What is disintermediation or platform leakage?

Platform leakage, also known as disintermediation, means that users are going around your platform’s payment system to transact independently off-platform. This leads to a loss of revenue. Marketplace leakage is a difficult challenge to solve entirely, but providing value and incentives for your customers and providers to complete transactions on your platform helps discourage them from circumventing your payment system

1. Avoidance of Fees: One of the primary reasons for platform leakage is the desire of users (both buyers and sellers) to avoid the fees charged by the platform. By transacting directly, they can potentially save money that would otherwise go to the platform as commission or service fees.

2. Direct Relationships: Users may prefer to build direct relationships with each other for future transactions, bypassing the platform to facilitate more personalized interactions, better terms, or customized services.

3. Confidentiality or Privacy Concerns: In some cases, users might engage in leakage to maintain privacy or confidentiality, especially in platforms where transactions are closely monitored or recorded.

4. Restrictive Platform Policies: Platforms with restrictive rules or policies can drive users to transact outside the platform. This can include limitations on product listings, service offerings, communication between users, or payment methods.

5. Convenience and Trust: If users have established trust with each other, they might find it more convenient to deal directly rather than through the platform, especially for repeat transactions.

6. Impact on Platform Revenue: Platform leakage can significantly impact the platform's revenue, as it loses out on fees or commissions from transactions conducted off-platform.

7. Quality and Safety Concerns: Platforms often provide quality control, dispute resolution, and safety measures. Leakage can expose users to risks like fraud, poor quality, or lack of recourse in case of disputes.

Platforms typically try to minimize leakage by offering value-added services, maintaining reasonable fees, enforcing policies to discourage off-platform transactions, and continuously enhancing the user experience to make it preferable to transact within the platform.

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• What is marketplace concentration?
• What is marketplace commoditization?
• What is marketplace homogeneity and heterogeneity?
• What is symmetry in marketplaces?