Etsy: Announcing Direct Checkout. (No longer just PayPal.)(etsy.com)
etsy.com
Etsy: Announcing Direct Checkout. (No longer just PayPal.)
http://www.etsy.com/blog/news/2012/announcing-direct-checkout/
5 comments
Does anyone know how AirBnB and Uber and their likes do this? Are they also "third party payment aggregators"?
Is this because no one likes PayPal?
Personally I've been screwed over by PayPal using Etsy when a seller didn't ship. It's since made me hesitant to buy anything there.
Personally I've been screwed over by PayPal using Etsy when a seller didn't ship. It's since made me hesitant to buy anything there.
PayPal charges more than working with credit card companies directly. I was talking to a guy who runs an app that sells music the other day, and he got a much better rate by cutting out the middle man (less than Etsy is charging, by the way). If you are running a startup, you probably shouldn't waste your limited implementation and support time with payment processing and all the customer issues that arise vs. just using a third party, though.
> PayPal charges more than working with credit card companies directly
You'd think so, but in the general case that's untrue. Most MOTO merchant accounts advertise better rates but the effective rate the merchants pay is more than PayPal's 1.9-2.9%. PayPal's rate is flat, but anywhere else it's not. Virtually all credit cards (all rewards/points/cashback cards, all business cards, etc) are downgraded to a higher fee schedule -- plus AVS fees, auth misuse fees, batch settlement fees, statement fees, customer service fees, PCI compliance fees (virtually everyone added at least $100 a year in PCI fees in the past 2 years), chargeback fees, etc. And these are all variable and will generally be raised, one piece at a time, every month you have your account open.
I've worked with 3 direct merchant accounts and my effective rate is between 4% and 8% of transaction volume. At PayPal it's less than 4% including the fixed ($0.30) portion of the fee. A company with the expected volume of Etsy can probably negotiate a contract with fixed rates for some number of years, but the other 99% of small businesses accepting credit cards online (card-not-present transactions) are not beating PayPal's rates.
You'd think so, but in the general case that's untrue. Most MOTO merchant accounts advertise better rates but the effective rate the merchants pay is more than PayPal's 1.9-2.9%. PayPal's rate is flat, but anywhere else it's not. Virtually all credit cards (all rewards/points/cashback cards, all business cards, etc) are downgraded to a higher fee schedule -- plus AVS fees, auth misuse fees, batch settlement fees, statement fees, customer service fees, PCI compliance fees (virtually everyone added at least $100 a year in PCI fees in the past 2 years), chargeback fees, etc. And these are all variable and will generally be raised, one piece at a time, every month you have your account open.
I've worked with 3 direct merchant accounts and my effective rate is between 4% and 8% of transaction volume. At PayPal it's less than 4% including the fixed ($0.30) portion of the fee. A company with the expected volume of Etsy can probably negotiate a contract with fixed rates for some number of years, but the other 99% of small businesses accepting credit cards online (card-not-present transactions) are not beating PayPal's rates.
If any Etsy employees are reading, I am curious about why it took nearly 7 years to add direct checkout to the site -- Paypal is not known for being particularly kind to either buyers OR sellers, though perhaps there were all sorts of scaling/technical issues that took priority over something like this? It just seems like, with the amount of volume that Etsy does, Paypal's rates would be on the very high side.
Congrats - looking forward to trying it out!
Congrats - looking forward to trying it out!
Once you are in the business of accepting payments from some people and dispensing them to others, you are playing an entirely different game from a regulatory standpoint.
How so? You're simply now a "Third Party Payment Aggregator". We do this with one of our products and we're a small operation.
In my experience, the hard parts are getting initial approval from a merchant/bank and dealing with fraud. But I don't know of actual government regulations.
In my experience, the hard parts are getting initial approval from a merchant/bank and dealing with fraud. But I don't know of actual government regulations.
Based on the tax forms I've had to fill out whenever I've joined an app market or affiliate network, there is definitely government regulations with tax filing.
My assumption is that since you're collecting money that is 3rd party's profit, you need to show the paper trail that you're holding this money in escrow for a 3rd party.
This is why ebay transactions are buyer<->seller and then you're billed at the end of the month. Lightens the admin burden.
My assumption is that since you're collecting money that is 3rd party's profit, you need to show the paper trail that you're holding this money in escrow for a 3rd party.
This is why ebay transactions are buyer<->seller and then you're billed at the end of the month. Lightens the admin burden.
> Based on the tax forms I've had to fill out whenever I've joined an app market or affiliate network
You mean the form W9 they have you fill out to provide your taxpayer identification number? That's so they can send you a 1099-MISC if needed. Any business that pays a non-employee individual over $600 in a year for any service (with a few exceptions) files a 1099-MISC, it has nothing to do with payment aggregation.
You mean the form W9 they have you fill out to provide your taxpayer identification number? That's so they can send you a 1099-MISC if needed. Any business that pays a non-employee individual over $600 in a year for any service (with a few exceptions) files a 1099-MISC, it has nothing to do with payment aggregation.
.. Right. And if your business is based on aggregating and paying out non-employee individuals then you will be filling out a lot of those documents, which becomes a significant added admin overhead...
You might be classifiable as a money transmitter in which case you would possibly be regulated in your state as such.
Seems like it might be a pretty complicated thing to add... No other marketplaces that I know of have their own processing capabilities... Third party aggregation (taking payments on behalf of someone else) has many quite-complicated regulatory issues.
In addition to the regulatory issues, you're asking to get a bunch of customer support complaints over $25 transactions where your maximum upside is measured in pennies. And many of those complaints are going to sound like:
Buyer: "The seller never shipped the itemz!"
Seller: "I did, too! With no tracking number, because I'm new at this, like most of your users!"
Buyer: "I fell off the Internet for two weeks because I didn't pay my phone bill but I'm back now and hopping mad because the booties that just got delivered have WOOL instead of COTTON in them!"
Seller: "It says right in the description NATURAL FIBERS!"
Buyer: "There is nothing natural about FACTORY FARMS!"
Accountant: "Total cost to read this email thread so far: $14 and counting. Value of this transaction to us: $0.57."
Buyer + Seller: "YOU GREEDY CORPORATE BASTARDS."
Buyer: "The seller never shipped the itemz!"
Seller: "I did, too! With no tracking number, because I'm new at this, like most of your users!"
Buyer: "I fell off the Internet for two weeks because I didn't pay my phone bill but I'm back now and hopping mad because the booties that just got delivered have WOOL instead of COTTON in them!"
Seller: "It says right in the description NATURAL FIBERS!"
Buyer: "There is nothing natural about FACTORY FARMS!"
Accountant: "Total cost to read this email thread so far: $14 and counting. Value of this transaction to us: $0.57."
Buyer + Seller: "YOU GREEDY CORPORATE BASTARDS."
Yes. Also you need big sales volumes to justify the investment in time / money.
Curious about that too. Recently we have some great alternatives like Stripe (https://stripe.com ).
Great alternative?
"Pricing like it should be! 2.9%..." I stopped right there.
It does not cost more to process larger numbers. There is no rational justification whatsoever for any money-handling service to charge a percentage. Period.
No amount of 'but the other guys are bigger assholes than me!' will cover up the fact that the banking environment right now is set up to make it as difficult as possible for anyone but extremely large businesses to do a large volume of transactions without making it outright illegal.
I want to see a payment processor that charges a low, flat rate for processing transactions, with their charges based upon the actual cost incurred by their processing plus a bit of profit. They are providing a useful service, I'm not against making money. But taking a percentage when the size of the transaction does ABSOLUTELY NOTHING to your costs of processing is like taking your dick out in public and asking children to pet it.
"Pricing like it should be! 2.9%..." I stopped right there.
It does not cost more to process larger numbers. There is no rational justification whatsoever for any money-handling service to charge a percentage. Period.
No amount of 'but the other guys are bigger assholes than me!' will cover up the fact that the banking environment right now is set up to make it as difficult as possible for anyone but extremely large businesses to do a large volume of transactions without making it outright illegal.
I want to see a payment processor that charges a low, flat rate for processing transactions, with their charges based upon the actual cost incurred by their processing plus a bit of profit. They are providing a useful service, I'm not against making money. But taking a percentage when the size of the transaction does ABSOLUTELY NOTHING to your costs of processing is like taking your dick out in public and asking children to pet it.
Given that they're accepting credit cards, Etsy's "cost of processing" does actually increase as the size of the transaction increases (the merchant account will usually have a 2-3% transaction cost associated with it).
Likely, the alternative one-size-fits-all transaction fee would end up making the low end of transactions ridiculous; a $1 painted popsicle stick with a $3 payment cost. Doing it by percentage more accurately reflects the model that Etsy has to pay.
Likely, the alternative one-size-fits-all transaction fee would end up making the low end of transactions ridiculous; a $1 painted popsicle stick with a $3 payment cost. Doing it by percentage more accurately reflects the model that Etsy has to pay.
Yes, I was not speaking in terms of Etsy, but in terms of Stripe. For Etsy, yes, their cost does definitely increase as transaction cost gets larger, but only because the payment processor they are forced to use (there are no other options) charges a percentage of each transaction. It is on the payment processors side where there is no justification for taking a larger chunk simply because a number is larger.
One of the advantages of digital systems is that per-transaction costs bottom out very quickly. Even if you are doing something complex (which payment processing is not), the actual cost is usually so small as to be very difficult to measure. I work in an environment which, by law, HAS to measure their per-transaction costs in minute detail. They quantify through statistical analysis the mean amount of CPU time, the mean amount of human-intervention time necessary, the amortized cost of support contracts affecting the software and hardware, power usage by the equipment, EVERYTHING. And they are doing something which is many orders of magnitude more complex than payment processing. And the result is that per-transaction the cost is almost negligible. The same service would have cost hundreds or thousands of dollars and taken weeks 20 years ago. Today, there's a guaranteed response time of under 30 seconds for most transactions and they cost less than $10 (with almost all of that price made up of the small fraction of transactions which do require human intervention). These exact same cost-reduction effects of hardware and software growth have affected banking heavily. But none of those advances have resulted in lowered fees, in fact processing costs and transaction fees have only gone up.
I think that it is great that Etsy is moving to accept credit cards directly. Personally I believe the future of our economy (and this might be a 50-year or longer dream mind you) will be moving away from centralized organizations entirely. The benefits companies offered (aggregation of workers geographically, management of distribution chains, aggregation of work itself geographically) no longer exist. The purpose they served can be filled by modern communication technologies and software. For that to even have a chance of happening, however, requires a couple things. Internet access needs to be defined as a public utility or some other steps taken to severely restrict the ability of ISPs to charge higher rates to users which make money via their Internet connection, and payment processing has to evolve to the point where an individual person can accept payment from anywhere for as close to zero cost as possible. If either of those things do not happen, the companies providing the infrastructure service will choke to death any individuals trying to make their living via the Internet. Over the past 30-40 years, thanks to computers and automation technologies, the productivity of a single person has absolutely exploded. The profit most companies make on a per-employee basis is astronomical compared to rates at any other point in history. When that is widely realized, and people recognize that instead of making $35k/yr for an employer they can make $350k/yr as an independent worker (a conservative estimate, it is very difficult to overestimate just how much money is wasted oiling the supremely inefficient machine that is the modern corporation) while working far reduced hours, the need for that infrastructure will be strong.
One of the advantages of digital systems is that per-transaction costs bottom out very quickly. Even if you are doing something complex (which payment processing is not), the actual cost is usually so small as to be very difficult to measure. I work in an environment which, by law, HAS to measure their per-transaction costs in minute detail. They quantify through statistical analysis the mean amount of CPU time, the mean amount of human-intervention time necessary, the amortized cost of support contracts affecting the software and hardware, power usage by the equipment, EVERYTHING. And they are doing something which is many orders of magnitude more complex than payment processing. And the result is that per-transaction the cost is almost negligible. The same service would have cost hundreds or thousands of dollars and taken weeks 20 years ago. Today, there's a guaranteed response time of under 30 seconds for most transactions and they cost less than $10 (with almost all of that price made up of the small fraction of transactions which do require human intervention). These exact same cost-reduction effects of hardware and software growth have affected banking heavily. But none of those advances have resulted in lowered fees, in fact processing costs and transaction fees have only gone up.
I think that it is great that Etsy is moving to accept credit cards directly. Personally I believe the future of our economy (and this might be a 50-year or longer dream mind you) will be moving away from centralized organizations entirely. The benefits companies offered (aggregation of workers geographically, management of distribution chains, aggregation of work itself geographically) no longer exist. The purpose they served can be filled by modern communication technologies and software. For that to even have a chance of happening, however, requires a couple things. Internet access needs to be defined as a public utility or some other steps taken to severely restrict the ability of ISPs to charge higher rates to users which make money via their Internet connection, and payment processing has to evolve to the point where an individual person can accept payment from anywhere for as close to zero cost as possible. If either of those things do not happen, the companies providing the infrastructure service will choke to death any individuals trying to make their living via the Internet. Over the past 30-40 years, thanks to computers and automation technologies, the productivity of a single person has absolutely exploded. The profit most companies make on a per-employee basis is astronomical compared to rates at any other point in history. When that is widely realized, and people recognize that instead of making $35k/yr for an employer they can make $350k/yr as an independent worker (a conservative estimate, it is very difficult to overestimate just how much money is wasted oiling the supremely inefficient machine that is the modern corporation) while working far reduced hours, the need for that infrastructure will be strong.
Yes, I was not speaking in terms of Etsy, but in terms of Stripe. For Etsy, yes, their cost does definitely increase as transaction cost gets larger, but only because the payment processor they are forced to use (there are no other options) charges a percentage of each transaction. It is on the payment processors side where there is no justification for taking a larger chunk simply because a number is larger.
Risk management. Those money they are "processing" are not theirs --but the risk is, and the bigger the amount, the bigger the risk.
I, for one, would never preside over a big monetary deal between two parties with the associated risk of getting sued/asked for the money, for some small fixed amount. Would you?
Risk management. Those money they are "processing" are not theirs --but the risk is, and the bigger the amount, the bigger the risk.
I, for one, would never preside over a big monetary deal between two parties with the associated risk of getting sued/asked for the money, for some small fixed amount. Would you?
I would think that a significant part of money-handling costs (in the general case) is mitigating risk of loss of money through fraud, theft, and similar means. That risk would have to be very small to be ignorable at scale. If you process ten transactions of a thousand dollars each and have to refund one of them out-of-pocket because it was invalid and the thief moved the money out of reach, that's a lot different from processing ten transactions of one dollar each with the same per-transaction risk. It makes sense that this would lead to amortized risk-level × transaction-amount costs.
It does not cost more to process larger numbers. There is no rational justification whatsoever for any money-handling service to charge a percentage. Period.
Oh, but it does.
For one, you have to manage the risk of fraud, cancellations, charge-backs, etc, and you cannot have an insurance proportional to the risk if you use a fixed fee.
Also there are arbitrary state accounting and taxing regulations when you go over a certain amount (we have those a lot in Europe --yeah, I know Stripe is US only, but the point holds, dunno if there are similar things in the US).
Oh, but it does.
For one, you have to manage the risk of fraud, cancellations, charge-backs, etc, and you cannot have an insurance proportional to the risk if you use a fixed fee.
Also there are arbitrary state accounting and taxing regulations when you go over a certain amount (we have those a lot in Europe --yeah, I know Stripe is US only, but the point holds, dunno if there are similar things in the US).
I asked them about this - they don't handle marketplace businesses (Taking money on behalf of another customer), for the same regulatory issues previously stated. PoundPay (also YC) is trying to solve this issue but I haven't heard a peep out of them... Also it is quite annoying because I paid for a zaarly and it showed poundpay on my statement, I had no idea what it was.
PoundPay is super interesting, because from what I can see, only Amazon has a solution that essentially handles escrow transactions (which is what KickStarter uses). You're right however, I haven't heard much from them lately (as opposed to Stripe, who seems to be killing it). There was also a limitation with PoundPay of being US only, which is not an option for many companies.
Stripe's model depends on marketing and press, PoundPay has gotten really good word of mouth by the companies that currently use it (for our startup we've looked at our own processing, paypal, amazon, and just about all the options)
US merchants, international buyers -- just like Amazon (FPS) and Etsy's current systems. Which countries would you be most interested in us adding?
Etsy could have implemented Stripe and not be the middleman while still offering a "direct pay-like" experience. Of course, each Etsy seller would need to sign up for Stripe. But I would think Stripe would be very keen on that.
Did anyone at Etsy look into this integration? Why didn't this seem viable?
That approach would remove a couple big wins:
1) the ability to sell Etsy-wide credit, e.g. gift certificates.
2) interest-earning cash in the bank (the days/weeks between the sale and when the seller marks the item as shipped)
1) the ability to sell Etsy-wide credit, e.g. gift certificates.
2) interest-earning cash in the bank (the days/weeks between the sale and when the seller marks the item as shipped)
it now says ZAARLY.COM on your statement for Zaarly. This was a previous bank limitation, not technical or design, that has been resolved.
new business comes in through referrals and press by our marketplaces, so we haven't focused on press.
if you want to sign up as a marketplace: https://www.poundpay.com/developers/application
new business comes in through referrals and press by our marketplaces, so we haven't focused on press.
if you want to sign up as a marketplace: https://www.poundpay.com/developers/application
here's the pricing info: "Direct checkout will cost a 3% + $0.25 USD payment processing fee per sale."
This is worse than PayPal for sellers with products over $5 (after shipping, tax). I wish they could've come up with better pricing. I would think most shops would be selling things over the $5 mark, but I can't say for sure.
> I wish they could've come up with better pricing.
It's nearly impossible since their processing fees on some card types will be over 3%. They're already taking a loss on those transactions; most will be under 3% to balance it out, but not enough that they could offer better pricing than everyone else.
They're not going to be able to negotiate barely-above-interchange rates like PayPal probably gets from its banks with billions of transactions in monthly volume. Visa's interchange fee to the bank is still as high as 2.7% on some cards, which is the floor upon which the processor can set its markup to the merchant like Etsy.
It's nearly impossible since their processing fees on some card types will be over 3%. They're already taking a loss on those transactions; most will be under 3% to balance it out, but not enough that they could offer better pricing than everyone else.
They're not going to be able to negotiate barely-above-interchange rates like PayPal probably gets from its banks with billions of transactions in monthly volume. Visa's interchange fee to the bank is still as high as 2.7% on some cards, which is the floor upon which the processor can set its markup to the merchant like Etsy.
Having direct experience in being a third party payment aggregator, here's some notes based on this post and their FAQ (if anyone cares):
1. Fraud will now be your #1 issue (if it isn't already). People will make fake Etsy accounts, add fake products, and then make "purchases" using stolen credit card numbers. They will have the $ deposited to an E*Trade bank account, a pre-paid debit card that accepts ACH, or use some rube's account they found on Craigslist. Most of the time, you won't catch it until the money is already deposited. Then the chargebacks start coming.
I don't have the luxury of having a $50M warchest of VC money. You will definitely have to spend money and engineering resources towards this soon.
2. Based on your FAQ, you're requiring sellers to mark an item as "shipped" before depositing their money. We actually had to turn this requirement off because it annoyed so many sellers. When a seller gets an order (in our case, photographs), getting it fulfilled becomes their focus. Making them go back to the web and mark it as fulfilled is something they will often forget. Getting their money deposited is something they won't forget.
IMO, I would try to make this more automatic. Use something like Twilio to send the seller a text 5 days after the order ... "Has order 24039 (yellow scarf) been shipped to Suzie J yet?"
1. Fraud will now be your #1 issue (if it isn't already). People will make fake Etsy accounts, add fake products, and then make "purchases" using stolen credit card numbers. They will have the $ deposited to an E*Trade bank account, a pre-paid debit card that accepts ACH, or use some rube's account they found on Craigslist. Most of the time, you won't catch it until the money is already deposited. Then the chargebacks start coming.
I don't have the luxury of having a $50M warchest of VC money. You will definitely have to spend money and engineering resources towards this soon.
2. Based on your FAQ, you're requiring sellers to mark an item as "shipped" before depositing their money. We actually had to turn this requirement off because it annoyed so many sellers. When a seller gets an order (in our case, photographs), getting it fulfilled becomes their focus. Making them go back to the web and mark it as fulfilled is something they will often forget. Getting their money deposited is something they won't forget.
IMO, I would try to make this more automatic. Use something like Twilio to send the seller a text 5 days after the order ... "Has order 24039 (yellow scarf) been shipped to Suzie J yet?"
Dang, the bad guys found out about eTrade? We used to use them to get Japanese folks US bank accounts because their Know Your Customer policy was so incredibly... Never mind, I understand how the bad guys figured it out now.
[Edit for posterity: You could open a brokerage account from anywhere with minimal documentation. After having a brokerage account, one phone call from your "secretary" and they'd add a US checking account to it. No KYC verification required because of "preexisting business relationship."
It was a great way to set up US bank accounts for folks who had business dealings with American clients before they got the opportunity to visit the US.]
[Edit for posterity: You could open a brokerage account from anywhere with minimal documentation. After having a brokerage account, one phone call from your "secretary" and they'd add a US checking account to it. No KYC verification required because of "preexisting business relationship."
It was a great way to set up US bank accounts for folks who had business dealings with American clients before they got the opportunity to visit the US.]
Yeah, we actually ended up blocking ETrade's routing number ... none of our legitimate customers actually used them.
Our biggest problem has been the people getting duped on Craigslist. Actually talked to a guy from Arkansas who gave up his entire ID, SSN and all bank accounts to a "business partner" in Africa.
Our biggest problem has been the people getting duped on Craigslist. Actually talked to a guy from Arkansas who gave up his entire ID, SSN and all bank accounts to a "business partner" in Africa.