If you are setting up a marketplace platform, you need to consider how you will accept payments. A marketplace platform is a place where you connect buyers and sellers for goods, such as eBay, or services, such as Airtasker and Uber. You are the intermediary connecting the users and the platform handling the acceptance of payment for goods and services. It is likely you will be charging a fee for making the process more convenient. Using a payment gateway is a good way to make your marketplace’s payment process easier and more secure. This article explains the benefits associated with payment gateway providers such as PayPal, Assembly Payments and SecurePay, which offer useful add-ons to enhance your platform. 

Limiting the Risk Associated With Being a Limited Payment Collection Agent

When running a marketplace, you are likely accepting payment from a buyer of the good or service before it has been delivered. Assuming you plan to charge a service fee for the use of your platform and that you have disclosed this as a condition of use in your terms and conditions, you may choose to automatically allocate the agreed percentage of that payment to yourself and the remaining portion to the seller.

Alternatively, you may want to hold the seller’s part of the payment until the service has begun or been completed. This is known as holding the money ‘in escrow’. The purpose of this is to hold your sellers accountable to carry out the service in line with your seller terms and conditions and the seller’s consumer law obligations.

Holding Money in Escrow

From a business perspective, holding money in escrow makes sense. However, from a legal compliance perspective, you should be aware that, if you are holding money, you may be a limited payment collection agent and this comes with the responsibility to track and record transactions.

There is also a risk because you are ultimately holding someone else’s money.

Using a Payment Gateway

Choosing to use a payment gateway may help you limit your risk. This is because payment services are well-equipped to assist with those transactions since it is their business purpose. Therefore, these payment gateways have the correct compliance policies and insurances to hold money in escrow. Ultimately, this means less work for you.

However, it is important to be aware that you may still be classified as a limited payment collection agent. Accordingly, you cannot rely solely on the payment gateway. You also need to be aware of your obligations and the steps you should take.

Accepting Credit Card Payments

Another regulated activity you should be aware of is accepting credit card payments. This requires compliance with the payment card industry data security standard (PCI DSS), which sets out the requirements for reducing credit card fraud. The PCI DSS is in place to ensure consumers feel secure when entering their card details. You are likely not PCI DSS compliant alone, so rather than trying to overcome this hurdle, it is much easier to use a payment gateway which will be compliant.

Not only are payment gateway providers compliant, but users will recognise a payment gateway like PayPal. This will automatically boost their trust in the security behind the system. Accordingly, your rate of purchases abandoned at the checkout stage should drop because you are offering a recognised secure payment option, removing the need for customers to second guess their transaction.

Dispute Resolution Assistance or Integration

Payment gateway providers can offer dispute resolution assistance or integration. Different payment gateways provide varying types and levels of dispute resolution services. You may want to research what they can each offer depending on how you intend to handle disputes.

Sometimes, a marketplace may be afraid of addressing dispute resolution. It may be because it wants to limit liability by staying out of the transaction as much as possible. Usually, this means relying on feedback, ratings and reviews as a means of taking care of disputes. Other marketplaces think that, by advertising dispute resolution, payment gateway providers are suggesting that disputes are a significant problem for their marketplace users.

While these are valid concerns, you should consider making dispute resolution accessible to your users. If they have an issue and you are not able to assist them, they may lose trust in your service. Having a dispute resolution process in place is also a good way of limiting your business’ own liability and responsibility for the activities of third parties.

Examples of Dispute Resolution Options

Some payment gateways, such as PayPal, allow you to choose to use their platform to resolve the dispute. However, you ultimately remain in charge. This may be useful because it ensures the communication regarding the dispute is recorded in one location. However, in terms of your responsibility and risk, it is not much different to doing the process through your own marketplace platform.

On the other hand, PayPal’s other service, where it acts as a mediator, takes the dispute out of your hands. Assembly Payments has an entirely different way of approaching the dispute resolution process. It allows you to white label their dispute resolution service. This means the service has your branding, but they handle the process for you.

Other Benefits of Using a Payment Gateway

Payment gateway providers have other benefits to help make your marketplace easier to run. For example, Assembly Payments offers an identification verification function. In turn, this builds users’ confidence and trust in the other user they are transacting with.

There are other providers of identity verification that are not payment gateways, but, in that situation, you may need numerous legal agreements with different providers. Your users might also need to disclose their personal information to third parties. In turn, you will need to set out this out in your privacy policy. Accordingly, it makes more sense to keep it all with one provider.

SecurePay provides another benefit. They can offer customisable delivery options because they have partnered with Australia Post. Using this option, users have greater control over where and when their parcel is delivered to them.

What Do I Need to Cover Myself Legally?

When using a payment gateway provider for your marketplace, it is important you have covered yourself legally by having a:

  • clause in your marketplace terms and conditions which sets out your use of a payment gateway and the payment process;
  • clause in your marketplace terms and conditions which details your dispute resolution process, including the outsourced payment gateway facilitator if applicable; and
  • privacy policy which explains the information you collect and which third parties you disclose that information to.

Key Takeaways

Payment gateway providers offer many benefits, which is why you should consider using them for your marketplace. They help you streamline the process and build users’ trust in your services by securing payments. They may also provide a dispute resolution process. This means you are better equipped to deal with issues that arise during the course of your business. If you have any questions, contact LegalVision’s e-commerce lawyers on 1300 544 755 or fill out the form on this page.

Jacqueline Gibson
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