Some technologies and business models come and go. The list is long. Thankfully, typewriters, cassette tapes and drive-in movie theaters wound up in the recycling bin along with folding maps, dial-up modems and pagers. And remember waiting for a new episode of your favorite show to come out on cable? How painstaking was that?
But one business model that doesn’t seem to be going anywhere is the sharing economy and marketplace companies. We’ve gotten used to things being instant, available and easy. Don’t feel like cooking? Order organic tacos. Need some temp work done? Reach out to Upwork. Want a new mattress, computer, or couch? Hop online and buy it. Almost 70 percent of millennials prefer shopping online over going to a regular store.
And as for taxis and travel accommodation? Why would anyone book a standard, box-like room in a faceless hotel, or ride in a regular cab, when they can get a personalized car or luxury apartment cheaper and easier?
Changing how we live
In a very short time, marketplace companies have grown and forced traditional businesses to step up to the plate or fold. They’ve also changed the way we live, think and buy. More than one in five Americans have worked in the sharing economy already and pretty much all of us have used it at some point. Whether you’ve shared a ride, rented a condo, helped finance a new product, or done some sideline work from your laptop.
Most of us don’t hesitate to pay for services online. We never think about how companies like Lyft, HomeAway and Munchery have to shoulder a huge financial burden. When dreamed up in their Silicon Valley incubators, hotel rooms, or dorms, their CEOs weren’t thinking about establishing a secure payment structure. They were focused on changing a mindset, disrupting an industry, and offering a different way of doing things.
Could they have imagined how successful they would be? With the sharing economy estimated to account for $335 billion of revenue globally by 2025, probably not. They may not have banked on their model crossing the globe, spiking copycat companies, controversy, or a continuous rise in demand either.
An increasing number of transactions from different geographic regions using varied payment methods in multiple currencies is enough to make anyone’s head spin. As this happens, marketplace companies need more than a clever techie managing their backend. With the rise in hacking and threat of cyber security, they need robust payment solutions ensuring safe transactions for all parties involved.
Calling out for fintech innovation
Marketplaces causing so much noise means they’re also attracting attention from both legislators and fraudsters. They need to have an open book and provide a secure payment platform for their customers. Such is the magnitude of responsibility that you could actually look at what was a new method of transport, or helping pair of hands, and say they were fast becoming financial services companies, rather than marketplace ones.
Tom Villante, CEO of YapStone, a leading payment services provider for marketplace companies explains, “Airbnb has a separate company that is a payment company – as in it is a fully licensed payments company that only handles payments.” Uber also takes responsibility for its own financial operations. But only because these companies, valued in the billions, are so giant that they can afford to do so. Other marketplaces need the help of innovators like Elon Musk, Jack Dorsey, and YapStone’s Tom Villante.
A complex payments process
Marketplace companies have a particularly complex payment process. We’re not talking about a typical transaction between buyer and seller here. Their model involves the bringing together of thousands of sellers and millions of customers, causing multiple layers of complexity. They have to deal with issues like chargebacks and fraudulent purchases from creative cyber criminals adept at manipulating the system.
There’s also compliance with different regional legislation, acceptance of multiple payment methods and currencies and local competition laws. For a company that wants to allow people to rent out bikes, spare rooms, or run errands; this is not something they’re prepared to deal with. One wrong move could blow up in their face and potentially bankrupt their business. Says Villante, “a lot of marketplaces got big very fast and have no desire to be payments companies.”
When they outsource their payment platform to fintech innovators, they can focus on the business model that got them where they are today. Rather than worry about fraudulent transactions, payment processing, legislation and compliance. Fintech companies like YapStone were made for marketplaces as they grow up, minimizing the risk associated with these financial transactions.
Rather than tearing their hair out, marketplace CEOs can relax knowing that their revenues are handled by experienced professionals. As marketplaces have exploded, so have fintech solutions, with companies like YapStone now processing more than $17 billion in payments every year. And a whopping YOY growth rate of 40 percent.
Any signs of slowing down? Probably not. As more and more marketplace companies appear to attend our every need, more opportunities arise for fintech innovation. Disruptors working with disruptors (after all, how many banks have been forced to raise their games thanks to fintech innovators?) Marketplace companies are calling for fintech innovation and the partnership seems like a match made in heaven.