

Etsy: Announcing Direct Checkout. (No longer just PayPal.) - NelsonMinar
http://www.etsy.com/blog/news/2012/announcing-direct-checkout/

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callmeed
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?"

~~~
patio11
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.]

~~~
callmeed
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.

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inmygarage
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!

~~~
alapshah
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.

~~~
patio11
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."

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descentintomael
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.

~~~
lnanek
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.

~~~
dangrossman
> 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.

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beagle3
Does anyone know how AirBnB and Uber and their likes do this? Are they also
"third party payment aggregators"?

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jdp23
here's the pricing info: "Direct checkout will cost a 3% + $0.25 USD payment
processing fee per sale."

~~~
rellik
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.

~~~
dangrossman
> 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.

