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Is your marketplace payment system compliant with regulations ?

9 June 2020

Business Insight

As an intermediary between buyers and sellers, a marketplace is responsible for the smooth running of transactions that take place on its platform. However, collecting funds before redistributing them to a third party is a strictly regulated activity. What are the processes to follow in order to comply with regulations? Is your marketplace really on track? Here is a checklist of best practices.

 

Payments on a marketplace platform: what is the regulation for?

Protecting funds

The marketplace collects money from its end customers on behalf of its sellers, before redistributing it to the latter. In this short period of time, regulations require that the funds intended to the sellers are to be protected via a holding account. Practically speaking:

  • A buyer places an order of 100 euros on the marketplace
  • Those 100 euros are transferred to a holding account, until the order is completed
  • The seller delivers his or her product / performs the expected service
  • Funds are transferred to the seller’s account, after a potential withdrawal of commission from the marketplace, of 15 euros for instance.

This process protects the buyer, since their money is withheld until the order is delivered, and it guarantees sellers that they will collect their money once the transaction is complete.

Preventing fraud, identity theft, money laundering and the financing of terrorism

Marketplaces have the obligation to set up specific processes when enrolling sellers in order to prevent any attempt of money laundering:

  • Duty of care. Before a new seller can offer its products or services on the platform, the marketplace must verify their identity thanks to the KYC (Know Your Customer) process (Know Your Customer).
  • Monitoring of operations. At any time, the marketplace must be able to detect operations that are unrelated to the activity, as well as unusual behaviour of sellers and buyers.
  • Obligation to report suspicious transactions. In case of suspicious operations, the marketplace is required to report it to TRACFIN, the administrative and government service in charge of financial intelligence.

What must a marketplace do to comply with regulations?

To comply with the regulation against money laundering and financing of terrorism (LCB-FT), a marketplace must keep a register of beneficial owners, which aims at identifying the people who control a company and benefit from its economic activity. In addition to that, the marketplace must subject all its sellers to KYC/KYB identification processes, in accordance with the regulations imposed by the ACPR, the Prudential Supervision and Resolution Authority. Finally, the activity of a marketplace is subject to the PSD2, the European Payment Services Directive. Besides being registered at the ACPR, the PSD2 involves an increasing use of strong authentification.

Using a PSP: the assurance to be compliant for a marketplace

If a marketplace records transactions without being registered at the ACPR or without benefiting from a license exemption, it must use a Payment Service Provider (PSP). This partner is responsible for the management and the security of the financial transactions. Authorisation, organization, verification, regulationThe PSP holds many responsibilities which all aim at relieving the marketplace from all regulatory requirements specific to payment management. The PSP holds the responsibility of protecting sellers and buyers, since the PSP collects and holds funds until the order has been delivered, before redistributing them to merchants.

By outsourcing payment services to a third party, the marketplace operator is no longer responsible of the payments made on the marketplace. The PSP, which must comply with the regulation, is responsible for the payment interface, the security of payments and the technical aspect. However, the operator keeps the role of principal.

 

As a complete payment solution, Lemonway provides you with several payment methods and options. Licensed by the ACPR, respecting payment regulations is our top priority. Thus, you can be sure that your marketplace complies with the regulation and you can focus on developing your activity.

As an intermediary between buyers and sellers, a marketplace is responsible for the smooth running of transactions that take place on its platform. However, collecting funds before redistributing them to a third party is a strictly regulated activity. What are the processes to follow in order to comply with regulations? Is your marketplace really on track? Here is a checklist of best practices.

 

Payments on a marketplace platform: what is the regulation for?

Protecting funds

The marketplace collects money from its end customers on behalf of its sellers, before redistributing it to the latter. In this short period of time, regulations require that the funds intended to the sellers are to be protected via a holding account. Practically speaking:

  • A buyer places an order of 100 euros on the marketplace
  • Those 100 euros are transferred to a holding account, until the order is completed
  • The seller delivers his or her product / performs the expected service
  • Funds are transferred to the seller’s account, after a potential withdrawal of commission from the marketplace, of 15 euros for instance.

This process protects the buyer, since their money is withheld until the order is delivered, and it guarantees sellers that they will collect their money once the transaction is complete.

Preventing fraud, identity theft, money laundering and the financing of terrorism

Marketplaces have the obligation to set up specific processes when enrolling sellers in order to prevent any attempt of money laundering:

  • Duty of care. Before a new seller can offer its products or services on the platform, the marketplace must verify their identity thanks to the KYC (Know Your Customer) process (Know Your Customer).
  • Monitoring of operations. At any time, the marketplace must be able to detect operations that are unrelated to the activity, as well as unusual behaviour of sellers and buyers.
  • Obligation to report suspicious transactions. In case of suspicious operations, the marketplace is required to report it to TRACFIN, the administrative and government service in charge of financial intelligence.

What must a marketplace do to comply with regulations?

To comply with the regulation against money laundering and financing of terrorism (LCB-FT), a marketplace must keep a register of beneficial owners, which aims at identifying the people who control a company and benefit from its economic activity. In addition to that, the marketplace must subject all its sellers to KYC/KYB identification processes, in accordance with the regulations imposed by the ACPR, the Prudential Supervision and Resolution Authority. Finally, the activity of a marketplace is subject to the PSD2, the European Payment Services Directive. Besides being registered at the ACPR, the PSD2 involves an increasing use of strong authentification.

Using a PSP: the assurance to be compliant for a marketplace

If a marketplace records transactions without being registered at the ACPR or without benefiting from a license exemption, it must use a Payment Service Provider (PSP). This partner is responsible for the management and the security of the financial transactions. Authorisation, organization, verification, regulationThe PSP holds many responsibilities which all aim at relieving the marketplace from all regulatory requirements specific to payment management. The PSP holds the responsibility of protecting sellers and buyers, since the PSP collects and holds funds until the order has been delivered, before redistributing them to merchants.

By outsourcing payment services to a third party, the marketplace operator is no longer responsible of the payments made on the marketplace. The PSP, which must comply with the regulation, is responsible for the payment interface, the security of payments and the technical aspect. However, the operator keeps the role of principal.

 

As a complete payment solution, Lemonway provides you with several payment methods and options. Licensed by the ACPR, respecting payment regulations is our top priority. Thus, you can be sure that your marketplace complies with the regulation and you can focus on developing your activity.

 

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