Building a marketplace is tricky business, but once in a while you just need to get your head down and learn new things, before you can share them again.
At this point, a huge thank you to everyone that reached out for mentorship over the past few months. It’s a pleasure to work with early marketplace and solo-business founders and see them make their dreams a reality.
And now, two months after walking you through the concept of a community blog, I want to shine the light on a different issue: How the hell do you pay suppliers across the world at scale?
The issue with global payouts
Marketplace payouts are tricky in a variety of way.
First of all, payment processors hate marketplace payments. They are only semi-regular, different than for payroll, sums may be a little bit different each month.
They are also smaller in most cases: While you’d see order sizes anywhere between $1,000 to $10,000 for international payroll, marketplace suppliers might be paid $10, $100 or $500 each month, depending on the nature of your marketplace.
Then, there’s the big distribution of countries and currencies. At MentorCruise, we already host mentors on every continent of the world except Antarctica. This means we need to send payments in USD to the US, in INR to India, EUR to Germany, but also GHS to Ghana and MYR to Malaysia.
Then finally, you need to send a lot of those payments. If you send 300 payments to people every month as a traditional business, you would probably be a large business with 300 employees. As a marketplace, you are a small-to-medium marketplace with that number.
So, finding partners that are able to accommodate all this are sparse.
Look out for regulations and potholes
MentorCruise has a long history with payment systems, which I’ve covered in a previous post. Here’s the rundown.
- In 2017, we took payments via PayPal and sent them to mentors directly via PayPal. At the end of 2018, PayPal took away our mass payments function. The volume was small, so we sent payments manually.
- In 2018, Stripe Connect launched in Europe. We started onboarding people on this system, but the coverage was/is limited. This was all automated and took some of the volume away from PayPal.
- In 2019, we started moving funds to TransferWise (now Wise.com) and sent them out through the wire network. This meant we no longer had to do manual payments.
- In 2020, we entirely moved away from PayPal. Stripe funds would go to Wise.com directly and be sent from there.
- With Brexit in 2021, Wise.com terminated our account, as they were no longer able to facilitate marketplace payments outside the EEA.
- A month ago, we started using Borderless for international payouts.
So, this is where it’s at today – 70% of volume can be handled using Stripe Connect, 30% of the volume that goes to India, Africa and certain South American countries goes through Borderless.
Especially the Wise.com termination was a big wake-up call to vet the payout ecosystem and making sure we don’t hit any regulation pot holes. Marketplaces need to keep their eyes open about different issues:
- Certain countries, even though they are available on Stripe, do not offer cross-border payouts.
- In the EU, marketplaces are a PSD2 regulated money transmitter business. You need a partner that is regulated and allows for marketplace payments. It’s enough for your suppliers to be in the EU, even if your business is elsewhere
- In certain countries, mass payments are strongly regulated
So with this in mind, be sure to pick your partners right.
The global payout ecosystem
In the past few weeks I had the “pleasure” to talk many of these tools and while most of these have been great, we ended up partnering with Borderless.
Borderless is our partner of choice in the end. What convinced us in the end was the flexibility and speed of execution. Just a week after our first call we had our account provisioned and ready. We got access to a great payouts API and were able to outsource the bank detail collection (it’s much harder than it sounds).
Borderless is free and they take roughly 2% on the payout amount, but no wire fees beyond that.
PaymentRails was for the longest time my top contender. Their products is ridiculously good:
- Super polished UI
- Hooks directly into Stripe, so you don’t need to handle the funds
- Great API
- Bank collection widget
- Payments into every country
- Incredibly cheap
- Multiple payout methods
Unfortunately, it turns out that they can only work with businesses in the EU and North America. Great candidate, though.
Tipalti is a more enterprise focused product. Just as PaymentRails, they pay in almost every country in the world with different methods. Unfortunately, this solution was too expensive for us, the account creation cycle incredibly long and there was less focus on automated and API integrations, to the point where we would have had to create recipients manually.