
My theory: Patreon doesn’t want to be a money services business - bauc
https://subfictional.com/my-theory-patreon-doesnt-want-to-be-a-money-services-business/
======
dawhizkid
I don't think this is it. If Patreon is using Stripe, they are likely using
"Stripe Connect" ([https://stripe.com/connect](https://stripe.com/connect)) -
which was built specifically for marketplaces like Patreon to take in funds
and pay out. The compliance/legal issues around being a money services
business are automatically handled by Stripe in this case.

My hypothesis is that this is really around fraud risk more than anything.
Batched payments are notoriously confusing to cc customers. If you made a
bunch of small donations and got confused as to why you saw one $18.XX charge
on your credit card statement, you might open a dispute with your bank, which
would have the action of automatically reversing the entire charge with
Patreon's processor (i.e. Stripe). Assuming Patreon is eating this and not
reversing every donation that is currently batched, then the average
chargeback amount (and therefore loss to Patreon) is much higher in the
current scenario than if donations are charged individually.

In fact, they even wrote about chargebacks and "friendly fraud" in a blog post
earlier this year -> [https://patreonhq.com/chargebacks-tips-to-fight-
friendly-fra...](https://patreonhq.com/chargebacks-tips-to-fight-friendly-
fraud-and-get-your-money-back-14647949d0e9)

~~~
mjevans
I don't see the 'balance' issue as an inherent part of batched payments. Your
hypothesis makes far more sense.

It's like a customer with a shopping cart of items from different vendors. The
additional complication of some of those vendors also turning around to
support others is interesting... That part I could see needing to be cut or at
least discussed with legal. However if /that/ were the issue they could do
much better PR by being upfront and public about it.

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jellicle
It's rare to see a company destroy itself so quickly and thoroughly.

"Hey, our company does exactly one thing: saves people from paying a bunch of
processing fees to send someone $1 a month. Let's get rid of that!"

That this is apparently an intentional move to get rid of small fry creators
is icing on the cake.

"Hi, New York Yankees manager here! We only want superstars on our team,
therefore, as of next week, I am disbanding our entire farm system. That's
right! No more non-superstars on the Yankees payroll! I can't see any possible
problem with this."

------
philsnow
Most of the patron outrage is because this change was done unilaterally (I
don't think I had to click through anything to agree to the new fee
structure).

There are two changes, one to pledge amounts and the other to payment schedule
/ batching. I'm only going to talk about the pledge amounts.

A much more palatable way to roll out the pledge amount change would have
been:

1\. give more notice. I got an email on Dec 7th announcing that the new fee
structure would take effect on Dec 18th. Unless there were some urgent
circumstances for the company, this should have been more like 3 months
between announcement and implementation.

2\. There seems to be at least two options for Fee Change Day:

a) increase 'base' pledge amounts so that the creator gets 95% of the
purported pledge. That is if the pledge is for $1 / mo right now, increase it
to $1.32 / mo (depending on payment provider) so that the creator gets the
$0.95 / mo that Patreon says is "more clear".

b) The other obvious option is to keep the base pledge amount the same and the
creator ends up with less money coming in.

I would have made 'b' the default and communicated a lot to inform patrons
something like "We had to change fee structures to stay afloat and to make
pledges less confusing for everybody. We defaulted everybody to paying the
same amount because we don't want to bust anybody's budget. CLICK HERE to
review your pledges and make any adjustments to make sure the creators you
love get what you think they deserve." and then the resulting page has a super
obvious pancake button on each pledge (and one for 'do it for all pledges')
that adjusts their pledge to option 'a' above, but critically let them adjust
it to whatever they want. I think over time people are more likely to increase
pledges if they have the occasion to rather than decrease them, so Patreon
could have actually come out ahead through the generosity of patrons.

------
cdancette
The reasons invoked by patreon were a bit different (see the update in their
blog post[1]), they argued that

\- the new model would make it easier to understand for creators (they are now
certain to earn 95% of each pledge, where they could earn less before)

\- it also makes it clearer for patrons, because now they are paying exactly
at the date they made the pledge. And it also avoids double spend for CUF
(charge up front) payments, where you could pay twice the pledge within a few
days.

But your point is interesting, I hope patreon will give more details about
this. If this is true, the business model itself is flawed, and competitors
(drip, gratispay, liberapay) will face the same issue.

[1] [https://blog.patreon.com/updating-patreons-fee-
structure/](https://blog.patreon.com/updating-patreons-fee-structure/)

~~~
ZenoArrow
> "the business model itself is flawed, and competitors (drip, gratispay,
> liberapay) will face the same issue"

It's only an issue if the goal is to make the platform itself highly
profitable. Some of its competitors are driven by a desire to support
creators. Patreon used to be, as it was started to support YouTube creators,
but clearly they've lost focus and forgotten the platform itself was only
meant to be a means to an end.

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dannyw
This argument is interesting, but I don’t think it’s true. The App Store
batches payments to bill the card once every few days (making $0.99 songs and
apps cost effective), and Apple didn’t register as a money transmitter.

~~~
Animats
Amazon, Apple, Google, Intuit and PayPal are lobbying for national regulation
of money transmitters to solve that problem. They have a lobbying front,
"Financial Innovation Now", for this.[1] What they want reads like a giveaway
to the "payday loan" business, though. They want federal preemption of state
usury laws.

[1] [https://financialinnovationnow.org/wp-
content/uploads/2017/0...](https://financialinnovationnow.org/wp-
content/uploads/2017/04/fin-submission-crapo-brown-final.pdf)

------
bjterry
This theory is plausible but I don't think it's a perfect explanation. Someone
else has pointed out that Apple does the same thing and does not run afoul of
money transmitter regulations. But I would point out that Patreon has faced a
ton of heat for this decision, they KNEW they were going to, and they could
easily have said "We had to do this so we didn't run afoul of money
transmitter regulations."

My theory is that this is mostly making people angry because it addresses the
pains of a different group of creators.

We know that Patreon exhibits a winner-take-all dynamic, in that the largest
creators are orders of magnitude more successful than the average creator,
similar to music, books, and other entertainment markets. (I _suspect_ that
Patreon also has a "whales" dynamic, where a small number of patrons are
responsible for an outsized proportion of payments, but that is not necessary
for this explanation).

The largest creators on Patreon face a free-rider problem with the existing
system. Someone can subscribe, access the back catalog of content, then cancel
without ever reaching the batch date. The largest creators are probably giving
Patreon the feedback that this is a major issue. Since the largest creators
make up 80-99% of Patreons revenue, the solution for them is to make the first
month an immediate payment, but to do that means you need to get rid of
batching.

Small creators also face the free-rider problem, but most aren't doing it as a
professional enterprise (by definition they don't make a living off it). They
face less of an risk of piracy since no one is motivated to pirate everything,
and they care less in any case since the stakes are lower. The patrons who
support the small creators mostly are supporting many, so they will have to
pay a much larger tax to PayPal and Stripe under the new system, but since
this isn't really where Patreon's bread is buttered, their concerns did not
control the product decision.

Other explanations (fraud, money service regulations, unwillingness to take on
technical complexity) can explain why they didn't follow any of the obvious
mitigation strategies (like prorating the second month) but they don't explain
fundamentally why this change is being made despite the obvious harm it causes
to vocal prior fans of the company.

The fact that Patreon is trying to put an altruistic spin on it is just normal
business behavior.

------
smashingfiasco
Honestly, if Patreon would just invoice me like everyone else does and let me
do an ACH/electronic check payment to get current, they could skip the CC
payment fees all together. ACH isnt free, but my understanding is that it's a
lot cheaper than processing credit cards.

------
rlyeh
I used to work in finance and this theory makes a bunch of sense to me.

One way they could address this is to focus bundling on the content side. The
scenario. PatreonX then operates as a monthly online magazine with variable
content (patronize/subscribe to the creators you like). Content from creators
is held until the monthly publication date. Everyone is charged for the
content they patronize on publication date. Creators are paid once the
bookkeeping is done. The people who use Patreon to collect funds to support
other activity could issue a monthly "progress report" as their content (a
paragraph or two).

------
jchw
Not hugely surprised. This is probably why many systems, like Steam, won't let
you take money back out of your account.

On the other hand, it makes me curious. If you use Stripe entirely to handle
the 'stored value' portion of the system, is it Stripe that assumes the role
of being the money transmitter or the service? In Patreon's case, they go
between systems, so they manage the balances of stored value - but Stripe is
capable of managing per-customer stored value, and it is done for even basic
subscription tasks such as prorating.

All in all, I find this subject interesting and will definitely read the
Gratipay links when I get a chance.

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rhizome
My ignorant speculation is that the VCs are pushing for them to _become_ a
money services business, where Stripe and PayPal are currently external
dependencies of theirs.

------
revelation
I mean, if you want the billion dollars valuation, you should presumably be
_bold_ enough to solve an actual problem, not to mention one that is so
profoundly uninteresting to the customer.

Not to mention one that every app store in existence seems to solve that offer
plenty of prepaid options.

~~~
egypturnash
The problem of "making patrons pay up front" is one that _is_ profoundly
interesting to a certain vocal segment of Patreon's customers: creators who
are using Patreon to create a paywall for their work.

As a creator who's been supporting herself via Patreon for a while, I'd _like_
to give Patreon the benefit of the doubt and assume that they do not, in fact
have any hidden motives involving "making lots more money" and/or "running
afoul of financial regulations". It's worth noting that "paywall-as-a-service"
is not the problem Patreon ever set out to solve; they've always been about
figuring out how to aggregate micropayments to support creators who are giving
stuff away for free.

Sadly, the fact that this change _completely_ breaks the original
micropayments-aggregation model makes this hard to do. And their continued
insistence that this change is all about "giving creators more money" makes me
trust them less and less.

~~~
revelation
I think we are in agreement. Patreons want the micropayments-aggregation. They
are profoundly uninterested in whatever legal quagmire that puts Patreon in,
and it is my opinion that this is presumably something a $1B company should
work at solving.

