Digital marketplaces have transformed how we buy and pay for goods and services online. Whether it’s ordering pizzas, booking taxis or accommodation, buying second-hand goods and other must-have household items, marketplaces are such an indelible part of our lives, it’s difficult now to imagine life without them.
The volumes of business being transacted on online marketplaces is growing exponentially. According to research firm Forrester, in 2016, half of online retail business-to-consumer spend came from marketplaces; and by 2022, this share is expected to rise to 66% based on current growth trends.
A lot of the successful marketplaces, whether it is eBay, Amazon, Airbnb or Uber, not only invest a lot of time and money in making sure goods and services can be easily transacted on their platforms, they also want to make it as simple and seamless as possible for customers to pay for their purchases. That is why eBay set up PayPal and Airbnb built its own payments platform.
But what if you’re a relatively small marketplace starting out and you don’t have the volumes to justify building your own payments platform, but you realise that payments are important to your suppliers, and ultimately the success of your business? What are the alternatives?
London-based marketplace Bubble, which makes more than 15,000 babysitters across the UK more easily discoverable —using mobile phone and social media data —for the 25,000 or so parents that use its smartphone app, came up with an innovative approach for ensuring babysitters get paid more quickly and securely.
Traditionally, babysitting has been a cash business with sitters having to awkwardly negotiate a conversation with parents at the end of a long evening about getting paid. If they worked for an agency, then typically they would have to wait days or weeks to receive payment.
When co-founders Ari Last and Adrian Murdock initially launched Bubble in 2016, they were a small start-up with low payment volumes, and not big enough to demand a more tailored solution from a high-street bank.
Instead, Bubble opted to work with authorised e-money institution, Modulr, which provides customised payment services accessed via a platform-friendly REST (REpresentational State Transfer) API or Application Programming Interface. Modulr’s API meant Bubble could fully automate the payment to the babysitter’s bank account, reducing the time it took for money to reach their account from three days to a matter of hours.
"Cashless payments were a massive incentive for parents and sitters,” Murdock explains. “They don’t like having to deal with cash at the end of a night. This way the payment hits the sitter’s bank account directly. That gives us a commercial advantage over other solutions. For example, if sitters are getting paid through an agency, they would probably get paid weekly."
Getting paid more quickly
Modulr’s API also gave Bubble real-time visibility of money coming into its account from parents that had paid, which meant it could pay sitters before that money had cleared.
Modulr’s API is a really scalable, automated way of paying people, which allows us to be cost-efficient, otherwise we’d need a much larger finance team,” explains Murdock. “We didn’t want to employ a team of three to five people to do this.” Murdock estimates that Modulr’s API has saved Bubble approximately 20 pence to 30 pence per payment.
Like most digital marketplaces, Bubble’s business is growing rapidly, so it needed a payment solution that could easily scale as it grew. Currently, Bubble pays out more than £60,000 a month to babysitters using Modulr’s payment API and it hopes to triple volumes this year.
Increased regulatory oversight is also something that digital marketplaces that handle confidential client information (bank account details) have to think about. With the EU’s General Data Protection Regulation (GDPR) set to come into effect in May this year, Bubble wanted a payments solution that was robust and secure. “We needed to be sure that the customer’s data and personal information was not accessible,” says Murdock.
What is an e-money institution?
In addition to traditional payment service providers such as banks, the first EU Payment Services Directive and the 2011 E-money Directive, created two new categories of payment services providers that are licensed by the UK’s Financial Conduct Authority: e-money and payment institutions. The latter can execute payments (credit transfers, direct debits), remit money, provide foreign exchange. E-money institutions issue electronic money — “cashless payments” or “stored value” — into a customer’s account. E-money institutions must hold client funds in a separate designated account. They can also provide payment services, but do not lend money.
What is an API and why does it matter?
An Application Programming Interface or API is a defined set of commands and tools that enables computer systems to directly exchange information with one another. Payment providers like Modulr use APIs to allow customers to trigger payments from accounting, payroll, HR or other software. They also allow these systems to query bank balance information and import statement data, considerably reducing the manual overhead.