Etsy: Announcing Direct Checkout. (No longer just PayPal.)
etsy.com
etsy.com
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?"
[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.]
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.
Congrats - looking forward to trying it out!
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.
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.
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.
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."
"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.
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.
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.
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?
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).
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)
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
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.
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.
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.