How Payments Providers Screw You (2015) | Hacker News Reader

How Payments Providers Screw You (2015)

jackkinsella.ie

77 pointssaadalem39 comments

Feeling the burn right now on this. I collect a $9 a month for my videos that have helped thousands of people learn to code and get their jobs. For over 3 years of running it I have not had a single dispute until now. One of my customers subscribed and has been watching my content for 2 months and decided that he is now done and decided to file a dispute.

Before I could even email them any evidence or make my case I was told I would most likely lose this dispute. My payment gateway told me they would charge me $500 for arbitration fee if I lost the dispute. I forwarded them my t&c and proof that the customer has used my site and content. I even reached out to the customer to ask why they did what they did, no answer.

It’s a crappy system and online payments is broken. Credit card and payment processing is hugely broken and far behind the times.

Fortunately I am in the position to do something about it. My team and I just recently finished building and launched a new payment engine, we have already started processing payments in the millions of dollars just a few months in and will be taking on Banks, VISA, MasterCard and all traditional payment platforms. It sounds far fetched but when I’ve decided to tackle something I don’t fail. I’ve made it a personal goal to innovate in the payment space. I’m so very excited about the future.

Talk about a tease. You have no mention of this project in your website either. Care to talk more? Timelines? How and what problems are you solving?

The worst part about chargebacks is that as a small merchant you are entirely screwed, to the point of absurdity - almost no evidence can save you, even if you have actual security video and a card present transaction (been there, done that)!.

Then, after dealing with that situation for close to two decades in various businesses - I finally need to call Amex for my own consumer dispute for the first time ever. It was against a giant corporation quite well known for their entirely-on-purpose dark pattern billing tactics. I simply wanted Amex to block any future charges as I couldn't get them to cancel without jumping through absurd hoops such as showing up in person with photo ID while living out of the country.

Amex basically told me to jump off a cliff. Not even re-issuing the card saved the future charges as they now have a system to give the vendor the new card info. I had to fully cancel my Amex to get the charges to stop.

Why Amex decided to try to enforce a civil contract (especially one they never saw) is beyond me. It was my account, and my option to freeze charges. I was fully prepared and ready to deal with a civil case should the vendor had tried to go after me once the credit card charges bounced. But Amex didn't even give me this option.

That is the day I went from a pretty large proponent of Amex customer care/etc. to someone who de-evangelizes them every chance I can get. And that's not saying any other credit card companies/banks are any better - just that I spent decades being screwed by the credit card system as a merchant, to only get screwed as a consumer on the other side when supposedly they were "on my side".

> Amex

25 years ago my companies Amex card inexplicably hit it's 25k credit limit. Their response when asked why; fuck off and wait for your monthly bill.

Would you mind sharing the name of your product?

Would love to follow the progress of your venture. Do share any links:)

Could you name your previous payment gateway (if it's not going to get you in trouble)? I think it's important to discuss hidden fees (especially on the consumer side - most people aren't even aware that 3rd parties get a cut of every card transaction they make)

I'm right in the middle of looking to jump ship from Stripe and PayPal. Stripe is increasing their conversion fees to 2% for grandfathered accounts on June 1st. They also have a 0.6% international card fee. Since I'm Canadian, this is going to hurt.

2.9% + 0.6% + 2% + $0.30 = more than a 6-6.5% cut for 90% of my sales.

While looking around for alternatives, Braintree stood out for having reasonable fees.

Although what really surprised me was that I'm not doing things by the book. Although I'm adding a sales tax for Canadian customers, I don't do this internationally. This is okay for the US and most of the EU since I'm well below their reporting thresholds, but it certainly adds some risk in back-taxes for other countries.

That's when I stumbled on a platform called FastSpring, which acts as a merchant of record. They handle all international sales tax for you and have cool features to show prices in your customers currency, etc... They have a steep price (around 6-8% I heard) but with Stripe increasing their fees to match close to this, why not switch and possibly make due-diligence a lot easier if I decide to sell?

Anyone else in a similar position? How do you handle sales tax globally? Is there a certain revenue number you should hit before worrying about this?

> That's when I stumbled on a platform called FastSpring, which acts as a merchant of record. They handle all international sales tax for you and have cool features to show prices in your customers currency, etc...

I don't know about international sales tax, but FastSpring does not handle domestic US sales tax correctly. I noticed this when I ordered an upgrade to BBEdit, and the tax came to 9.24% instead of the correct 9%. I contacted Bare Bones Software (makers of BBEdit) about it.

They referred me to FastSpring, who hosts their store. I contacted FastSpring, and their answer was:

> Thank you for contacting FastSpring. Due to the US Supreme Court ruling in South Dakota v. Wayfair, we have had the way we are required to collect state taxes changed. Right now, it is taken as an average across the state.

You are probably safe using them, even though they are not collecting sales tax correctly, because as you note they are the merchant of record.

When I passed FastSpring's answer back to Bare Bones, and suggested that they talk to their own lawyers to make sure that FastSpring indemnifies them from any liability for miss-collected tax, because everything I found when implementing post Wayfair sales tax handling said FastSpring is doing it wrong, they said that they too had asked FastSpring about this, found it strange, but that they and their corporate counsel believes that because FastSpring is the merchant of record that it will be FastSpring that is on the hook if there is any liability here.

This was last October, but I just checked and FastSpring is still doing it wrong. This does not fill me with confidence, because this is easy and cheap to get right for at least half the states (including mine). That's because of the Streamlined Sales Tax agreement [1]. The states that are a party to that have agreed that if online merchants collect sales taxes for sales in all of the member states, the states will cover the costs of using tax services like TaxCloud, Avalara, and a few others I don't recall to lookup rates and file all necessary reports and payments.

[1] https://www.streamlinedsalestax.org/

Thanks for the heads up about this!

An interesting point about sales tax is that it isn't assessed by the state to collect from the customer, it's assessed against the company. The company can make up a shortfall from their own revenues (although overcharging the customer might be problematic).

What is the 0.6% + 2%? Is that the currency conversion fee? Any way you can get the US sales to be processed in USD and transferred to some kind of US bank account (Transferwise for example). That way you can re-use that to pay invoices in USD, or transfer it back in CAD at a better rate than what the processor is charging you.

I sometimes get paid in USD through paypal and that's how I reduce the amount I have to pay paypal for conversion fee.

> What is the 0.6% + 2%? Is that the currency conversion fee?

Yes, international card fee and conversion fee: https://stripe.com/en-ca/pricing#pricing-details

Changing currencies would be a pain, not impossible though. Although, it doesn't solve my sales tax issues and the fact that it just pushes the currency conversion fee problem down the line.

I believe Revolut has opened shop over that side of the pond, they don't do currency conversion fees, and the rate is the VISA standard rate which is probably as good as you will get.

As a consumer in the UK who has been using them a while, I would recommend them completely. When Monzo reach you, they are also brilliant.

I use both because the one drawback is their lack of multiple accounts.

You can create a TransferWise multi-currency account. That will provides you bank accounts for USD, EUR, GBP AU$ and NZ$, thus avoiding conversion fees.

Anyone else in a similar position? How do you handle sales tax globally?

There are two sides to that issue, IMHO.

One is whether you should have to handle sales tax globally in the first place. If you have no presence of any kind in a particular country, why should you be legally required to collect and remit whatever taxes a government where you have no representation or influence happens to decide are due, particularly if you have only a tiny amount of custom there and the necessary registrations/filings/etc. would cost you more than the entire profit you make from those sales? This is an ethical question as much as anything, because in practice legal agreements between friendly governments might cause you problems if you don't play ball and you're big enough to get noticed but not big enough to have your own army of lawyers and accountants to fight back.

As a practical matter, if you do decide you need to collect taxes everywhere according to whatever local rules they have, I suspect it's too complicated for anything but a specialist organisation to handle right now. Everyone and their brother is jumping on the bandwagon and introducing online sales taxes, and you can't become an accountant and a lawyer in every nation, state, dependent territory, county or city in the world that might have its own tax rules just in case one day you get a customer from there.

This has pushed us very hard towards the merchant of record model for new business ventures we're setting up at the moment, though it's not our only motivation; declining standards with other payment services we've used in the past are also a factor. However, the first MoR business we looked up that seemed to have a good reputation (Paddle) had such absurd legal terms that we ran away and didn't look back, so we're still searching for a viable solution.

This is unfortunately still very true....

On transactions of $5, we’re paying anything between 8-15%

This obviously doesn’t include the App Store/Play Store, where you could be paying anything between 30-45% (the standard fee is 30%, but if you’re an indie seller, then usually you wouldn’t have to charge VAT to EU residents (as long as you earn under a certain threshold), but Google/Apple will still charge this to customers (I assume this is because the sale is being made in their name and obviously they’re VAT registered).

The worst thing about chargebacks and fraud in general is that there's no incentive for payment processors / card issuers to fix the issue as they are benefiting from it by charging the merchant a fee when a chargeback is filled.

There's also a whole business made on the basis of providing anti-fraud services.

By now, credit card security should absolutely be a solved problem and it's crazy that we still in 2020, have to input numbers printed on the card to pay online.

Card security is broken by design. It can't be fixed without turning it into a fundamentally different payment mechanic.

What should be happening is that governments should be clamping down on the abusive practices of the financial services giants such that they can't push responsibility for anything that goes wrong onto merchants and/or their customers, thus making huge profits but sharing none of the risk created by the flawed system they control.

It messes with my mind that in 2020, one of the biggest practical problems we have with running an online business is the simple act of getting money reliably and permanently transferred from a legitimate customer to us.

Not to take responsibility away from these financial services companies in how they screw their customers but it's worth mentioning that governments themselves are enormously responsible for causing many payment gateway problems:

Extremely paranoid and grossly onerous regulatory compliance requirements make innovation in this space difficult at best

KYC and AML rules that are both obscure, highly byzantine and don't even allow banks to clearly communicate basics to their clients mean being arbitrarily screwed for really stupid reasons and having little recourse, with financial services companies further getting an excuse to continue abusing by passing some of the blame onto government rules.

Oh and as another comment right near here mentions, payment processors simply cancelling or denying service (sometimes even freezing funds on their own account) for businesses, organizations and individuals who participate in activities that a government (especially the U.S government) doesn't like for arbitrary bullshit "moral" or political reasons. This too is despicable because it often involves economic punishment for people who are doing nothing even remotely illegal.

I hope that since 2015 this author has learned about interchange and realises that this is not down to the processors but to the issuers and schemes. This reads like a blog post about someone complaining that a bar charges more for beer than for what the brewery sells it to the bar owner.

Just to clarify, are you saying there is a way to avoid the final percentage of hidden charges by knowing about and using a different interchange?

Or, just that the blame lies with the interchange and not the payment gateway?

I'm curious if you are suggesting smart people can avoid those extra fees somehow?

Do you have a link which summarizes this difference?

I believe he means that most of those things come from the credit card networks or the issuing banks.

Many of these charges can vary quite a bit from transaction to transaction. My understanding is that really high volume merchants (e.g., Apple or Amazon) can get processing that just passes through all of those things to them. Each individual transaction might involve scores of very small fees.

At the other end of thing, you have processors that work like the way Braintree originally worked. They would look at all those little fees in aggregate across all the transactions they were processing, and sorted the transactions into two bins based on total cost for the transaction.

They then charged the merchant a fixed rate for each transaction depending on which bin it fell into. From the merchants point of view, then, if you did 100 transactions each would incur fees of either X% or Y%, and the percentage that got charged X% would be about the same every month.

There are processors who are kind of in-between. The have an X% that rolls up most of the numerous underlying fees, but do expose you do some of those fees. Here some examples I've seen on a bill from such a processor.

For Discover cards, there was an "authorization request fee" of $0.0025, a "data transmission fee" also $0.0025, a "data usage fee" of $0.0185, an AVS fee of $0.02, an "authorization fee" of $0.20, an "assessment/sponsorship" charge of 0.12%, and an everything else of 2.48%.

MasterCard had fees ofr NABU, AVS, and authorization of $0.0195, $0.02, and $0.20. Their percentage fees were for acquirer license, digtal enablement, assessment/sponsorship, cross border, global acquirer support, and the everything else bucket. These were 0.0055%, 0.01%, 0.12%, 0.6%, 0.85%, and 2.33%.

VISA had fees for variable debit, variable credit, AVS, transaction integrity, and authorization, of $0.0155, $0.0195, $0.02, $0.10, and $0.20. Percantage fees were CR product assessment, assessment/sponsorship, international acquiring, international service, and the everything else bucket. 0.02%, 0.11%, 0.45%, 0.8%, and 2.316%.

Interchange is capped at 0.3% in the EU (0.2% for debit cards). Paypal + Stripe charge 1.9% + €0.25 for merchants in the EU charging EU customers.

Also, you can't blame a 3-5% currency conversion fee (often paid twice - once by the customer and once by the merchant) on interchange.

IMO the currency conversion is the real problem here... that's the hidden charge. The payment processing fee was agreed up front with full transparency for the merchant. And chargebacks are an unfortunate mess created by the fact that card networks are inherently quite rubbish. But FX fees can basically be whatever makey-uppy number the processor wants them to be.

This sounds like a good time to talk GoCardless. (Disclaimer: former employee, still have unexpired options).

Now, the downside is that this is recurring subscriptions only (e.g. SAAS) and not purchases. The upside is https://gocardless.com/en-us/pricing/

  - Domestic pricing: 1% + $0.25 up to $2.50 maximum

  - International pricing: 2% + $0.25.
    Currency conversions at the TransferWise rate.

UK/Euro pricing is even better, as that's their home territory. (And, you still can get chargebacks, but that's because some of these banking systems demand it.)

https://gocardless.com/en-us/faq/merchants/

“Do you take credit or debit cards?

No, GoCardless is an ACH debit company.”

Most people prefer credit cards. How does it work? Do you ask people if they want to pay by ACH?

Or do you detect debit cards on your credit card form and use this instead of the credit card processor?

> Most people prefer credit cards.

In the US, perhaps. If you're going after international customers — the topic which the original article complains about — you'll find that this preference isn't nearly as strong as you think.

In the UK I disagree. I personally always prefer to pay by debit/credit card. The charges are instant (and will be displayed instantly if you use a modern bank), you get the ability to make chargebacks (or the UK's law-mandated protection for credit card customers), etc. Direct Debits on the other hand take 3 days to set up before the money actually leaves the account.

Internationally, the local card details often don't match US "debit cards" enough to actually be called by that term; I've taken the habit of translating to "bank card". I've had non-US bank cards with no credit with security & user terms better than US credit cards.

Wholesale cost of same-day ACH is $.052 flat.

https://independentbanker.org/2016/08/navigating-the-same-da...

Is anyone here (or any business you know of) using crypto currency to avoid these extra fees with international customers? If you use a crypto currency, there is no way to reverse a transaction when the customer commits fraud.

And this by the way is the real beauty of crypto. It may have a lot of friction, problems with potential fraud and associations with criminal activity, but if you want to bill customers with near certainty that no middleman service provider will arbitrarily be able to freeze your funds or boot you off their service for whatever obscure reasons they decide to invent and not share, crypto solves the problem. I just wish it could be streamlined more for wider use.

It solves one problem, but creates another (the other side). If a truly bad bad payment was made (say, account hacked) there is no way to reverse it.

Great for the receiving end, but potentially troubling for the sender.

I use Nano on my website to accept small payments (~$3), in addition to PayPal and Stripe. I'm paying PayPal/Stripe about 15% on every transaction. 0% with Nano. And the money goes directly to my wallet, instantly. It really is great.

The only problem? It only constitutes 2% of the sales.

Note that you can avoid the currency conversion fees using a Transferwise account. You'll get bank credentials for USD, EUR, NZ$, AU$ and GBP, and not pay the fees for these currencies: https://transferwise.com/help/19/transferwise-for-business/2...

yes but Stripe US will not allow transfer out to EUR and GBP even if you have a bank account supporting those currencies.

PayPal won’t let you add a TransferWise account, for unspecified reasons.

At least that’s the case for UK/EU. There are some reports of people being able to add one in the early days - but now it’s like a blanket ban.

It could be because the address of the TW bank account is in New York, and they require a domestic address.

Every time I call up I get a different reason - but the result is always the same. “TransferWise bank accounts are not supported”.

Joel Spolsky: "Where there’s muck, there’s brass":

https://www.joelonsoftware.com/2007/12/06/where-theres-muck-...

I'd add a "4. Payment providers often follow the political and social trends of their host country, like Paypal/Visa/Mastercard/etc blocking payments to journalists or other groups when the US State or Justice Dept. doesn't like it."

Unfortunately the only way to get around this is with distributed systems of value exchange. And those have lots of friction.

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