What is a marketplace according to Visa rules?
An online marketplace is a digital platform, app, or website, where multiple third-party sellers can list and sell their products or services to a broad customer base.
Marketplaces have become an increasingly popular choice for merchants who want to reach a wider target market to sell their goods and services. And it’s no wonder - third-party sellers were projected to reach $3.832 trillion Gross Merchandise Value (GMV) by the end of 2024.
Examples of marketplaces include major players such as Amazon, eBay, Etsy, Fiverr, and Airbnb. Established retailers also incorporate the marketplace model into their websites and apps to offer a wide range of products to customers, including The Range, Next, Sainsbury’s, and B&Q.
However, the majority of these retailers are not ‘true’ marketplaces, as the payments, fulfilment, and customer service aspects remain the responsibility of the third-party seller, which does not meet the Visa definition of a marketplace. Instead, these entities may operate as Payment Facilitators (PayFacs).
What is Visa’s definition of a marketplace?
Visa has its own set of rules to define what a marketplace is. While broadly, the definition remains the same, there are additional factors to be taken into account. Any marketplace that facilitates Visa transactions needs to adhere to these rules.
Marketplaces provide an infrastructure (website or app) where multiple independent merchants can sell products or services, with the marketplace itself acting as an intermediary for payment processing through its merchant account. A marketplace receives settlement funds on behalf of platform retailers and distributes them accordingly.
Marketplaces are responsible for resolving disputes between cardholders and retailers. Visa mandates that marketplaces handle disputes and chargebacks, but does not mandate a binding decision or money-back guarantee. While some marketplaces offer buyer protection schemes, this is not a Visa requirement.
What are the key Visa requirements for marketplaces?
Visa imposes specific rules and compliance obligations on marketplaces, including:
- Use of a sponsored merchant model
- The marketplace itself is the Merchant of Record for transactions processed through Visa’s network.
- The individual sellers (retailers) are considered ‘sponsored merchants’, meaning they rely on the marketplace to process payments instead of having their own direct merchant account.
- Transaction processing and fund flow
- Visa requires marketplaces to route all transactions through their own acquiring bank (acquirer) rather than allowing direct settlements between buyers and sellers.
- The marketplace collects payments from customers and then pays out to individual sellers after deducting fees.
- Settlement and volume restrictions
- No individual retailer on a marketplace can exceed $10 million in annual Visa transaction volume.
- A single retailer cannot represent more than 10% of the marketplace’s total Visa transaction volume.
- If a seller surpasses these limits, Visa may require them to establish a direct merchant account instead of being part of the marketplace.
- Regulatory and compliance responsibilities
- The marketplace must perform due diligence on all participating retailers (sponsored merchants) to ensure compliance with Visa’s fraud prevention, AML (Anti-Money Laundering), and KYC (Know Your Customer) requirements.
- The marketplace is responsible for handling chargebacks and disputes between buyers and sponsored merchants.
- Marketplaces may be required to register with Visa depending on their structure and risk level.
- Refund and chargeback handling
- Since the customer pays the marketplace directly, all refunds and chargebacks must be processed through the marketplace’s merchant account.
- The marketplace must ensure that sellers comply with Visa’s dispute resolution processes.
Why do these rules matter?
Visa’s rules ensure that marketplaces:
- Reduce fraud and ensure secure transactions.
- Maintain compliance with financial regulations.
- Protect customers from disputes and chargeback fraud.
Marketplaces that fail to comply with Visa’s requirements may face penalties, transaction bans, or loss of access to Visa’s payment network.
Visa compliance for marketplaces
To operate legally and securely under Visa’s rules, marketplaces must follow strict compliance steps to manage payments, prevent fraud, and ensure regulatory adherence. Below is a breakdown of Visa’s key compliance requirements for marketplaces and the necessary steps to meet them.
1. Registering as a marketplace with Visa
Marketplaces must formally register with Visa through their acquiring bank. Visa registration depends on the marketplace’s size, volume, and risk profile. This process includes:
- Providing business details – Company structure, ownership, and business model.
- Listing all sponsored merchants – The sellers using the marketplace for transactions.
- Defining payment flows – How customer funds are collected, held, and distributed.
- Confirming compliance measures – KYC, AML, fraud prevention, and chargeback policies.
Note: Visa may require large marketplaces to sign a direct agreement for enhanced oversight.
2. Sponsoring merchants (onboarding and due diligence)
Marketplaces must verify the identity and legitimacy of each merchant before allowing them to sell on the platform. This includes:
- Know Your Customer (KYC)
- Collecting legal business information (company registration, tax details, etc.).
- Verifying the seller’s identity (government-issued ID, bank details, etc.).
- Screening against sanctions lists (OFAC, EU AML lists, etc.).
- Risk assessment and fraud checks
- Checking sellers’ transaction history and fraud risk.
- Monitoring for high-risk industries (e.g., gambling, adult content).
- Ongoing monitoring
- Tracking sellers' transaction volumes.
- Flagging unusual payment patterns.
3. Managing transactions and settlement (Visa’s Fund Flow Rules)
Visa requires marketplaces to control the payment flow and handle settlements responsibly. This means:
- Customer payments must go through the marketplace
- Customers pay the marketplace directly.
- The marketplace’s acquiring bank processes the transaction.
- Marketplace distributes funds to sellers
- The marketplace must hold settlement funds temporarily before paying out sellers.
- Sellers cannot exceed $10 million in annual Visa volume or 10% of total marketplace transactions (otherwise, Visa may require them to have a direct merchant account).
4. Chargeback and dispute resolution responsibilities
Visa holds the marketplace responsible for handling customer disputes.
- The marketplace must handle chargebacks
- Customers file chargebacks against the marketplace, not the individual seller.
- The marketplace must investigate claims and issue refunds if necessary.
- Dispute resolution process
- Marketplaces must have a formal resolution process (e.g., refund policies, seller mediation).
- Some marketplaces offer a buyer protection program (e.g., Etsy’s Purchase Protection, Vinted’s Buyer Protection).
- Fraud monitoring and prevention
- Visa requires marketplaces to monitor high-risk transactions.
- Marketplaces must comply with Visa Secure (3D Secure 2.0) for authentication.
5. Regulatory compliance (AML, data protection, and security)
Visa requires marketplaces to follow global financial regulations, including:
- Anti-Money Laundering (AML) compliance
- Monitoring transactions for suspicious activity.
- Reporting fraud and money laundering risks to authorities.
- PCI DSS Compliance (payment security)
- Marketplaces must protect customer payment data through PCI DSS compliance (encryption, tokenization, etc.).
- GDPR & data privacy laws
- If operating in the EU, marketplaces must comply with GDPR (General Data Protection Regulation).
- In the US, there are state data privacy laws, including California’s CCPA (California Consumer Privacy Act), and Virginia’s VCDPA (Virginia Consumer Data Protection Act), among others, which the marketplace must comply with.
- User payment data must be securely stored and processed.
6. Visa-specific requirements for large marketplaces
Visa imposes additional rules for high-volume marketplaces:
- If a seller exceeds $10M in annual Visa transactions, they must set up a direct merchant account instead of relying on the marketplace’s payment system.
- If a seller accounts for more than 10% of marketplace transactions, Visa may require special approvals or direct agreements.
- Visa may require marketplaces to register as a Money Services Business (MSB), depending on the country’s financial laws and how funds are held/disbursed.
What are the consequences of non-compliance with Visa rules?
If a marketplace fails to comply with Visa’s rules, it can face:
- Fines and penalties – Visa can impose financial penalties for violations.
- Transaction bans – Visa may suspend or revoke the marketplace’s ability to process Visa payments.
- Legal action – Regulatory authorities can take legal action against the marketplace.
Why Visa compliance matters for marketplaces
Visa’s marketplace rules exist to protect consumers, prevent fraud, and maintain payment security. Any marketplace that facilitates Visa transactions must follow these steps to ensure compliance and avoid penalties or transaction restrictions.
