What does the law look like when setting up a marketplace business? What’s the difference from a traditional e-com and what do you need to think about before setting up your new platform?
Picture a common scenario when an online retailer decides to add a marketplace to their existing e-com, thus creating a hybrid marketplace with their owned products as well as the third-party seller products.
The online retailer might have an existing way of handling payments and a well-known way of buying products, putting them into a warehouse and fulfilling the orders by themselves or a third-party logistics provider. All that will now change with the hybrid marketplace.
In this blog post we will focus on the legal changes that the retailer needs to think about, left-aside all the other changes of various kind.
Any retailer that decides to run a hybrid marketplace has the following legal areas to deal with:
- How does an agreement with my sellers look like?
The retailer is very used to buy products from their suppliers, and this new situation is quite different when you now act as a marketplace operator. As an operator of a marketplace you offer the opportunity to the seller to sell on the marketplace and you charge commission for the sales. Therefore, a new agreement needs to be written.
- How do I make sure that I don’t touch the money flow in order to be compliant with EU-legislation?
Can I keep my existing Payment Service Provider, or do I need to make any changes? That this is actually needed may come as a surprise but it’s actually necessary if you want to be fully compliant.
Talking to lawyers about the agreement
The agreement needs to describe the new business model. How does it work, and which are the roles and responsibilities of each party? The following topics are some topics that should be covered.
- Need for product data and image requirements (see our previous blog post regarding product data)
- Right to use trademarks etc.
- Personal data and compliance with GDPR
- KPI:s for delivery of products, returns, order acceptance and response time etc.
- Commercial terms, e.g. commission level, discount levels if applicable and promotions
Lawyers are not always familiar with the details of the business model and it usually take some time to get them onboard. It’s not just a matter of get it right from a legal perspective, but also make the agreement as simple as possible and easy to understand for sellers. You could end up with a lot of questions and the time to recruit new sellers will take longer time.
Keeping away from the money flow
When you buy products from vendors, put them in a warehouse and sell them online to your customers you are the so-called Merchant of Record. This is not the case when you operate a marketplace.
This area deserves special attention because you need to find another setup to make sure that you don’t participate in the money flow and at the same time find a way to pay the sellers for the sales on the platform.
If you have a Payment Service Provider (PSP) today like Adyen or Stripe you can make use of their existing marketplace offerings. If you make use of a PSP today like Klarna or Qliro you need to think about how to do it. Each situation needs to be analyzed separately so that you find a solution that fits your needs.
To make yourself more familiar with this important subject please read this paper from Stripe: “How PSD2 impacts marketplaces and platforms”: https://stripe.com/en-de/connect/eu-guide