What’s the Difference Between a Payment Facilitator and a Marketplace?

There are two models that have taken the online commerce world by storm in recent years: payment facilitators (PayFacs) and marketplaces. Unfortunately, the differences between the two aren’t always immediately obvious. If your business is considering pursuing one of these models, it’s important to understand what each offers, both operationally and in terms of customer experience. In this article, I'll explain a bit about both models: what they are, how they might affect your business, and how you can start your own.

There are two models that have taken the online commerce world by storm in recent years: payment facilitators (PayFacs) and marketplaces. Unfortunately, the differences between the two aren’t always immediately obvious. If your business is considering pursuing one of these models, it’s important to understand what each offers, both operationally and in terms of customer experience. In this article, I'll explain a bit about both models: what they are, how they might affect your business, and how you can start your own.

Payment Facilitators and Marketplaces: What Are They?

Before we can explain how these different models will affect your business, it’s important for us to define exactly what they are:

  • Payment Facilitator: Any software that facilitates payments from one person or business to another.
  • Marketplace: A platform that allows customers to complete transactions with many retailers on a single website or application.

In reading these two definitions, it may not be immediately clear how these are different. Many large companies you think about -- Amazon, Etsy, or Uber -- could fit either description. That’s a problem, though, as it’s impossible for one platform to be both a marketplace and a PayFac.

When looking from the outside, the most important difference between PayFacs and marketplaces is the number of retailers a customer transacts with through the platform. Payment facilitators connect one customer to one merchant, while marketplaces connect one customer to many merchants

Amazon users can make purchases from multiple vendors in a single transaction, which makes it a marketplace. Uber, on the other hand, only allows you to take a ride with one driver at a time, making it a payment facilitator.

It’s important to recognize that just because there are multiple sellers on a single platform, that doesn’t necessarily make it a marketplace. Though Uber users can request rides from hundreds of drivers, the transaction itself is only between the user and a single driver. The participants in the transaction itself -- not on the platform -- is what distinguishes facilitators from marketplaces.

How Will My Customers See a PayFac vs. a Marketplace?

Think about the last time you purchased something through a third-party seller on Amazon.com. Do you remember the name of that seller? Would you recognize the business if you walked past it on the street? Probably not. This is because, as a customer of a marketplace, the marketplace is your destination. As a result, things like customer service and returns will be worked out directly with the marketplace.

Customers of payment facilitators, on the other hand, never view the facilitator as their shopping destination. The facilitator is simply the vehicle by which their payment is processed. In many cases, the customer won’t even recognize that the facilitator was involved. Their destination is the merchant itself. Any questions regarding the purchase will be directed toward the merchant rather than the facilitator.

Operational Differences Between a Payment Facilitators and a Marketplace

If you're considering adopting a payment facilitator or marketplace model for your business, there are a few behind-the-scenes differences between PayFacs and marketplaces that you should be aware of:

If you’re looking for a payments solution for your marketplace or payment facilitator platform, SwipeSum.com would love to help! We have helped over 1,300 businesses find their perfect payment processing solutions. Click here to get started finding your own.

Taft Anderson

Taft Anderson is the former Product Marketing Manager of Swipesum. A graduate of Washington University in St. Louis' Olin Business School, Taft is a content and branding expert.

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