Marketplace payments work by routing each customer payment through a payment provider built for platforms. Every seller has a connected account that the provider verifies. The buyer pays, the platform keeps its fee, the remainder is credited to the seller's connected account, and the provider pays it out to the seller's bank on a schedule.
We run CoverageCobra, a marketplace where an attorney who cannot make a hearing pays another attorney to cover it. Money moves between two professionals who have never met, and we sit in the middle. The payments run through Stripe Connect.
We covered the broader lessons in what it takes to build a two-sided marketplace. This post goes one level deeper on the money itself: who holds it, who gets verified, where the fee comes out, and when the seller is paid.
One caution first. Handling other people's money is regulated, and the rules vary by place and industry, so confirm your own obligations with a qualified professional.
How do marketplace payments work?
Marketplace payments work by having a payment provider, not the marketplace, hold and move the money. Each seller gets a connected account under the platform's account. When a buyer pays, the provider splits the payment between the platform's fee and the seller's balance, then pays the seller out to their bank.
An ordinary online store has two parties: the customer and the store. A marketplace has three: the buyer, the seller, and the platform. That third party is the whole difficulty. If the platform simply collected payments into its own bank account and sent money on to sellers, it would be holding other people's money, which in many places is a regulated activity. It would also be taking on the fraud risk and doing the paperwork by hand.
Platform payment products exist so that you do not do that. The flow, in order:
- The seller onboards. They create a connected account and give the provider their identity and bank details.
- The provider verifies them. Until checks pass, the account cannot receive payouts.
- The buyer pays. The charge is created through the platform, naming the seller's connected account as the destination.
- The fee is taken. The platform's fee is separated from the payment as part of the same transaction.
- The seller's balance is credited. The remainder sits in the connected account.
- The payout happens. The provider sends the balance to the seller's bank on a schedule.
- The platform is told. The provider notifies the platform of each event so its own records stay accurate.
What is a connected account?
A connected account is a payment account that belongs to a seller and is linked to a platform. It holds the seller's balance, identity details, and bank information. The platform can create payments on its behalf and see its status, while the provider is responsible for verifying it and paying it out.
Providers generally offer more than one style of connected account. The difference is how much the seller deals with the provider directly versus through your interface, and who is responsible when a payment is disputed. More control for the platform means more responsibility for the platform.
That choice is hard to change later, because every seller you have onboarded is on the old arrangement. Read the provider's current documentation carefully before picking, and pick the option with the least responsibility that still gives the experience you need.
Who verifies the sellers on a marketplace?
The payment provider verifies sellers for payment purposes. It collects identity and bank details, runs the checks financial rules require, and asks for more documents when needed. The marketplace does not see or store most of that information. The marketplace is still responsible for its own vetting of whether a seller is fit to do the work.
Those are two different questions, and it helps to keep them apart:
| Check | Who does it | What it answers |
|---|---|---|
| Identity and bank verification | The payment provider | Is this a real person or business that can legally be paid? |
| Professional vetting | The marketplace | Is this person qualified and trustworthy for this work? |
| Buyer's card and fraud screening | The payment provider | Is this payment likely to be legitimate? |
| Rules for cancellations and disputes | The marketplace | Who is owed what when plans change? |
On CoverageCobra both sides are verified before they can transact. The provider's checks tell us an attorney can be paid. They tell us nothing about whether that attorney should be standing in a courtroom for someone else's client. That part is ours.
A practical note on onboarding: build for the unfinished state. Sellers start onboarding and stop halfway. A provider may ask for another document weeks later. The platform needs to know, at any moment, whether an account can currently be paid, and to tell the seller plainly what is missing.
How does a marketplace take its platform fee?
A marketplace takes its platform fee by telling the provider, when the payment is created, how much of it belongs to the platform. The provider separates that amount automatically. The platform never has to invoice the seller, and the seller never receives money they then owe back.
The fee itself is a business decision, and so are the questions around it:
- Who pays the fee? It can come out of what the seller receives, be added to what the buyer pays, or be split.
- Who covers the provider's processing charge? It has to come out of someone's share.
- What happens to the fee on a refund? Decide whether the platform returns its fee when a job is cancelled.
- Is the fee flat or a percentage? Each behaves differently on small and large transactions.
We keep the fee and the rules around it in configuration, not scattered through the code, so a change is one edit and a non-engineer can read what the current rule is. We are not going to state our own fee here, because it is the kind of number that changes.
When do sellers get paid on a marketplace?
Sellers get paid when two clocks have both run out: the platform's own rule for releasing the money, and the provider's payout schedule to the bank. A platform may release funds immediately or hold them until the work is confirmed. The bank transfer then takes additional time that varies by provider and country.
The platform's rule is yours to design. The common options:
- Charge and release at once. Simple, and right when the product is delivered instantly.
- Charge now, release after completion. The buyer's money is secured up front, and the seller is paid when the job is marked done.
- Release after a dispute window. The seller is paid a set time after completion, giving the buyer a chance to raise a problem.
Longer holds protect buyers and frustrate sellers. Whatever you choose, show the seller the expected date. Most payout support questions are really "where is my money", and a clear status line answers them before they are asked.
How does the platform know a payment actually happened?
The platform knows a payment happened because the provider sends it a webhook, a signed message from the provider's servers to yours. The webhook, not the buyer's browser, is the source of truth. Browsers close and connections drop, so a "thank you" page loading proves nothing about the money.
Three habits matter here. Verify the signature on every webhook so nobody can fake one. Handle the same event arriving twice without doing the work twice. And record every event against the job it belongs to, because disputes are settled by the record. We go through the basics in how to add payments to a web app, and how we handle the signing secrets in environment variables and secrets.
Frequently asked questions
Can a marketplace just collect payments and pay sellers by bank transfer?
It can be done at very small scale, but the platform then holds other people's money, which can bring licensing obligations, fraud exposure, and manual tax paperwork. A platform payment product exists to take that off your hands. Ask a professional before holding funds yourself.
Who pays for a chargeback on a marketplace?
It depends on the connected account type and your own terms. With some setups the platform is liable for disputes and must recover the money from the seller. Decide this before launch and write it into your terms.
Do sellers need their own account with the payment provider?
They need a connected account, which is created during your onboarding flow. Depending on the account type, they may manage it through the provider's own screens or entirely inside your product.
Does the platform handle tax forms for sellers?
That depends on the country, the connected account type, and the provider. Some platform payment products help produce seller tax forms, and some leave it to the platform. Confirm what applies to you with an accountant before launch.
If you are designing a marketplace and want the money rules written down before any code exists, we can help. Tell us what you are building.