People setting up multi-vendor shopping carts are asking me a similar question: “What is the best way to accept payments from customers?” For the uninitiated, a multi-vendor shopping cart allows several (or many) companies to sell their products on a single web site. The web site may be set up such that each company / vendor has their own store and shopping cart, or it may be set up such that vendors share common pages and a single shopping cart.
The question on people’s mind seems to be whether the customer should pay each vendor individually, or whether the web site operator should act as payment collector and then distribute the proceeds to each vendor who participates in the sale.
There are three players who have an interest in this: the customer, the web site operator, and the vendor. There are also several issues at play. convenience, timing, trust, and after sale service.
From a customer’s perspective it’s easier to deal with a single payee than multiple payees. Contrarily, from a web site operator’s perspective, it’s easier if customers pay vendors directly (it removes a step in their ‘shop -> buy -> pay -> ship’ order process). The vendor, as far as convenience is concerned, probably doesn’t care. It’s no harder to receive a payment from a customer than it is from the web site operator.
Something else to consider: Most multi-pay systems rely on an outside payment source (like Paypal). Why, because these multi-pay systems can’t efficiently accept credit cards. If a multi-pay system were to accept credit cards, it would be a nightmare. Can you imagine a customer’s frustration of having to go through two or more payment authorization cycles on a single order? Customers would probably abort the cart before ever completing the purchase. Conversely, in a single-pay environment, it’s easy for a customer to use Paypal or a credit card.
The critical issue here is how quickly the vendor gets paid. Obviously the vendor wants to get paid as soon as possible. In a multi-pay environment, the customer pays the vendor immediately, and the vendor then ships the product. According to best practice, however, vendors shouldn’t get paid until after they fulfill the order (this practice is strongly encouraged by credit card companies, who don’t like dealing with irate customers who have already paid but are still waiting for their order).
Paying upon order fulfillment, and not order receipt, is a good idea. It encourages the vendor to ship quickly, and in cases where they’re out of stock (or have to delay shipment), don’t have to deal with irate customers, credit reversals, etc. In a single-pay system, the web site operator controls when each vendor gets paid. This means that vendors who ship product get paid even as vendors who haven’t shipped product (on the same or different order) don’t get paid.
It’s always nice to minimize the number of steps in any process. Doing so keeps things simple. From a customer’s perspective making one payment is simpler than making multiple payments. However, in a single-pay environment, the web site operator has, for at least a short time, the vendor’s money. Therefore, there is an element of trust between the vendor and the web site operator.
The trust also goes the other way. If a customer returns a product, the web site operator must get paid by the vendor so they can reverse the customer charge.
Trust is a two way street, but needless to say, an untrustworthy business won’t stay in business for long.
After Sale Service
In a multi-pay environment the web site operator is implicitly telling the customer that if there are any problems, they should talk to the vendor(s). After all, the customer paid the vendor directly. In a single-pay environment the web site operator is implicitly telling the customer that if there is a problem, the customer should contact the web site operator.
Certainly, from a customer’s perspective, they’d rather deal with a single entity than multiple entities. However, there are other issues at play, specifically, dispute resolution. If it’s the web site operator’s practice to let customers and vendors ‘patch their differences’, it will only be a matter of time before a single vendor poisons the whole well. If nothing else, the customer should be able to appeal to the web site operator if they don’t get satisfaction from the vendor.
While some web site operators may not like the idea of inserting themselves in a customer-vendor dispute, it is actually an advantage. It allows the operator to learn about the customer’s complaint (which may actually be a complaint about the web site, and not the vendor), and to understand how well the vendor is responding to the complaint. It’s this kind of feedback that leads to better web site design, better content, better policies, and happier vendors and customers.
There is no one right answer. The answer really depends on your business model and your business philosophy. I, for one, favor a single-pay system. It gives me more control, more flexibility (credit card and Paypal), and more information. It also allows me to act as a buffer between the customer and the vendor, when necessary. Most of all, it’s easier for the customer.
For a time (and perhaps this is still true…I honestly don’t know), E-Bay had a problem with a few bad vendors spoiling their multi-pay business model. After losing some sales and some customers they implemented some very restrictive policies to get their vendors under control. E-Bay was big enough to with-stand the storm (although at great loss in market share and reputation). E-Bay’s experience shows that multi-pay versus single-pay is an important decision, cutting to the core of a business model. Make the decision carefully.