Why do you need to solve for friction in building a marketplace - PART 1
Liquidity on its own does not guarantee smooth experiences or repeat users
THIS IS PART 1 OF 2 PART SERIES OF ARTICLES ON SOLVING FOR FRICTION IN A MARKETPLACE.
Marketplaces have long been heralded as digital ecosystems where buyers and sellers can conveniently discover each other and transact with minimal hassle. In reality, success isn’t just about amassing a large pool of participants—otherwise known as liquidity. Beneath the surface, a subtler yet more crucial challenge often determines whether a marketplace will thrive or collapse: friction. If a platform’s user experience is riddled with roadblocks, high-value demand and supply alone will not salvage the situation. In this in-depth article, we explore why marketplaces must solve for friction first, using a structured framework that addresses core concepts, systematic friction analysis, technology solutions, trust-building, and measurement for sustainable scaling.
Core concepts & the friction-liquidity framework
The marketplace equation
At the heart of every marketplace lies the fundamental equation of supply and demand. Sellers represent supply, buyers represent demand, and transactions serve as the marketplace’s lifeblood. These exchanges rely on:
Supply (sellers)
Demand (buyers)
Transactions (successful matches)
Liquidity measures the ease with which these transactions occur—how quickly buyers can find exactly what they want, and how readily sellers can connect with interested customers.
Yet, liquidity on its own does not guarantee smooth experiences or repeat users. When the journey from browsing to buying is clogged with unnecessary steps, confusing interfaces, or security concerns, users will hesitate or drop off entirely. This is where friction emerges as a critical component of marketplace dynamics.
Why friction precedes liquidity
Friction encompasses every barrier that stalls or disrupts the user’s path to a successful transaction. It could be something as simple as a cumbersome sign-up process or as complex as a persistent fear of fraud. Even a well-funded marketplace with a massive user base can feel the sting of high friction, as frustrated participants eventually abandon the platform.
Imagine a bustling shopping mall filled with potential customers (liquidity), but all the escalators are broken, the signage is confusing, and the stores are locked behind complex passwords. No matter how many shoppers walk in, most will give up before they buy anything. That’s what high friction does—it erodes the value of any liquidity you’ve built, making it nearly impossible to realise your marketplace’s true potential.
Common friction points in a marketplace include:
Clunky user interfaces or difficult navigation
Lack of trust in product quality or seller credibility
Complicated payment and checkout processes
Poor communication channels between buyers and sellers
By first removing friction, you create an environment where liquidity can truly flourish because the path from discovery to conversion is smoother.
The friction-liquidity framework
Addressing friction before actively building liquidity ensures that every new user who arrives encounters a platform primed for efficient, satisfying transactions. This framework suggests:
Identify and eliminate friction first. By making user flows intuitive, transparent, and secure, you create a solid foundation for meaningful interactions.
Focus on scaling liquidity once friction is minimised. Once major bottlenecks are resolved, it becomes much easier to attract and retain users, because positive experiences inspire trust, advocacy, and repeated engagement.
Systematic friction identification & analysis
Mapping the user journey
To tackle friction effectively, you need to understand the user’s journey step by step. Most marketplaces follow a similar arc: awareness, onboarding, engagement, transaction, fulfilment, and post-purchase. Begin by laying out every touchpoint, from the moment a user hears about your marketplace to the final confirmation that the product or service was delivered to satisfaction.
In many cases, you’ll discover small glitches—a clunky onboarding page here, an unintuitive navigation menu there—that drive surprisingly high numbers of users away. By systematically mapping each touchpoint, you can begin to uncover both visible bottlenecks (e.g., confusing product filters) and hidden ones (e.g., unclear return policies).
Awareness: How do new users discover the marketplace?
Onboarding: What does the sign-up process look like?
Engagement: How do users browse listings, filter options, or communicate with sellers?
Transaction: What are the steps to purchase, and how transparent are fees and payment methods?
Fulfillment: How are items delivered or services rendered?
Post-Purchase: How do users handle returns, refunds, or conflict resolution?
Friction diagnostics: Key questions to ask
Once you have your map, it’s time for a deep diagnostic assessment. High drop-off rates can be an immediate red flag pointing to friction. If customers repeatedly ask the same support questions, it may indicate that something in your interface or process isn’t self-explanatory.
Additionally, consider whether there are unseen psychological barriers, such as fears about data privacy, apprehensions about fraud, or anxieties over product legitimacy. These concerns may not show up as obvious UI problems, but they can silently eat away at user confidence, leading to lost transactions.
Where are the highest drop-off rates in the funnel? (Sign-up page? Checkout?)
How many steps does each transaction require? (Fewer steps often mean less friction.)
Which support queries are most common? (This hints at unclear processes or interfaces.)
Are there psychological barriers? (Concerns about safety, trust, or transparency.)
Systematically cataloging these friction points is the critical first step before proposing solutions
Prioritising friction points
Not all friction points carry the same weight. Some have a widespread impact, affecting every single buyer or seller, while others may only trouble a niche subset. To deploy resources wisely, evaluate the potential impact, complexity, and leverage of each issue. Solving a high-impact, high-leverage friction point—like a slow checkout process—can dramatically improve overall user satisfaction and reduce support tickets. Focus on the most critical friction zones first, then move on to secondary concerns once the major pain points have been addressed.
Use the following criteria to prioritise:
Impact: The level of user impact—does solving this friction point affect a large portion of users or a smaller subgroup?
Complexity: Is this friction easy to fix, or does it require major system overhauls?
Leverage: Will fixing this friction point enable other improvements? For example, simplifying the checkout process may also reduce support tickets, speed up sales, and increase user satisfaction simultaneously.
Technology solutions & implementation
Streamlining onboarding & verification
For many users, the first significant hurdle is simply getting started. If your sign-up process feels cumbersome, you risk losing new users before they have a chance to explore. In marketplaces that involve high-value items or regulated services, Know Your Customer (KYC) checks may be necessary to prevent fraud. Integrating automated verification systems can both keep your platform secure and minimise the manual effort required from users. The goal is to foster trust while ensuring the sign-up process isn’t so daunting that users abandon ship.
Single Sign-On (SSO) or social logins to reduce sign-up complexity
KYC (Know Your Customer) integrations for identity verification
Automated data capture from documents rather than manual user input
These steps simultaneously reduce friction and build trust, ensuring users feel protected from fraud or scams without being overwhelmed by tedious processes
Interface & navigation optimisation
Nothing deters a prospective buyer more quickly than a confusing interface or convoluted navigation. Ensuring your platform is mobile-friendly is essential in our smartphone-driven era, particularly for marketplaces that attract on-the-go shoppers. Enhanced search features—like predictive text, advanced filters, and smart categorisation—help users find the right products or services quickly, removing guesswork and frustration.
In addition, consider embedding contextual help in the form of brief tooltips or pop-up guides. If you notice frequent confusion about how to apply coupons, a quick, well-placed explanation can reduce support calls and keep users moving toward checkout.
Techniques for improvement:
Responsive, mobile-first design: Many marketplace transactions now happen on mobile devices.
Search & filter enhancements: Predictive search, intelligent filtering, and category-driven browsing make finding items or services seamless.
Contextual help & tooltips: Users should never feel stuck; brief explanations or hints can be embedded at friction points.
Payment infrastructure
An efficient payment system is critical to removing the final layer of friction. If users encounter unexpected fees, limited payment methods, or slow, unreliable gateways, you risk losing a transaction at the worst possible moment. Providing multiple payment options—from traditional credit cards to newer digital wallets—empowers users to pay with their preferred methods. Make fees transparent, so users don’t feel ambushed, and explore rapid or instant payout options for sellers, which encourages them to continue listing items on your marketplace.
Multiple payment options (credit cards, PayPal, mobile wallets, buy-now-pay-later solutions)
Transparent fees (no hidden costs or surprise charges)
Instant payout options (whenever applicable) for sellers to reduce waiting times and encourage continued marketplace use
Integrating communication tools
Many users, particularly those making large or complex purchases, want direct communication with sellers. By integrating robust in-app messaging or chat functionalities, you eliminate the need for users to leave your marketplace for external channels like email or phone calls. This keeps interactions centralized, reduces misunderstandings, and builds a sense of security, as everything happens under your platform’s oversight. Smooth communication can dramatically increase conversion and user satisfaction, making it a powerful friction-reducing tool.
Trust architecture & user psychology
Building trust from day one
Trust is often described as the “oxygen” of marketplaces for good reason: without it, people simply refuse to transact. A well-conceived review and rating system can signal quality and reliability, enabling both buyers and sellers to gauge credibility at a glance. For sellers, offering “verified” badges—earned by uploading certain identity documents or meeting platform-established criteria—reduces buyer fears of scams or counterfeit goods.
Furthermore, a transparent and clearly communicated dispute resolution process reassures users that if something goes wrong, they have options. Whether it’s a formal return policy for products or mediation services for service-based transactions, knowing that protections exist can be the nudge someone needs to complete a purchase.
Review and rating systems: Public feedback loops help buyers and sellers gauge reliability.
Verified badges or profile verifications: Offering verified status for users who complete specific steps (ID checks, official documents) can reduce perceived risk.
Robust dispute resolution processes: Clearly communicate how disputes are handled, what refunds or returns look like, and how user protection is ensured.
Understanding user psychology
While technology and process improvements address tangible friction, psychological barriers can be equally decisive. First-time buyers often wrestle with the unknown—“Is this seller legitimate?” “Will I get my product as advertised?” Sellers, on the other hand, may fear unfair chargebacks or untrustworthy buyers. These anxieties revolve around loss aversion: people tend to focus more on potential losses than on potential gains.
Leveraging social proof—showcasing how many other users have successfully bought or sold through your platform—is a powerful antidote to fear. Featuring real testimonials, highlighting safe and swift transactions, and providing user ratings all serve to lower psychological friction, fostering a more confident community.
Fear of the unknown: First-time buyers need reassurance (testimonials, reviews, product guarantees).
Loss aversion: Sellers may fear underpricing or being scammed, while buyers fear overpaying or product misrepresentation.
Social proof: Showcasing what others have successfully purchased or sold reduces anxiety.
Encouraging positive user behaviour
A strong trust architecture doesn’t just protect users—it guides them toward behaviours that keep friction low for everyone. Offer incentives for sellers who provide detailed, accurate product descriptions and multiple high-quality photos. Build tiered verification systems that encourage users to provide additional personal details in exchange for greater visibility or fewer selling fees. Establish a community moderation function that flags suspicious activity, rooting out problems before they escalate.
Fear of the unknown: First-time buyers need reassurance (testimonials, reviews, product guarantees).
Loss aversion: Sellers may fear underpricing or being scammed, while buyers fear overpaying or product misrepresentation.
Social proof: Showcasing what others have successfully purchased or sold reduces anxiety.
Measurement, optimisation & scaling
Defining key metrics
To continuously refine your marketplace, focus on metrics that reveal friction levels and user engagement. Conversion Rate—the percentage of users who finalise a transaction after initiating an action—indicates how smooth the purchasing process is. Time to First Transaction reflects how quickly new users acclimate to the platform. Pay attention to drop-off rates at each funnel stage—onboarding, product discovery, checkout—because abrupt declines often signal overlooked friction points. Finally, track customer support queries; recurring issues can highlight systemic pain points that require immediate attention.
Conversion Rate: The percentage of users who complete a transaction after showing intent.
Time to First Transaction: How quickly new users can make or receive their first sale.
Drop-off Rates at Each Funnel Stage: From onboarding to checkout.
Customer Support Tickets & Types: The frequency and nature of complaints or issues can signal specific friction points.
Continuous optimisation loop
Marketplaces evolve constantly, reacting to new trends, user preferences, and even external factors like economic shifts. Conducting a regular cycle of data analysis, ideation, experimentation, and implementation ensures your friction-elimination efforts never stagnate. A/B testing different layouts, processes, or policies can reveal which tweaks lead to better conversion rates. Collect direct feedback from users as well—what you believe is intuitive may not be for them. Ongoing iteration is the key to staying relevant and maintaining user satisfaction.
Analyse data to identify new or recurring friction points.
Ideate solutions and prioritise based on impact vs. feasibility.
Experiment and test (A/B testing, user interviews, usability studies).
Implement successful changes in a measured, iterative manner.
Scaling strategies that recognise friction
When you expand your marketplace across new regions or product categories, keep the friction-first mentality front and centre. Different geographies have unique consumer behaviours and expectations; payment preferences, logistical challenges, and trust signals can vary widely. Localising your user interface, payment methods, and even dispute resolutions can mean the difference between a vibrant new market and a half-hearted launch. By maintaining a rigorous approach to friction reduction at every stage, you ensure that each new cohort of users experiences a platform designed for seamless interaction and transaction.
Localised Market Understanding: Different regions have different user expectations and friction points.
Cultural Sensitivities: A trust or negotiation practice that works in one country may not work in another.
Adaptive Payment Methods: Offer region-specific payment and fulfilment options to reduce friction globally.
In the race to build bustling digital hubs, many marketplace operators fixate on liquidity—believing that more supply and demand will solve all problems. Yet, as the Gortwh principle underscores, high friction can quickly negate the benefits of a sizable user base. By addressing friction first, marketplaces lay a solid foundation for trust, satisfaction, and user advocacy, all of which directly fuel sustainable growth and liquidity.
A thoughtful, friction-focused strategy transforms casual interest into meaningful engagement. It reassures sellers they’ll find genuine buyers and encourages buyers to confidently make purchases. In short, a friction-free environment is not just a nice-to-have; it’s the essential bedrock upon which a thriving, long-term marketplace is built. Once that bedrock is in place, the pursuit of liquidity becomes not just easier—it becomes a natural progression toward healthy, consistent growth.
This is part one of this article on “Why solving for friction is important over liquidity”. But that’s not nearly enough. What is critical in execution is how one can solve for this friction. That is covered in the next part of this essay HERE
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