Dictionary meaning of marketplace is about the place or open area, where a public market is set up or the buy and sell operation is carried out. In India, ‘Marketplace’ refers to a firm conducting e-commerce by acting as a facilitator between buyers and sellers by means of an information technology platform on a digital and electronic network. In other words, it refers to an online order matching platform / aggregator which matches the interest of buyers and sellers, who are distinct from the entity providing and operating that platform.
The above definition has been adopted by the Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, Government of India in respect of allowing foreign direct investment (FDI) in such companies. The same was notified on 29 March 2016 (Press Note No. 3). Thus, marketplace, as per the definition adopted by DIPP, has a limited connotation and only refers to an e-commerce activity with no stocking of goods. Further, the definition is limited to purchase of merchandise goods and services. For instance, purchase of shares and bonds on stock exchange platform corresponds to a marketplace, but it is not included in the definition of DIPP.
Marketplaces for goods and services can provide support services to sellers in respect of warehousing logistics, order fulfilment, call center services, payment collection and other services. However, they cannot exercise ownership over the inventory of goods purported to be sold. For the same reason, post sales on the e-commerce site, ultimate delivery of goods to the customers, ensuring his satisfaction, implementation of any warrantee / guarantee etc. will be the responsibility of the seller. If there is any ownership over the inventory, it will render the business into inventory based model of e-commerce. To ensure that the marketplace does not own the inventory, it is stipulated that name, address and contact details of the sellers should be clearly made available while displaying the nature and price of goods and services on the online platform.
Further, e-commerce entities cannot directly or indirectly influence the sale price of goods and services and has to maintain the level playing field with other brick and mortar retailers in the country. That is, the marketplace provider cannot offer any discount on their own unless the original seller is giving it.
A marketplace provider can enter into transactions with sellers registered on its platform on a business to business (B2B) basis. However, it cannot source more than 25% of the sales affected on its platform from a single vendor or their group companies. This is to ensure that a variety of sellers are available on the order matching platform.
Payments effected on the marketplace have to conform to the RBI guidelines issued in this regard.
Subject to the above conditions, 100% FDI under automatic route is allowed in this model of e-commerce.
- Notification by Ministry of Commerce dated 29 March 2016.
- Consolidated FDI Policy of the Government
- Various Press Notes issued by Department of Industrial Policy and Promotion as linked in this write up.
- Ms. Rose Mary K Abraham (IES 2006)