Choosing the right marketplace payment gateway

Before launching your online marketplace, one of the decisions you’ll need to make involves the selection of a marketplace payment gateway. With several options available, such as Stripe, which is integrated with the markko platform out of the box, it’s essential to make the right choice.

The significance of a seamless payment gateway is underscored by the fact that approximately 88% of online shopping orders go incomplete. One primary reason is a complicated or unreliable checkout process. By ensuring that your marketplace offers a straightforward, secure, and efficient payment system, you can drastically reduce cart abandonment and enhance the user experience, thereby potentially boosting your revenue.

What is a marketplace payment gateway?

In essence, a marketplace payment gateway (or marketplace payment solution) is a software integration that facilitates the transaction between your marketplace and the customer’s preferred payment method, whether it’s a credit or debit card. To ensure a safe and user-friendly transaction, a marketplace payment gateway incorporates the following stages:

1. Encryption

All communication between the seller and the buyer is encrypted, ensuring the secure exchange of confidential information.

2. Authorisation request

The transaction is only processed once the chosen payment method of the customer (e.g., credit card company) greenlights the transaction.

3. Completion

Upon authorisation, the payment gateway enables your eCommerce site (your marketplace) to carry out the payment, enabling the completion of the order.

Payment gateway terminologies

Two terminologies often surface when discussing payment gateways: ‘payment gateway’ and ‘payment processor.’ Though sometimes interchangeably used, they represent different aspects of the payment process.

Payment gateway

A marketplace payment gateway encompasses the secure procedure of examining, transmitting, and approving payment details between the buyer and seller.

Payment processor

A payment processor pertains to the aspect of the payment process involving the transaction between the payment card and the acquiring bank (akin to the online version of tap and pay).

Examining different types of marketplace payment gateways

1. Redirects

Redirect payment gateways allow customers to finalise their purchase by rerouting them to a secure payment page such as Paypal. This method, popular among small to medium-sized businesses, offers simplicity and security. While it introduces an additional step in the purchasing process, the payment gateway integration is simplified, and the buyer can rely on the security and familiarity of the redirect payment gateway.

2. On-site checkout

With this method, the buyer commences the checkout process on your marketplace, then transitions to a back-end online payment system to finalise the payment. We recommend using SSL (Secure Sockets Layer) to ensure a secure connection between your site and the payment gateway. This method offers a swift and straightforward approach to processing payments, but it places the payment process control in the hands of your trusted payment gateway, like Stripe.

3. On-site payments

This approach is commonly chosen by larger marketplaces. It involves processing all checkout and payment steps on your servers, affording you greater control over – and responsibility for – each transaction. The user experience during the entire purchasing process is within your purview.

Know Your Customer process

Know Your Customer (KYC) is a critical aspect of online payments, encompassing laws that pertain to disbursing funds to individuals and entities. Although each country has its specific regulations, KYC predominantly involves accumulating and verifying details about the recipients of the funds. Such details usually span the legal name, date of birth, and address but can extend to ID verification and submission of other formal documents.

Different approaches to KYC

White label process

Stripe offer a ‘white label’ approach. Here, users input their details via the marketplace’s interface, unbeknownst to them, a user account within the PSP is created in the background. Thus, an individual might be oblivious to the fact that, for instance, they now have a Stripe account. The entire process appears seamless: they provide essential data, like their bank account details, and soon after, they begin receiving funds directly into their account.

Direct account creation

PayPal adopts a different strategy, necessitating all money-receiving users to create a PayPal account. While they have tools to facilitate this, users are invariably aware that they’re interacting directly with PayPal.

Which KYC approach is best?

Both methods have their merits and drawbacks. Although the ‘white label’ approach offers a seamless experience, eliminating the need for users to remember additional login credentials.

Split payments

With online marketplaces, the mechanism to distribute a single payment across multiple vendors is vital. If we take a look at Airbnb’s business model, a singular customer payment is divided: a chunk goes to the vendor, a commission is levied by the marketplace, and a portion is claimed by the payment service provider (PSP).

Interestingly, while almost every marketplace payment gateway has in-built mechanisms to claim their cut, many don’t offer functionalities to seamlessly split payments between multiple parties.

One might think an easy workaround would be to collect all the revenue into the marketplace’s account and manually disburse payments to providers. However, this solution isn’t just inefficient as the marketplace scales, but it can be legally problematic too. Acting as a financial intermediary and holding funds for third parties—unless they are direct employees—often necessitates a specific license in many jurisdictions. Acquiring such a license can be cumbersome and challenging.

Stripe, one of the leading payment service providers, offers a robust mechanism for split payments through its Connect platform. With Stripe Connect, online marketplaces can easily distribute funds to multiple recipients in a single transaction. This capability is especially beneficial for platforms where payments need to be split between the platform itself and its service providers, or among multiple vendors.

Subscription payments

Subscription payments, often termed as recurring payments, are payment structures that facilitate automatic billing at regular intervals. This implies that once the bank details of a customer are stored on the marketplace, providers can levy charges on a set schedule without the need for additional permissions or actions from the customer.

Implementing a subscription billing model isn’t straightforward though. Multiple challenges can arise when a recurring payment bounces due to reasons like an expired credit card, or determining processes for refunds, especially for partially consumed subscriptions.

Stripe is again a good choice for those prioritising subscription billing, given its comprehensive features in this domain, integrated seamlessly with its Connect product.

Escrow and delayed payouts

Marketplaces often need to delay payments to ensure that transactions are completed successfully. This mechanism of holding money temporarily is known as escrow. Essentially, escrow acts as a trusted intermediary, holding onto funds until specified conditions are met.

Given the regulatory intricacies of holding third-party funds, marketplaces need a secure and legitimate way to implement this delay without breaching any laws. Holding money on behalf of non-employees often necessitates specific licensing in many jurisdictions, and obtaining such a license can be quite cumbersome. Fortunately, many payment service providers offer escrow or similar services, allowing platforms to avoid this regulatory hurdle.

Stripe offers a service akin to escrow without officially designating it as such. They can delay payouts for up to three months for their Connect product users. In unique scenarios, this can be extended to a maximum of six months. However, if a marketplace requires holding funds beyond this timeframe, Stripe may not be the best fit.

International marketplace payments

One more critical consideration is if your marketplace will handle international transactions. If so, you’ll need to integrate an international payment gateway. Numerous options exist, some of which are better suited to specific regions. Therefore, once you identify the countries you’ll most likely transact with, ensure your chosen online payment gateway supports those locations.

These regulations mean that PSP’s might not offer consistent features across all countries. Therefore, when selecting a PSP for your marketplace payment gateway, it’s pivotal to identify the services they offer in your target countries. Three crucial aspects dominate this selection:

Bank account payouts

Ensuring that the marketplace payment gateway can facilitate payouts to bank accounts in your desired countries.

Currency support

A marketplace payment gateway should be able to handle transactions in the native currencies of your target nations.

Local payment methods

Every country has preferred payment methods. A good marketplace payment gateway should support these to provide users with a seamless payment experience.

Tax reporting

As online marketplaces evolve and transaction volumes grow, tax reporting becomes an inevitable concern. For providers dealing with high monthly volumes, the intricacies of reporting their income for tax purposes can be daunting, especially when their income consists of myriad small transactions.

This complexity is further amplified by the variations in regional and local tax legislation. One significant example is the EU’s DAC7 regulation, which came into effect in 2023 and aims to enhance tax transparency specifically for online marketplaces.

Navigating these regulatory waters can be tricky, especially for new or expanding marketplaces that may not yet have the infrastructure or expertise to handle these tax intricacies.

Given this backdrop, it’s crucial for online marketplaces to be proactive, not just for their own sake, but also to support their providers. A well-informed marketplace can provide guidance or tools to help providers stay compliant, minimising potential risks and fostering trust.

What is the best payment gateway for marketplace businesses?

Stripe (Stripe Connect)

What sets Stripe apart is its offering of a range of API-based payment gateways. This means that Stripe’s on-site checkout can be tailored to integrate seamlessly with the design and aesthetics of your site, making it a preferred choice for your marketplace payment platform.

Stripe is capable of handling a high volume of transactions and can be integrated with shopping carts, analytics tools, marketplaces, and more. With the objective of enabling businesses to accept any global payment method with a single integration, Stripe is constantly adding new payment options to its gateway.

Apple Pay

The usage of Apple Pay is growing. In 2020, the number of iPhone users who activated Apple Pay increased by over 65 million, and the payment gateway processed an impressive 10 billion transactions. As a mobile-based solution, this electronic ‘wallet’ enables transactions through Touch ID and Face ID. Given the 1.65 billion active iPhones worldwide, Apple Pay’s potential customer base is vast.

Amazon Pay

Amazon Pay simplifies transactions. This online marketplace payment solution lets customers pay by simply inputting their Amazon email address and password, without leaving your site. The need to enter credit card details is bypassed, as it uses the payment information saved on your Amazon account. Although a newcomer in this sphere, Amazon is a trusted brand. Studies show that 89% of buyers are more likely to purchase products from Amazon than other e-commerce sites.


Bought by Paypal in 2013, Braintree operates independently. If you possess some coding skills, Braintree is highly customisable. According to its website, Braintree is the sole marketplace payment provider that offers ‘PayPal, Venmo (in the US), credit and debit cards, and popular digital wallets like Apple Pay and Google Pay in a single, seamless integration.


This is an excellent option for multi vendor marketplace platforms due to its easy setup and efficient usage. With a focus on reducing fraud, ShieldPay utilises escrow (a third party receiving and disbursing money for the buyer and seller) to secure funds until both customer and vendor agree to proceed. Based on your marketplace’s requirements, ShieldPay can function as a redirect payment gateway, partial redirect, or fully integrate with your existing marketplace payment process.

Dispute handling and fraud prevention

Operating a marketplace entails encountering the occasional financial dispute, one of the most challenging being credit card chargebacks. When a customer files a complaint against a purchase, this act triggers a chargeback. Such disputes are rife, especially in the US, where credit card companies tend to side with the consumer, leading to a refund from the provider. This system has paved the way for unscrupulous consumers to exploit it, raising false disputes despite having received the purchased product or service.

The onus of chargeback costs typically rests on the provider. However, if your marketplace practices delayed payouts, this responsibility might shift to you, resulting in potential substantial expenses. Even if your terms of service stipulate that providers bear these costs, recovering these amounts can be complicated. If providers resist, the legal responsibility, unfortunately, rebounds to you.

A notable progression in this area was the 2019 alteration in European payment regulations with PSD2 and SCA compliance changes. The introduction of the 3D Secure 2 (3DS 2) protocol has significantly reformed the chargeback landscape. When PSPs leverage the 3DS 2 protocol for payment authentication, the liability shifts from the marketplace to the credit card issuer. This means that if a payment verified through 3DS 2 is later disputed as fraudulent, the card issuer bears the responsibility.


Choosing the right marketplace payment gateway for your online marketplace is not just about facilitating transactions. It’s about creating a user experience that builds trust, ensures security, and remains seamless throughout the buying process.

Whether you’re a small startup or an established platform aiming to expand internationally, understanding the intricacies of payment systems, from KYC processes to tax reporting and fraud prevention, is essential. It’s evident that there’s no one-size-fits-all solution. Each marketplace has its unique needs, target audience, and challenges.

What remains consistent, however, is the importance of ensuring transparency, compliance, and flexibility. Solutions like Stripe, Apple Pay, and Braintree, among others, offer a spectrum of features, but the final choice should align with your marketplace’s goals and its users’ preferences.

With the rapid evolution of online payment methodologies and regulations, staying informed and adaptive is crucial. As marketplaces become an even more integral part of global commerce, investing time and resources in the right payment infrastructure will not just ensure operational smoothness but will also fortify the platform’s reputation and longevity.