Understanding transaction flow on your marketplace

What does a healthy transaction flow look like on a marketplace? A buyer pays through a single, trusted checkout, the vendor gets paid their share automatically once the order is confirmed, your commission comes off the top without anyone invoicing anyone, and both sides leave a review once the job's done. That's the whole loop, and it needs designing on day one, not bolted on once you've got real vendors and real money moving.

Code23 builds marketplaces on Stripe Connect for exactly this reason: it handles seller onboarding, split payments and payout timing, so you're not left reconciling a spreadsheet against a bank statement. Get the flow right early and reconciliation and payout operations become easier to manage. Get it wrong and every extra vendor just adds more manual work.

A standard transaction flow is usually made up of a customer payment, money (less the marketplace commission) being moved to the vendor, and reviews being given on both sides.

Payment

Taking these stages one at a time, let’s start with the payment. Will your marketplace transaction involve an online payment? The answer is usually yes, and with that can come problems. Fortunately though, as previously discussed in ‘which online marketplace payment solution is best?’, there are a number of excellent payment services vendors with solutions designed specifically for marketplaces. Begin by selecting a payment method, how you want the checkout process to work, and when payment will occur. 

One of the most frequently used methods of payment online is with credit cards. Not only can they be used globally, they also provide a level of cover with regards to fraud. Stripe is a widely used payment service provider that lets marketplaces accept cards and other payment methods. Its fraud tools and dispute handling depend on the payment method, Connect setup and platform responsibilities, so Stripe itself shouldn’t be presented as blanket buyer or seller protection.

It won’t surprise you to know that online payments are heavily regulated. That means it can be simpler to use existing software rather than creating something new and all the compliance that that will involve. With many payment service vendors specialising in the marketplace arena, it can be the easier option to use one of them. Going back to Stripe, its hosted Checkout or Elements can reduce your PCI DSS scope, but you still need to meet and validate whatever PCI DSS responsibilities apply to you, as set out in Stripe's PCI compliance guidance. 

Each existing supplier will have its advantages and disadvantages – some charge lower fees, some are easier to integrate, some will provide more buyer and seller protection. Do your research, work out which is the best fit for your business and make sure they can deliver everything you need to give your users an exceptional experience. 

Once a customer has chosen a product (or service) they then need to complete a number of steps in the marketplace checkout process. Historically online, this process has involved a shopping basket and once you’ve finished adding to your basket you proceed to checkout. If your marketplace is such that customers are likely to make multiple purchases this is probably still your best option.

More recently, however, marketplaces haven’t found the need for a basket as it adds an unnecessary step to the process. The key is to only have as many steps as you need and no more so, if you can buy something or book something by clicking on it and instantly going to payment, all the better and no basket is required. 

Every unnecessary checkout step creates another point at which a buyer can leave, so keep the transaction flow as short as the marketplace model allows.

Some sites like people to register before completing transactions, think about whether it will be beneficial to you to have people sign up and if the additional information is worth lengthening the process the first time.

Most eCommerce sites have traditionally transferred money as soon as checkout is complete, particularly on sites that sell physical products that are then posted out. 

This system isn’t such a good fit for sites that rent out or provide a service where the vendor may want to take time to approve and review the request to purchase. In this case, along with instant booking there may be options for pre-authorisation, where credit card details are added but the money isn’t transferred until approval is given by the vendor. If approved the card is charged, if not no transfer is ever made. Bear in mind, if you want to accept bank transfer, pre-authorisation won’t be an option. 

Sometimes the sale can be more complicated, such as charging a service at an hourly rate for an, as yet unknown, number of hours. The final price will only be known when the job is complete and it may therefore be easier for the transaction to take place independently of your marketplace, or consider adding a payment system that will generate the invoice on the vendor’s behalf. 

[ inside one transaction ] Six stages, one bot, everyone paid in the end

01 PAYMENT 02 PAYOUT DELAY 03 KYC CHECK 04 COMMISSION 05 PAYOUT 06 REVIEW

PROCESSING PAYMENT

BUILD BOT_ STAGES CLEARED

TAKING THE ORDER ONE STAGE AT A TIME Payment, payout delay, KYC, commission, payout, review

Funds transfer

The next thing you’ll need to consider is at what point you move the money to the vendor. The simplest answer to this is to do it as soon as payment has been made, but there are exceptions to this. It could be that a big part of the value you add to customers is that they are trusting you to ensure they get what they have ordered. You could do this by delaying payment to the vendor until receipt is confirmed, in other words, you’re holding onto the payment for a little while.

Alternatively, you could complete all transactions directly between yourself and your customers and receive invoices from your vendors. This could cause you problems though as it means you will be entirely responsible for every aspect of your marketplace, and it’s impossible to guarantee the service of a third party that you have no control over. Acting as merchant of record or facilitating direct transactions like this changes your tax, consumer, chargeback and operational responsibilities. It doesn't by itself determine your vendors' employment status, which depends on the actual working relationship (see GOV.UK's employment status guidance). It is a much preferred route to have the financial relationship directly between your vendors and customers.

Assuming that is the route you take, it is still possible for you to delay payments through escrow. In other words, you are in effect a third party who is holding the money for the other two parties. Escrow is heavily regulated so, unless you’re willing to fulfil the necessary criteria, this might not be the best choice for you. That said, some payment gateway vendors such as Stripe Connect can delay eligible payouts, creating escrow-like timing without the platform operating an escrow service. This is not regulated escrow, and payment, safeguarding, KYC and risk responsibilities still depend on your integration and jurisdiction. A simpler route may be to use a vendor that, rather than offering escrow, has a protection program for buyers, such as PayPal.

The actual process of releasing money to your vendors is something else that is regulated to prevent the possibility of money laundering. Checks will need to be made on your vendors through a process called Know Your Customer (KYC).

Charging commission can work in a couple of ways – the two easiest being that you either split a transaction into two with one part going to the vendor and the other to you, or the vendor is paid the entire amount and you then charge them the agreed commission fee.

"I've been Code23 client for 5 years... James and his team is always responsive to any support I need and did an excellent job in re-designing and re-building our marketplace website. This was a very complex job with separate shops/payments/blog/categories and everything was custom coded and designed for our website."

Reviews

Following a transaction, customers and vendors are often asked to provide reviews for each other. This serves a dual purpose. Firstly, tying reviews to completed transactions reduces unsolicited fake reviews, but doesn't eliminate self-dealing, incentivised reviews or account abuse. Secondly, a reviews system incentivises all parties to supply a good service.

Most review systems allow a numeric evaluation (often giving the appropriate number of ‘stars’) and a more detailed evaluation using text. You may want to split the review into particular topics and make this quantitative and qualitative rating available for each category. 

Reviews can be left immediately (if the customer isn’t waiting for a physical product to arrive in the mail) or after the vendor has supplied the product. Either way, it’s a good idea to remind your customers to leave a review via email.

To recap, a transaction flow undergoes a number of stages. The first involves online payment and how you manage that. Charge the customer through the chosen payment method and provider only when the transaction terms and timing require it. Cards, Apple Pay and PayPal are payment methods or wallets, while Stripe is a payment service provider. 

Subsequently moving money to vendors can pose problems due to regulations, although using a partner such as ourselves who builds on Stripe Connect helps: it can support onboarding, verification and payouts, but your responsibilities as the platform still depend on your integration and jurisdiction. The last stage in the transaction is an important one, reviews will build trust so ensure, to your best ability, that they are completed by both customers and vendors upon completion.

Frequently asked questions

What is transaction flow in a marketplace?

Transaction flow is everything that happens between a buyer choosing something and everyone getting paid: the payment method, when money leaves the buyer’s account, how commission gets split, when the vendor gets paid, and the reviews that close out the trade. Get one stage wrong and buyers stop trusting the marketplace, whatever the rest of the site looks like.

Should a marketplace hold payment in escrow?

Only if you’re set up for it. True escrow protects both sides but is heavily regulated. Most marketplaces instead use a payment provider such as Stripe Connect, which can delay eligible payouts to create escrow-like timing. That’s not regulated escrow, and your payment, safeguarding, KYC and risk responsibilities still depend on your integration and jurisdiction.

How do marketplaces usually charge commission?

Two common models: split the payment at checkout so the vendor only ever sees their share, or take the full payment and invoice the vendor for commission afterwards. Splitting at source is simpler to reconcile, and it’s what we build by default when we set marketplaces up on Stripe Connect.

Do marketplace reviews need to follow a completed transaction?

Yes, and it’s worth enforcing at platform level rather than just asking nicely. Tying reviews to a completed order reduces unsolicited fake reviews, though it won’t stop self-dealing or incentivised reviews on its own, and it gives both buyers and vendors a reason to see the transaction through properly.

Next step

If you’re mapping out payment, funds transfer and reviews for a new or existing marketplace, don’t leave it to a generic checkout plugin and hope it holds together. Get the flow checked against how buyers, vendors and your own team actually need it to work.

There are two ways to start. The Marketplace Growth Review is a free 30-minute call that tells you whether your transaction flow has a problem worth solving. The Marketplace Growth Plan is the written version: a full review of your payment, payout and review flow, at a fixed price that comes off your build if you go ahead. We’ve built 50+ marketplaces over 15+ years, across a wide range of payment and payout models.