they put an unbranded 'gate' in the buying process. Consumers don't trust that, even if it seems to result in a better deal. The problem should also raise a concern about customer stickiness. You're asking nothing from them, and they're potentially getting little from you. It's not a recipe for a sustainably successful business model. The payments piece is not an expertise of mine, but I'd consider this as a guiding principle: It's in your interest to introduce some friction in the buying process and then reward it with some kind of value. Maybe that's the payment system, or maybe it's something else (in online travel, hotels are often paid on site even if they're reserved online. The big travel brands mitigate this by doing things like conveniently presenting hotel options and information in a comparison-friendly format, providing an objective rating system for properties, and integrating the hotel booking with flights into a single itinerary). It probably needs to be said, too, that payments allow the collection of richer customer data, which may or may not be part of your business plan. Even depending on display ads demands you know who your customers are. If you can't get to know them through the payment process, you need another way to do it. That's another benefit of friction-for-value.  I think that's the challenge I'd look at solving. You don't have to have to process payments, but you do need to attach people to the experience of shopping at your site. So that you can get your piece, and so that they willingly, happily return.

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Without knowing too many details it's difficult to give you a clear answer however both methods have worked well historically. In the case of Craigslist, buyers/sellers solve payment issues on their own and that largely works well because the types of items sold on Craigslist require a physical exchange which is a natural payment point for both the buyer and seller. From a different perspective, Airbnb's success has largely come from the fact that they have an easy to use reservation system that controls payments and fees. In this type of marketplace the sellers need some kind of confirmation that the buyers are serious about the rental and the buyers need to make sure the rental is confirmed for them and is not available to others (thus the reservation system). Many people mistakenly think Airbnb was the first site for vacation rentals by owners but there are countless other options out there offering similar services which have not been met by equal critical acclaim largely because the transactional process is more akin to Craigslist which doesn't work as well for vacation rentals. The lesson here is that your decision to invest in building/integrating a payment system should largely be driven by what services/products your customers exchanging. If like you say above your 'sellers' need 100% payment upfront then it's likely you'll need an established payment mechanism prior to launch.

Jose Reyes

Sure, you could allow the 2 parties to "figure out" the payments by themselves. An advantage is not having to integrate a payment gateway, but a *potential* disadvantage could be limiting your value to the users by not helping with the transaction. As a central marketplace, you can add considerable value by facilitating with the transaction in addition to just making the introduction. But, the good news is that integrating a payment gateway such as PayPal isn't much of a pain. I'd submit that building the backend of your site is harder than integrating a payment gateway (a way to accept/process payments). Besides, getting people to pay is the hard part, providing them with a way to pay is the easy part.

Nicholas Marx

Customers do not like to pay for something they are used to receiving for free or paying more for something without additional value. Without knowing the details of the product or service its hard to say. Study the recent Netflix/Flickster fiasco for price changes and consumer response. Another risk of not charging day 1 could result in fake metrics. Your team thinks a product/service is amazing because a million people are using it. You reach a critical mass and decide to charge $10/month.  Ghost town. Turns out users didn't like your service, they like your free service.

Daniel Cole

The comments in this thread about stickiness and marketplace value are spot-on. Distribution for marketplace activities was solved by craigslist, the value add and innovation the new generation marketplace owners provide is all about user experience. The payments component is an important piece of this. Payments for marketplaces is getting easier with the new crop of solutions out there, and it is worth thinking through this early in your product concept. It wouldn't be too difficult to create a funds flow that includes escrow accounts, and control when the escrow funds are released based on some delivery trigger. BancBox has a solution for dynamic creation of accounts and funds movement that you could leverage. You can check us out here: http://www.bancbox.com

Bill Wilson

This is a tough one. For p2p marketplaces which require upfront payments, you must be dealing with easily deliverable/replicable IP like digital assets. There are a number of people who have tried their hand at this in numerous ways. 99Designs comes to mind this minute. Instead of arbitrarily investing in a payment system because somebody told you so, you need to nail down your differentiators. Every new marketplace faces the classic chicken-n-egg problem -  How are you going to solve that? The answer may lie in there. It maybe that though you don't necessarily need a payment system, you may need a killer reputation management, for instance.

Abhimanyu Chirimar

Payments for marketplaces is getting easier with the new crop of solutions out there, and it is worth thinking through this early in your product concept. you could allow the 2 parties to "figure out" the payments by themselves. An advantage is not having to integrate a payment gateway, but a *potential* disadvantage could be limiting your value to the users by not helping with the transaction. p2p marketplaces which require upfront payments, you must be dealing with easily deliverable/replicable IP like digital assets. There are a number of people who have tried their hand at this in numerous ways. http://99designs.com/ http://onedollardeveloper.com/ http://craiglist.com/

Gayatri Shinde

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