How do Marketplaces pay their partners (vendors)?
How do marketplaces/digital businesses pay their partners/vendors?
Let's assume a marketplace, clients make payments in the marketplace application using Stripe. The marketplace has partners (for example, designers who produce assets that are listed and sold in the marketplace, etc).
There's a lot of articles on how to process online payments but I'm not finding how are payments to partners managed and it doesn't seem to be trivial. As this requires accountants, taxation, money transfer service charges, etc.
They take 10 percent or so commission out of BrainTree or Stripe or similar transactions. We used TaxJar for taxation. You can split your price into commissions, promotions, gift certificates and other parts.
There are various ways. Likewise, you can go with PayPal and can request a payment against your services. Taxation and other laws of your country will apply. Taxation systems vary from country to country and bank account status also matter.
That is what Stripe Connect is used for. https://stripe.com/en-lv/connect
The vendors have to setup the stripe account prior to the marketplace subscription? Any other alternatives? Does Paddle solve this problem too? Does it take care of tax, legal issues etc? Thanks!
They have 3 options for seller accounts. In short: Standard, Custom, Express. Custom and Express allow your branding / white-labeling, but you are responsible for all funds, charge backs etc.
edit: Not sure about paddle, haven't used.
edit2: I think other option is to collect all money via Stripe/Paypal, transfer all funds to your bank account and then manually transfer to sellers bank accounts.
It really depends on the type of marketplace you're building..
In the payments world, marketplaces typically fall into 2 categories:
One-to-Many is more difficult and riskier for the marketplace because they are considered the "merchant of record" (MOR) on each transaction. The MOR is liable for any disputed transactions - i.e. chargebacks - and theroteically the likelihood of a chargeback increases when more vendors are involved in fulfillment of the order.
For example - let's say a customer purchased 4 items for a total of $100. From the bank's view - the MOR on that $100 is the marketplace. Vendors 1 - 3 delivered their products as expected, but Vendor 4 did not. The customer disputes the transaction with their bank, who inturn issues a chargeback to the MOR. Now, you could certainly protect yourself by trying to recoup the monies from Vendor 4 - but you can see how this gets complicated.
One-to-One is much easier and safer, because you can have the vendor be the MOR on each transaction. For example, Joe purchases $100 design from Vendor 1 - Vendor 1 is the MOR for that $100.. if they don't deliver as promised and Joe disputes the payment - Vendor 1 is responsilble for the chargeback.
As far as the actual flow of funds - it's common technology that Stripe and pretty much all other major payment companies can/do support.
In short - if you're building a true one-2-many marketplace, make sure you're doing your due diligence in vetting vendors. Otherwise, it can bite you big time.