Carolina Cloud pays SOFR on unused prepaid credits
docs.carolinacloud.io
docs.carolinacloud.io
Also, how does it compare to say, accepting gold or treating a gold based ledger instead treating gold as a currency and similar ideas?
Also could this re-classification be ever useful too? For examples bonds being treated in such way?
Not unlike the hyperscalers giving $100k+ to startups and it not counting as income for C-corp tax purposes. Totally unregulated space!
No customer would truly care about this and in most jurisdictions you would probably go through a lot more paperwork because of the interest payments.
A long time ago I remember reading about banks that want to provide incentives for saving that amount to basically lottery tickets. The idea is that people aren't thrilled about a savings account that pays 2%, but if instead they offered a monthly 1 in 50 chance to get 100% return (same expected value, ignore compounding), people would like that a lot more. But this amounted to essentially a lottery and that's a state monopoly.
Everyone here seems to have got a present of €20 Prize Bonds for a 10th birthday from an aunt or grandmother, yet people from outside are always surprised that such a product can exist.
Maybe that’s the case for the EU but it would be surprising.
The root of this thread was surprise over rules around interest. I am saying it’s not surprising because companies could then easily create weird schemes.
It's "ok" _because_ the credits can't be turned back into cash (thanks to their TOS).
If some business tried some clever scheme where they offer this "interest" on credits that _can_ be turned back into cash, they'd be breaking the law and would need a banking license, it's already covered.
Now let’s go full circle back to the original point. I don’t think it’s surprising that a company paying interest on credits may face more paperwork and rules for what is truly a gimmick that most large customers will never even care about. Which was my only point and I think the plot has gotten lost as this keeps going deeper.
That's not to say in the EU, or the UK (where I am) the case isn't different; but if it _were_ the same as the US, I can totally see why that's fine.
We have loyalty programs, a coffee shop gives you "credit" when you get stamps for your 6th coffee free etc, none of that seems to complicate matters... all because of the key point "it can't be turned back into cash".
EDIT: I would add, in the hope of further supporting my argument, that many places that offer loyalty and discount schemes, their ToS explicitly states that it's "not exchangeable" and "has no cash value", which would support my point (at least in the UK).
My only point from the beginning has been that this isn’t surprising. If paying interest on prepaid customer balances were legally trivial just because they’re called “credits” or have “no cash value,” companies could structure around those rules very easily. That’s why I questioned whether “can’t be redeemed for cash” was actually the legal test.
The loyalty points example is a different product entirely. Even for the linked company I imagine the only reason they do this is a fun marketing angle for winning a finance customer.
Yes, but I'm not convinced they mean what they're saying, I took that to mean they were trying to do this as _real_ interest.
> If paying interest on prepaid customer balances were legally trivial just because they’re called “credits” or have “no cash value,” companies could structure around those rules very easily
I still stand by my argument, I think it's only "interest" in name; from a banking or financial perspective it isn't. I don't see why it's any different to a company just setting a number in your account. Say I run a SaaS and give you £1000 credit, is that bound by the financial regulations? I don't think so.
If you put a single £10 credit on your balance and I offer to give you "10,000%" "interest" to top it up in credit for my service, I don't think that does either; the wording doesn't suddenly make it covered by financial regulation, it's whether it's _real_ money or not.
Credits on a service, whatever it is, isn't real money, and as long as the ToS doesn't let you turn it into real money, there's nothing complicated to worry about, but if the org _does_ let you turn it into real money, it suddenly becomes covered by financial regulation.
I'm just debating here, I'm not saying I know this to be true, I just think it make sense (to me).
I agree that simply calling something “interest” doesn’t magically make it a regulated financial product. My disagreement is with the idea that “can’t be redeemed for cash” is the dispositive test. Regulators generally look at the substance of the arrangement, not just the label.
Also, your £1,000 credit example isn’t really analogous to the original post. If you simply gift me £1,000 of service credits, that’s very different from me prepaying £1,000 of my own money and you then paying me a return based on how long that prepaid balance sits with you.
The original discussion wasn’t “are loyalty points regulated?” It was “why would paying a return on prepaid customer balances create more regulatory work in the EU?” To me, the answer “because regulators care about products that start looking financially deposit-like” seems entirely plausible.
I totally agree with this point, but I don't see how the topic we're discussing would be seen that way.
From a "common sense" point of view (which I know, financial regulation is absolutely not), no matter what you call this act of giving someone extra credit (let's call it "interest") for your service based on the amount they've previously paid for your service (let's call it "deposited"), you're still just giving them monopoly money that serves a single purpose and that is to use more of your service.
If they can't turn it into cash, why should any financial authority care? It's got nothing to do with them.
That said, to take your side for a moment, what's to stop me depositing boat loads of cash up front to pay for your service using the "interest" you'll give me, rather than paying it regularly out of company earnings? Now it starts to sound like something a financial authority might take interest in (pun intended).
My only point from the start was that I’m not surprised the EU imposes extra compliance here. Once you’re incentivizing customers to leave prepaid funds with you in exchange for a return, it’s reasonable that regulators would take a closer look.
Whether they ultimately regulate it as deposits, e-money, or something else is for the lawyers. I was never arguing that “credits paying interest” automatically makes you a bank. Simply put it’s not surprising you would have to go through extra hurdles for this kind of gimmick.
I think you are taking this a bit too far. I don’t think it’s shocking that even credits which have a dollar value would need to pass a smell test.
I just find it an interesting thought experiment.
I wonder if this has anything to do with why a lot of companies convert your money into a variety of virtual currencies, "bells", "gold, "gems" etc.
I'll leave it there but nice chatting with you about it!
In the same way signing up for $App and getting $100 in API credits isn't income; paying a bill early for a 3% discount isn't income; and frequent flyer points or cash back you get on our credit card isn't income.
Opening it up to everyone is nice.
Think of it from a small hobbyist perspective: I want to host a few small workloads, but I don’t want to deal with reoccurring billing. Maybe I have money now, but can’t guarantee it later. With this scheme, I frontload with a substantial amount of prepaid credits - say, $150 - while only using $5 or $10 a month. In theory, if the interest rate is correct, I could earn more on interest faster than the prepaid credits get drawn down - thus having a perpetual instance for a one-time charge.
Personally? I think that’s a fair and reasonable arbitrage opportunity, because it also means the vendor can take that excess Capital and invest it themselves to create a return greater than the credits paid out. In practice, some greedy jerk C-Suite inevitably places caps on payouts or time limits on credits to ensure they capture more for themselves and leave less for their customers.
I guess what I’m saying is that I dig the idea, I’d love to see it implemented by more vendors, but I also know it’ll get rules-lawyered to death in nanoseconds under the current market incentives.
Oh, that's not even a challenge. The reason to offer a scheme like this is basically to abuse the fact that a human customer will value this disproportionally to the cost of providing it. But if the customer perceives that value, that means you can take that surplus, which isn't real, and then extract that surplus from almost anything else that comes in the form of real money, and create something that humans value as much as the original service, but now with more money to the service provider. Converting the customer irrationality into money means you don't even need anything as obvious as a cap, which sounds scary. You just raise your other prices.
(Maybe not if the inflation greater or equal the interest rate … though I did not do my math here.)
At 5% simple interest, your $150 would give you 62.5c per month. So you'd need closer to ~~$1200 to have a perpetual hosting machine; for a $5/month VPS or whatever.
You also now have an additional problem: $1200 of committed spend on a cloud provider; which could go out of business one day; for a $5/month workload.
I think for most people, the second problem is much bigger than "I don't wanna set up recurring billing".
I was replying to the parent comment, I'm just saying "prepay and commit thousands of credits so you get to run $5/month" isn't a good idea to me, but I do like your mechanism.
In any case, they don't seem to really have an edge on AWS unless you have huge egress. What did I miss?
c8a.medium (1vCPU/2GiB RAM/no SSD) on-demand on AWS: 5.39 cents per hour plus egress Carolina Cloud equivalent: 2 cents per hour with zero egress
If you don't have egress then the price is closer to 40% that of AWS. If you do have egress, the price could be far, far below 1/3.
Hetzner server auction is great for many use-cases, but it's not a fair comparison with EPYC Turins.
Gemini: The Secured Overnight Financing Rate (SOFR) is a broad measure and benchmark interest rate for U.S. dollar-denominated loans and derivatives, reflecting the cost of borrowing cash overnight backed by Treasury securities.
> The rate tracks SOFR (the Secured Overnight Financing Rate), the benchmark overnight interest rate published every business day by the Federal Reserve Bank of New York.
See https://docs.carolinacloud.io/organizations/prepaid-interest...
That's nice. Though I won't read that far if I have no idea what this is going to be about. 1 paragraph is how much you get my attention for and if that's not enough then my attention goes elsewhere.