A transaction platform helps two or more groups find each other and trade, such as buyers and sellers. It cuts the cost of searching, matching and trusting a stranger. It grows as each side attracts more of the other.
Table of Contents
Key factors
- Balance between sides. Too many sellers and too few buyers drives sellers away. Size alone won’t save a platform whose sides are out of balance.
- Pricing. Most platform failures came from charging one side too much or too little, subsidising too heavily or entering too late.
- Trust. Ratings, secure payments, identity checks and refunds make people willing to trade with strangers they will never meet.
- The cost of the service itself. Moving ordering and payment online doesn’t make a low-margin physical service, such as taxis, profitable.
- Multihoming. When buyers and sellers use several rival platforms at once, each platform must keep earning their custom through price and service.
Examples
Etsy. Etsy connects buyers with millions of independent sellers of handmade and vintage goods. In April 2022 it raised its transaction fee from 5% to 6.5%, and thousands of sellers paused their shops for a week in protest. Etsy kept the higher fee, and its revenue for 2022 reached about $2.6 billion. The fee is the price of the buyers Etsy brings.
M-Pesa. Launched by Safaricom in Kenya in 2007, M-Pesa lets people send and receive money by phone through a network of local agents. It links senders, receivers, agents and merchants, and by March 2026 it had about 41 million monthly active customers in Kenya. The agents, small shops that swap cash for mobile money, gave users the trust to put money in.
Frequently asked questions
What is the difference between a transaction platform and an innovation platform?
A transaction platform matches groups so they can trade. An innovation platform provides a technology that outside firms build their own products on.
How do transaction platforms make money?
Mostly through fees on each transaction, seller subscriptions or advertising. Some charge one side little or nothing in order to attract the side that pays.
Is a transaction platform the same as a marketplace?
A marketplace is the most common type. Transaction platforms also include payment networks, ride-hailing and dating services, where no goods change hands.
Where does the term transaction platform come from?
Michael Cusumano, Annabelle Gawer and David Yoffie made it widely used in their 2019 book The Business of Platforms, which sorted platforms into transaction, innovation and hybrid types.
Full guide: Types of platforms
Related concepts
Multi-sided Platform
Innovation Platform
Multihoming
Take Rate
Platform Trust