Payment gateways for startups: a guide for founders | Hacker News Reader

Payment gateways for startups: a guide for founders

aynuriev.com

153 pointsanuriev63 comments

Request for startup: If you want to disrupt payments, do a gateway that captures U.S. major debit transactions and handles them at 0.1% + $.30 (still a healthy margin) and redirects the rest to a higher-fee processor.

Little known fact: Major debit card interchange is regulated by law at 0.05% + $0.22.[1] That's right, a twentieth of one percent. The gross margin for a processor like Stripe that charges 2.9% + $0.30 on these transactions is just astronomical. A U.S. payment gateway that specializes in low cost debit card processing arbitrage would instantly start saving startups money. It also give them the option of steering their customers to low cost debit, for example by requiring it for discounted annual subscription rates.

This would work where other efforts have failed. Crypto never took off for consumer payments for a variety of reasons, among them no wallet penetration and no consumer protections. ACH is inconvenient to set up and also has poor consumer protections. Debit cards on the other hard are widely available, safe and easy to use.

[1] https://www.burlingtonbankcard.com/home/interchange-plus-cre...

Consumers prefer to use credit cards, for many reasons one of which is points.

> one of which is points

Citation needed. I hate points.

Rewards would have been a more general term that still captures the meaning.

I get a flat 2% back on literal everything. I agree that points would be a pain, but extra cash is nice. (I know this functionally means everything is x% more expensive, something something tragedy of the commons externalities blah blah blah.)

> I know this functionally means everything is x% more expensive

Exactly! I hate all rewards systems because they wouldn't be offering it if it weren't a scam. If you don't know who the fish is, it's you.

The "scam" is on everyone who doesn't have a rewards card. The increased interchange fees are shared by everyone, with reward card users reaping the benefit.

Yeah, I use Costco's "Citi Visa" card for exactly that reason. I'd still be charged the %, and at least this way I get the most useful thing /for me/ back as a reward.

That's the why I want a system that completely bypasses the insanity that are current credit/debit cards and goes directly to a modern approach (but isn't some blockchain, kill the planet with mining power, fad).

I wonder which card gives you this benefit?

citi double cash back or something like that

You hate free money? Points are exactly that, as long as you pay off your credit card every month.

The point is at that all merchant end up adding the 3% in their margin so what you buy is more expensive. You just lose if you don’t use points but, you aren’t actually gaining anything.

You're contradicting yourself. Since everyone is paying that extra 3%, by not getting the rewards / points you're at a disadvantage.

No, it's you who, by supporting their toxic industry, are making things worse for everyone. c.f. Tragedy of the Commons. What you're advocating is a slave mentality.

The people paying ~20% interest are slaves. For some, they have no choice and I sympathize with those.

I pay off my bill every month. I pay no interest, no fees, and get free stuff for it. You should do the same.

It's not free. They take the enormous margin they get off the sellers and kick you back a few peanuts. Essentially, the sellers pay a tax, and you get a small distribution of the tax, and as a result all products are more expensive.

Points are useless.

The products are going to be more expensive for everyone. Would you rather have a card that offers 2% rewards points or one that doesn't offer any? You are obviously better getting the points.

I understand how it works. I'm taking a bigger picture view and saying that if nobody had points, everything would be cheaper than if you had gotten the points in the first place.

Obviously in the current climate, a card that offers points is going to be more competitive than a card that doesn't, but that doesn't mean that points aren't a mind-bogglingly stupid proposition to begin with.

Yet those sellers don't offer their own discount or cashback for not using credit cards.

Yes they do. Gas stations have a Cash Price for not using a credit card. The ones who don't are just pocketing the difference because so many people don't think about what they're paying for.

I don't need yet another minigame to manage in my life, thanks but no.

There's nothing to manage.

And protections.

False. More Americans use debit than credit for everyday purchases.[1]

[1] https://www.nerdwallet.com/blog/credit-cards/credit-debit-su...

Most Americans are also financially illiterate. For every day purchases (not cash advances), it is always better to use a credit card that offers rewards points... as long as you plan on paying off your full balance every month. It's free money, period.

That's something only the minority of the population does, though.

"...average individual credit card debt stands at $5,331 in 2019. Additionally, on a monthly basis, most Americans don't pay their credit card balance in full every month - 55% don't regularly pay in full."

https://www.thestreet.com/personal-finance/credit-cards/aver...

Forgive me if I don't take a blog quoting "CreditDonkey.com" as its only source very seriously on this.

It’s like the mirror image of gambling. You get a little money constantly and if you are (un)lucky, you lose a lot. I’m not really interested in playing someone’s rigged financial game for chump change.

Not really. Assuming you never over extend yourself by spending more than you have, you never lose anything.

First, that's a survey (no actual usage data). Secondly, that differs from what consumers with a choice use. Many poor don't have credit cards; many more have impaired credit.

The debit rates you are referencing are for in-person transactions where a pin number is entered. Debit cards can be used for online transactions but the interchange cost is more like 1.8% + $0.10.

False. Regulated e-commerce card-not-present debit interchange (i.e. online transactions) is 0.05% + $0.22.[1]

Kind of mind blowing, right?

[1] https://usa.visa.com/dam/VCOM/global/support-legal/documents...

Trying to fight a titan on margin seems like a fool's errand. If customers are truly price sensitive and it makes a noticeable dent in Stripe's bottom line, what's to stop them from a price war with you just long enough to make you insolvent?

There might be a nice business in there somewhere, but disruption is overstating it quite a lot I think.

Definitely a nice niche business - they won't do a price war, they would have to lower their margins significantly, and no big company ever did that except whith bankrupcy on a horizon.

...............

Have you heard of Standard Oil?

You could say that about a lot of companies. Stripe is far from a dominant “titan” in the processing industry which is something like $2T in global volume. As in Trillion.

Do people use debit cards online? Should they?

The (US) regulations around liability for fraudulent charges for debit cards are totally different those for credit cards [1]. Specifically, consumers bear far more potential liability if their debit cards are used fraudulently than if their credit cards are used fraudulently.

The money quote from the section on what the consumer is liable for if their debit card is used fraudulently: "All the money taken from your ATM/debit card account, and possibly more; for example, money in accounts linked to your debit account."

By contrast, credit card liability tops out at $50.

Given the regulatory environment, it is not very consumer-friendly to encourage wider use of debit cards online.

If you have access to a credit card, you should use it instead of a debit card when purchasing online. (And in person, but the OP is about online payments.)

[1] https://www.consumer.ftc.gov/articles/0213-lost-or-stolen-cr...

> Do people use debit cards online?

Yes. Debit is actually more popular than credit for online transactions, according to one survey.[1]

> Should they?

Kind of an orthogonal question. The fact is people use them and there’s an opportunity to process them more cheaply.

[1] https://www.digitaltransactions.net/consumers-increasingly-p...

It is maybe worth explicitly noting that for most online products with small ticket sizes (maybe $5) what you really want is to use someone like PayPal (which supports being used merely as a backend credit card processor) that has a micropayment pricing level (PayPal offers 5% + $0.05). The percent is high, but the fixed cost of $0.30/$0.22/whatever dominates the cost up to over $10.

> PayPal offers 5% + $0.05

How? All I see is $0.30 + 3-5 % (which means 10 % from every $5 transaction - I'd love to lower this!) https://www.paypal.com/us/webapps/mpp/merchant-fees

Do a Google search for [PayPal micropayments] and read the various help articles that result. (edit: ...or just scroll down on the page you linked, which literally has a section on this called "Micropayment Fees".)

Correct me if I’m wrong but I believe PayPal micropayments requires the customer to have a PayPal account linked to their bank account (ACH). So, considerably less convenient than using a card.

I am very sure you are wrong (that, or I'm misunderstanding what you are saying as something more subtle about the account and not about the payment: you definitely can receive payments made by users using credit cards with this rate; it would be entirely useless if that weren't the case, as frankly ACH is too slow to use for a purchase transaction, and I think sane merchants just disable accepting such payments--what PayPal sometimes calls "eChecks"--to avoid confusion).

What's the difference between ACH and debit cards? Do they both debit a persons bank account directly? (I'm not based in the USA)

There’s also Paddle and Fastspring. With stripe et al you are the merchant of record but with the above two they are the merchant of record. For people who are new to receiving payments, like me, this was a big revelation.

Receiving payments is just the tip of the iceberg. There’s tax, vat, handling fraud, chargebacks and other compliances, not to mention more headaches if your place of incorporation is different than your place of business/where most transactions occur.

Depends on how much you want to handle. If you want to handle chargebacks/fraud on your own, Stripe is great. If you want to offload that responsibility, then you need someone like paddle and fastspring.

I’m currently still evaluating what I want and do not want to deal with but this little piece Iof information might help someone in need.

Hi Inapis,

You’re right about payment processing being only the tip of the iceberg! Often times, companies are shocked to find out that there’s a lot more to ecommerce than just selling their products online. To avoid costly fines and maximize their revenue potential, companies selling their digital products online must also focus on fraud prevention and proper VAT/TAX management.

You can learn more about digital taxes and VAT in this blog post: https://fastspring.com/blog/everything-need-know-digital-tax...

If you have any additional questions or would like to learn more about our features, please visit: https://fastspring.com/

Full disclaimer: I currently work at FastSpring.

Payment gateways are the easy part. Stripe or Braintree are both good enough for the vast majority of startups. The hard part is a full billing solution for subscription type businesses. Turns out that’s harder than I thought. I’ve been checking out Chargebee for my business. Any suggestions?

I've been using Chargify. It's a bit expensive if you're not pulling in a decent baseline of revenue from your site, but it's worked quite well for me the past eight years.

what makes it hard for subscription type businesses?

Things that can get tricky:

Product upgrades and downgrades - if a user changes products midstream you need to calculate the prorated value and bill or refund the customer accordingly. Reporting then gets tricky - if the customer upgraded from A to B during the middle of the billing period, you want to make sure that your sales for A and B receive proper allocation for what was used to get an accurate sense of where you’re earning your money.

Then there’s the mess with configuring which changes customers are allowed to perform. Perhaps going from A to B is allowed, but B to A is not.

Similar challenges when customers want to change quantities during the subscription term. And what about customers who want to make changes, but have the change apply at the end of the current billing period vs immediately? You’ll need to set up a process to schedule those changes.

Also you’ll need to consider how to handle customers that move from monthly to yearly billing or vice-versa. Not to mention subscription add-ons (and removals of such).

You should also keep a ledger of all changes that have been performed (and by whom) so that if there’s any doubt, it’s clear why a change was applied, and details of the implications of the change so the financial impact can be clearly explained.

And what about situations where a customer’s card is declined? You’ve got to run a process to let them know, inform them how to update their payment method, and provide them a means to do so. If the customer doesn’t take action, configure if / when you should automatically retry, and how many times you retry before you kill the subscription.

What if you sell outside your country? Should you bill in their currency or your own? If their currency, does the renewal price fluctuate based on exchange rates so you get the same in your currency every billing, or does the amount the customer pays stay the same with every billing so the amount you receive fluctuates? You may want to configure this by currency, so stable currencies stay the same and less stable currencies change when re-billed. You’ll need to convey this to the customer up front based on the configuration so they’ll know what to expect.

If you’re not a “famous” company, some people may not recognize you on their credit card statement. So to keep chargebacks in line, you may want to configure a “pre-bill” email to be sent to customers a few days before the charge happens, along with instructions on how to cancel in case they no longer want the service.

What about discounts? Should they apply to the first billing only, the first n billings, or all billings? That probably depends on the nature of the discount so you’ll need to configure how to handle the different situations. No doubt customer service will want to offer discounts to customers mid-stream to make up for service disruptions or entice someone to not cancel, so discounts will need to be able to be applied mid steam as well.

Sorry, I’m rambling. Subscriptions do seem easy until you start to actually peel the onion.

Source: I’ve been operating an online e-commerce platform for nearly 20 years, and many of our clients do subscriptions.

Stripe Billing: https://stripe.com/billing

https://paddle.com do handle subscriptions very well with a good margin for startups.

Here in Spain most brick and mortar banks will give you a merchant account with a Redsys payment gateway(national standard).

A standard merchant account will process cards for a ~0.90% fee. The account fixed costs are around 25€ per month. It has basic operations such as authorization, capture, refund and safe vault storage(for recurring payments)

With enough volume(>5000€) you can talk to the bank manager for a tighter fee structure and no monthly fee. For instance 0.6% fee + 0.10€ per transaction and no monthly fixed costs.

I just had a conversation with a non developer person using Stripe and he told me that Stripe was the worst. I was shocked as a developer because I mentioned how Stripe was hiring the best people I know and was acquiring really good startups so I would assume Stripe would be the best. It turns out Stripe was really good only in the development (API) end but not on the usability on their front end app.

Shows you that they are a development/technology company first and foremost, and payments second.

Edwin from Stripe here. We think we do optimize for usability—after all, it's in everyone's interests that Stripe is easy to use. But I'd like to hear more about what pain your non-developer friend mentioned. If they're able to email me at edwin@stripe.com, I'd love to chat and see where we might be able to improve.

Small Feedback: It would be easier to skim if there was a list of all the providers up top and/or each of their names were significantly larger to denote separation of sections.

thanks, I ll do it it!

The one solution that I really want isn't even on the list (because, AFAIK, it STILL isn't in actual production for public use)...

https://taler.net/en/index.html

Disabling right-click is lame.

In Firefox, simply hold shift when you right click OR set dom.event.contextmenu.enabled to false to prevent Javascript from receiving that DOM event entirely.

I think the issue is not a fraction of a percent here or there - this is an optimization.

The issue is what is going to be easy, robust, painless and get you your money without fuss in the markets you need it to?

There's some friction with moving to another processor, but it's not as bad as AWS vs. Azure.

If a team is very familiar with an API/service, that's probably the one to use (!) so long as it checks out on the major items otherwise.

Once the model makes sense, you can think about Russia, 1% conversions, fees at scale yada yada.

Using mainly Stripe for Credit/debitcard because compared to its competitors at least here in Europe its cheap (1.4% + 0.25€).

And the DX was very smooth.

In India, UPI is making major inroads and has cut the rates drastically.

I’d love to see UPI expand its capabilities. It’s one of the most innovative fintech products I’ve seen in a while especially when it gives you way more privacy and safety than plastic.

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