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How Do Online Marketplaces Work?

What is an Online Marketplace?

An eMarketplace is a digital market in which goods can be bought, sold, and lent easily. Innumerable sellers list themselves and their products on marketplaces online, and buyers can search through the listed items to identify a product they wish to purchase. Since a multitude of sellers and listings are uploaded on eMarketplaces, retailers face the challenge of ensuring their product is visible – much like buying a shop in a market which is more visible than the others (if your shop is hidden, how will potential customers ever reach you?). eMarketplace optimization is therefore a very new but very relevant skill for people working in the retail sector today. The purpose and functions of an online marketplace is akin to a physical marketplace, albeit a few extra features of the same.

Features of an Online Marketplace

1. Greater visibility – when a seller lists their product online, they are able to surpass physical barriers and achieve greater visibility with no end – your target audience can be limited to a city or be expanded to an entire continent.
2. The power of choice – product listings from all around the world result in greater options for buyers to choose from.
3. Performance insights – marketplaces such as Amazon offer insights about the visibility of your product, customer interactions, and conversions. These insights help improve your marketing campaigns, sales strategies, and optimisation strategies for improved results.
4. Reviews and transparency – customers who buy a particular product leave reviews and ratings of both the product and the seller. Although not a fool-proof method, this helps new buyers assess whether or not a seller can be trusted, to some extent.

Types of eMarketplaces

Product Marketplace – a product marketplace is a generic marketplace for buying and selling hard goods. In this setup, the owner of the marketplace may feature in-house goods for sale as well. Additional features include fixed sale prices of goods and auctions that involve bids. This means that buyers bid on certain items, and the buyer with the highest bid is able to complete the purchase.
Rental Marketplace – through online rental marketplaces, the path to renting property and goods becomes much more streamlined. People can scroll through a variety of items listed for rent and select a piece they desire after going through the rent periods and rates specified by the lister.
Hyperlocal Marketplace – hyperlocal marketplaces list items that are available within a particular geographical limit. Marketplaces that list fresh groceries and deliver within a day or two of placing an order are examples of hyperlocal marketplaces. Online food delivery platforms such as Uber Eats are hyperlocal as well, since they do not let you place orders for restaurants beyond a particular geographical radius from the location of delivery.
Service Marketplace – these are marketplaces for freelancers, gig workers, and service providers. Different service providers offer different rates and conditions for services, and often reviews of the services provided are also mentioned. This helps a potential client decide better which freelancer or service provider s/he wishes to work with.
Hybrid Marketplace – a hybrid model marketplace can take on different forms. One form is combining your presence through online and offline modes. Stores like Zara offer both e-stores and brick-and-mortar stores for shopping – and the experience can be combined. If you find an item you’d like to buy on their e-store, you can opt to either get it delivered to you, or collect it from a physical store. This applies vice-versa as well – you can visit a physical store to check out a dress and if you like it, you can choose to order it online at a later date. Another type of hybrid marketplace model involves offering both goods and services for sale on the same platform. There is no constraint on how much hybridisation you can carry out while developing an innovative new marketplace.

How Does a Digital Marketplace Work?

In a digital marketplace, buyers and sellers are able to utilise a common platform to facilitate purchase and sale of a variety of goods and services. Although this is a wonderfully convenient solution for fostering business, it comes with its set of challenges.
When a buyer finalises a product s/he wishes to buy on Amazon, the product is added to an “e-kart”. This e-kart holds all products a buyer wishes to buy at a particular point of time.
Once all items have been reviewed and checked, the marketplace redirects the buyer to a payment options screen. On this screen, the buyer can choose the most suitable payment options for them – cash on delivery (COD), credit card, debit card, UPI, net-banking transfers, among others.
Finally, the buyer processes the payment and the order is placed (unless COD was chosen, in which case the order is placed without prior payment).
Note: if the buyer pays for a good or service before delivery of the product, the amount paid is kept in a nodal account. A nodal account is a temporary account used for maintaining funds till the terms and conditions of a particular deal are fully met. This protects the buyers from frauds to some extent – if a seller delivers a faulty or incorrect product, the buyer’s funds are refunded. This refund is carried out from the nodal account, which is used to prevent direct payment to the seller when the buyer pays. However, when buying from an online marketplaces, be wary that grievance redressal has a predetermined time period, after which you cannot complain for a resolution.

Problems Faced in Marketplace Transactions

All parties that utilise an eMarketplace face some sort of vulnerability when it comes to security and legitimacy. Twitter handles of many marketplace companies and online payment platforms are often riddled with scam complaints. Buyers are scammed with delivery of incorrect goods, and sellers are frauded with non-payment if a buyer opts for the cash-on-delivery option. These issues stem from verification and identity problems, and although marketplaces attempt to create a robust and secure experience for users through a host of features such as ratings and reviews, it simply isn’t enough.

How Can Marketplaces Become Safer

Mechanisms through which parties can form quick eAgreements, are properly KYC’d, and have greater control over their money flows need to be incorporated by marketplaces. Including digital escrow as a payment method can mitigate the possibility of users encountering scams significantly if not completely.
Escrows are temporary agreement-based accounts that involve a neutral third party (the escrow provider) to ensure that the interests of all transacting parties are protected. With digital escrows, buyers and sellers are able to retain greater transparency and control in a transaction process. In a typical digital escrow transaction, the buyer deposits the payment amount in escrow and waits for delivery of the goods. After inspecting the deliverables, the buyer approves the payment to the seller and funds are transferred instantly. This increases security for the seller as well by offering greater assurance of payment.
The escrow agreement clauses can be a part of the terms and conditions to speed up the process. Although users are made to agree to a set of terms when they sign up, most of them don’t go through the conditions exhaustively. Marketplaces should thus advertise the legal outcomes of breaching the agreement-based T&C time-to-time, and also put their users through to fraud reporting helplines. These helplines not only assist fraud victims with resolutions and guidance on next steps, but also amplify their experiences to increase the reach of their story. This leads to greater awareness and sturdier impact, resulting in increased performance pressure for anti-crime authorities and consumer protection forums.

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