
Instant Payouts for Marketplaces - krithix
https://stripe.com/blog/instant-payouts-for-marketplaces?
======
relaunched
Everyone is learning that factoring is a very lucrative business. It's
beautiful because 1.5% is an egregious rake that doesn't sound like
much...until you do the math.

If you normally wait 30 days for your money, but you opt for next day pay for
a 1.5% charge on your $100 dollars in receivables, what's the real cost? The
provider earns $1.50 for 29 days worth of floating money on your behalf (you'd
get in in 30, but you opt for it tomorrow for $1.50).

Now, let's say the company flips the same $98.50 12 times per year. That's
earnings of $18 on $98.50, or 18.25% on the company's money...not bad. But
wait. What if the company has a strong cash position and can finance the
$98.50 at prime, at 90% of receivables (cause that or better is what strong
companies can get). Well, then the company needs to borrow $88.65 for the
year, at 3.5% per year (prime rate). The company pays $2.66 per year in
interest, out of the $18, to earn $15.34 on their initial 10% of the $98.50.
So, 1.5% quick pay actually yields the company 15.34 / 9.85 or 156% on their
money.

156% isn't a bad ROI.

~~~
ISL
And if the payment is fraud/gets charged back?

~~~
tasteup
There's plenty of cashflow to negate the occasional fraud/chargeback. This is
presumably how Venmo works.

~~~
pfarnsworth
It takes a very low % of chargebacks to completely negate any profits.

~~~
mildbow
Profits for whom?

iirc, Stripe holds the platform liable, so they get paid either way.

So, the question is whether the extra fee they are charging is worth it, since
you would be liable for chargebacks anyway?

------
pyronite
> Instant Payouts cost 1.5% of the payout amount, with a minimum fee of 50¢.

This is the killer for us and, I'm guessing, many other marketplaces without a
Lyft-sized (20%) rake.

Our current solution for marketplace payouts charges one quarter per payout.
The funds are direct deposited in the user's account the next business day.
Maybe we have a sweet deal, but to go from this to 1.5%, in addition to
Stripe's other (higher than average) fees, is hard to justify. (Which is
unfortunate, we'd love to use their great libraries!)

~~~
octaveguin
Does this mean that they're charging 1.5% + $0.50 on top of their 2.9% + $0.30
total?

It's unclear how all the pricing works. Does the normal stripe fee occur for
the user of the market place in addition to the marketplace fee or does it
only trigger when you the marketplace owner receives the payments? Or does it
not trigger at all?

~~~
dave_coen
We charge the marketplace 1.5% of the amount paid out (with a minimum charge
of $0.50, so e.g. on a $30 payout, we'll charge $0.50) and we're able to offer
discounts to platforms that are operating at scale. If you'd like to discuss,
feel free to reach out to me at dave.coen@stripe.com

During the beta, we've seen many end users choose to pay a fee when they could
have waited to receive a slower payout for free. We think the value of this
product is in providing choice and giving end users immediate access to their
funds when they want it. The stories I've heard from Lyft drivers about the
difference it makes to have this flexibility has been my favorite part of
working on Instant Payouts.

------
caseyf
This looked exciting at first, but I hadn't heard about "managed accounts" and
they (understandably) shift the work to the platform/API user:

    
    
      Handling information requests: instead of requesting 
      it directly from the account holder, Stripe will request
      information, such as a social security number or passport
      scan, from you. You must collect this information from
      the user and provide it to Stripe, otherwise Stripe may
      disable transfers to the account.
    

[https://stripe.com/docs/connect/managed-
accounts](https://stripe.com/docs/connect/managed-accounts)

~~~
matthewarkin
Financial liability is also shifted to the platform / api user.

~~~
swalsh
If you're a market place, why shouldn't you be responsible for that stuff?
Isn't that part of the value you're providing as middle man?

~~~
matthewarkin
If you use standalone accounts, then the liability is with Stripe. With
managed accounts you're collecting all this information, Stripe charges an
additional .5% and financial liability switches to you if Stripe cannot debit
the merchant. I'm not saying one shouldn't be responsible for it, but it is a
difference.

I would argue that the .5% you are paying to use managed accounts would
include some sort of "insurance" against fraudulent merchants especially since
one would hope Stripe is providing platforms with a similar level of
verification compared to standalone accounts.

Ideally platforms would be aware of the differences and make the best decision
based on their risk tolerance and UX goals, but after spending a fair amount
of time in Stripe's IRC room in the past, people just want to build something
and don't always go into the deep documentation listing some of these gotchas.

------
anaskar
While this is exciting, this is not always a good thing.

Two years ago, we tried this at Homejoy as an incentives for the cleaners to
get 5 stars.ie. If you get 5 _' s on your appointment, we'll pay you out the
same day. We did this manually via Stripe, of course.

Efficacy of the incentive aside (it didn't actually have an impact on 5_s), we
cut this program for two reasons:

1) Transaction cost, as many users pointed out

2) Unpredictability - most of the workers on our marketplace preferred the
predictability of weekly or biweekly payouts, even if the size of those
payouts varied. It's hard enough for people to manage personal finances on a
regular schedule without the added headache of getting money instantly, or
daily.

------
pw
What's the industry term for depositing via debit cards like this? And how,
exactly, does it work?

~~~
Cieplak
I'm not sure how Stripe implemented it, but it would be possible to do by
partnering with several ATM network providers. If you have a debit card, look
at the back and see which networks it supports.

------
derwiki
Really excited to see this feature come to managed accounts on Stripe! Instant
transfers are why I use Square Cash over Venmo.

A question for the Stripe engineers: does this mean we would instantly know if
a transfer has failed? One of our biggest pain points right now is when a user
enters incorrect account details, we transfer money to them, and the payment
is reversed a week later.

And one other question: if we're using balanced transactions to take charges
and use them to fund transfers, we still need to wait for the charge to settle
right? So in that scenario, "instant" means 5-7 days instead of twice that?

~~~
manacit
Unfortunately, Square Cash just removed their "instant transfers" \-
[https://techcrunch.com/2016/02/29/square-cashs-fast-
payments...](https://techcrunch.com/2016/02/29/square-cashs-fast-payments-app-
can-now-hold-a-balance/)

They just implemented a venmo-style "balance", and taking money out instantly
now carries a 1% fee: [https://squareup.com/help/us/en/article/5589-where-is-
my-squ...](https://squareup.com/help/us/en/article/5589-where-is-my-square-
cash-deposit)

On the plus side, they give you a virtual card that you can use to spend that
money, but it's a far cry from "the money is now available in your bank
account"

~~~
derwiki
Oh man, I didn't even realize this changed. But I guess I never expected it to
last forever...

------
bamazizi
1.5% additional cost to already high transaction fees is ridiculous!

~~~
ci5er
How so? About 1% for about a month (30 days) is in the ballpark for A/R
acceleration, isn't it? The "about 1%" for the 20 day lag on the issuing side
collections cycle is from the merchant paying for about one month of
cardholder interest.

The Visa/Mastercard oligopoly's fee structure isn't Stripe's fault...

EDIT: Gosh - it looks like they're building it around ACH in the US and taking
the risk "on us". That's bold. I wouldn't even for 1.5%.

~~~
pbarnes_1
It doesn't cost 1.5% to execute the refund hack onto a Visa/MC debit card.

It really depends where the cost is being eaten. Is Lyft eating this or is the
driver? Why would anyone agree to a 1.5% reduction in earnings to get their
money now instead of tomorrow/2 days?

~~~
ci5er
I'm not talking about card refunds. I'm talking about all the lags in ACH and
all the ways that (under UCC) that consumers can grab their money back even
after it already went through...

> Why would anyone agree to a 1.5% reduction in earnings to get their money
> now instead of tomorrow/2 days?

I have no idea. I don't live in that world. Sounds like some pawn-shop level
need-for-cash to me.

But I do know that in business, factoring receivables is a thing. Dell used to
expect vendors (such as Intel, but a lot of others too) to put their parts at
the factory and then wouldn't take receipt of the part until it was picked
from the bin for the purpose of placing it on the motherboard of a computer
that had just been ordered and that they were now assembling. They'd
essentially send Intel (or whoever) an email (well, EDI), and say: "Hey, we
took receipt of your part. You can invoice us us net 60 now". Maybe it was net
30 - but I think it was 60. They worked out a deal where they'd send these
through GE and GE would go to the manufacturers and say: "Dell owes you $10M
in 60 days. You can have that (from us) in 30 days for a point and now for 2
points" (These were percentages, not basis points).

IF the vendor had been somebody that wasn't intel (and many were), waiting for
60 days (at least) after delivery of product to a site to get paid is a huuuge
hicky on your balance sheet and a big factor in cash flow which constrains
inventory turn over and growth.

Doing the volume and time shift of sums of money to allow mismatched
transaction parties to match is a (the?) key thing that banks provide. They
charge me - on whatever terms they like - to be able to close a transaction
with a retail housing unit seller who expects 100% of the full amount today.
My alternative would be to save up for 15 years. Most people don't want to do
that.

I guess the issue here is that if someone doesn't want to pay 1.5% for that 48
business day hours (including holiday weekends), they'll wait. If they need
the money, they'll take the hit.

~~~
ig1
I work for a peer-to-peer factoring marketplace startup
([http://marketinvoice.com](http://marketinvoice.com)) so I can shed some more
light on it. Typically we charge between 1%-3% for a 30 day advance.

A couple of common scenarios in the tech industry:

1) You're a web/mobile agency who gets paid on 30 day terms but you need to
pay your staff (and contractors) on a monthly basis. If the times line up
exactly you might get away with it but if your customer pays late you end up
not being able to make payroll. Being able to get the money instantly as soon
as you've issued the invoice is a huge peace of mind.

2) You're a software company which sells licences/subscriptions on a monthly
basis. If you get that money up-front it means you can redeploy that money
straight into marketing which when you're on an exponential growth curve makes
a huge difference and is a vastly cheaper form of financing than venture
capital (in this scenario we can actually advance up-to twelve months of
subscription fees upfront).

3) You have to pay tax based on the amount of money you've invoiced for, not
the amount you received to date, so you can easily get a tax bill for which
you won't have the money for until your customer pays you. But the taxman
won't generally be willing to wait so you have to finance it somehow.

To get an idea of how big a market this is, last year in the UK alone (where
we're based) invoice finance was a ~100 billion pound market. A meaningful
percentage of global GDP is dependant on this kind of advance.

In terms of cost most companies just build it into their pricing, it's often
easier for these businesses to charge their customers more money than it is to
convince their customers to pay faster (these are typically large corporates
who can spend more but can't stop internal bureaucracy).

~~~
ci5er
> 3) You have to pay tax based on the amount of money you've invoiced for, not
> the amount you received to date, so you can easily get a tax bill for which
> you won't have the money for until your customer pays you. But the taxman
> won't generally be willing to wait so you have to finance it somehow.

I was just re-reading this, and this doesn't sound quite right. Is this a
cash-basis accounting vs. an accrual accounting thing?

~~~
ig1
It'll vary by country but in the UK sales tax (VAT) is generally paid based on
the invoice date:

[https://www.gov.uk/vat-record-keeping/time-of-supply-or-
tax-...](https://www.gov.uk/vat-record-keeping/time-of-supply-or-tax-point)

You can do cash-based accounting and pay only when you receive the payment but
this is only available to small companies (<1.35m revenue) and with some other
restrictions:

[https://www.gov.uk/vat-cash-accounting-
scheme/eligibility](https://www.gov.uk/vat-cash-accounting-scheme/eligibility)

------
devbug
I guess Stripe is now offering short-term lines of credit and handling intra-
bank settlement themselves? That or they're issuing a "refund" to do this
instantly?

~~~
bkrausz
@devbug I work at Stripe. nope—neither, we’ve worked with Visa and Mastercard
to get funds on to debit cards instantly. This isn’t a refund or a loan.
Without getting too into the weeds, in the same way you can make a payment at
10PM on a Sunday, you’re able to be paid out instantly through Instant
Payouts.

~~~
JoshTriplett
If the customer issues a chargeback, who ultimately owns the liability? The
person corresponding to the managed account, or the owner of the marketplace
that manages the accounts?

Will the owner of the marketplace be held responsible for the requirements
like maintaining a low chargeback percentage, or is that requirement passed on
to the managed account (which could be closed if that becomes an issue)?

~~~
bkrausz
With managed accounts the platform owns ultimate liability. This is because
with managed accounts we agree not to contact the account holder directly
under normal circumstances, so we are more limited in our ability to ask for
more information or quickly shut down potentially fraudulent accounts.

As for things like chargeback rate, it depends more on your type of business
than the particular Stripe product you use. For example, if you are running a
shopping cart hosting service, we recognize that each of your stores are
different, and will consider them somewhat separately. However, as the direct
line to your customers, if you're attracting a huge amount of fraud on your
platform, we would expect you to take steps to reduce that, and would work
with you to figure out what the best steps may be.

We are working to figure out the best balance between giving platforms control
and using our expertise to help them with challenges like fraud. If you have
any suggestions on how we could improve this balance I'd love to hear them,
either here or via email at bkrausz@stripe.com

~~~
JoshTriplett
Sure, I can imagine both scenarios coming up. On the one hand, if the builder
of a platform sets it up in a way that makes fraud quite likely, then that's
the platform builder's problem. On the other hand, if the builder of the
platform takes reasonable steps to make fraud unlikely, but occasionally some
user does things they shouldn't, that should ideally be passed through to that
user and that user can have their account terminated.

------
vizzah
Does anyone know startups working on bringing Visa Direct / Mastercard
MoneySend to us, developers, without all the financial / regulatory overhead?
These are world-wide payments with huge potential, but I am struggling to find
any offering on the market today. "Coming soon" mostly.. :(

~~~
lachyg
@vizzah: I work at Stripe. We're working with Visa Direct and MoneySend, and
you're able to sign up and begin using it _today_. Let me know if you have any
troubles, and I'd be happy to help.

~~~
vizzah
@lachyg Thanks for the invite!.. but as far as I understand Stripe only covers
b2c payments to US cards? Or if we sign up as US company, can we send world-
wide?

------
omarchowdhury
Braintree has a similar product, albeit not instant:
[https://www.braintreepayments.com/products-and-
features/mark...](https://www.braintreepayments.com/products-and-
features/marketplace)

------
intrasight
I've no idea what they mean by "marketplace"

~~~
singlow
Common term for a site like eBay or Etsy where multiple sellers run stores
that share a centralized cart and check-out.

------
jbb555
> Unlike traditional bank transfers that can take several days,

What? It takes a few seconds. Or is this the USA and the USA is different from
the rest of the world?

------
abalone
1.5% with a $0.50 minimum is _incredible_ gross margin on a debit transaction.
All major debit card interchange is capped by regulation to just 0.05% +
$0.22. Not sure what their fraud exposure is though.

~~~
chipperyman573
>All major debit card interchange is capped by regulation to just 0.05% +
$0.22.

Only in the UK. In the US the average is 2-3% + $0.30

~~~
mildbow
The parent is talking about _debit_.

Are you taking about credit?

