
How Payments Providers Screw You (2015) - saadalem
https://www.jackkinsella.ie/articles/how-payments-providers-screw-you
======
artellectual
Feeling the burn right now on this. I collect a $9 a month for my videos that
have helped thousands of people learn to code and get their jobs. For over 3
years of running it I have not had a single dispute until now. One of my
customers subscribed and has been watching my content for 2 months and decided
that he is now done and decided to file a dispute.

Before I could even email them any evidence or make my case I was told I would
most likely lose this dispute. My payment gateway told me they would charge me
$500 for arbitration fee if I lost the dispute. I forwarded them my t&c and
proof that the customer has used my site and content. I even reached out to
the customer to ask why they did what they did, no answer.

It’s a crappy system and online payments is broken. Credit card and payment
processing is hugely broken and far behind the times.

Fortunately I am in the position to do something about it. My team and I just
recently finished building and launched a new payment engine, we have already
started processing payments in the millions of dollars just a few months in
and will be taking on Banks, VISA, MasterCard and all traditional payment
platforms. It sounds far fetched but when I’ve decided to tackle something I
don’t fail. I’ve made it a personal goal to innovate in the payment space. I’m
so very excited about the future.

~~~
phil21
The worst part about chargebacks is that as a small merchant you are entirely
screwed, to the point of absurdity - almost no evidence can save you, even if
you have actual security video and a card present transaction (been there,
done that)!.

Then, after dealing with that situation for close to two decades in various
businesses - I finally need to call Amex for my own consumer dispute for the
first time ever. It was against a giant corporation quite well known for their
entirely-on-purpose dark pattern billing tactics. I simply wanted Amex to
block any future charges as I couldn't get them to cancel without jumping
through absurd hoops such as showing up in person with photo ID while living
out of the country.

Amex basically told me to jump off a cliff. Not even re-issuing the card saved
the future charges as they now have a system to give the vendor the new card
info. I had to fully cancel my Amex to get the charges to stop.

Why Amex decided to try to enforce a civil contract (especially one they never
saw) is beyond me. It was my account, and my option to freeze charges. I was
fully prepared and ready to deal with a civil case should the vendor had tried
to go after me once the credit card charges bounced. But Amex didn't even give
me this option.

That is the day I went from a pretty large proponent of Amex customer
care/etc. to someone who de-evangelizes them every chance I can get. And
that's not saying any other credit card companies/banks are any better - just
that I spent decades being screwed by the credit card system as a merchant, to
only get screwed as a consumer on the other side when supposedly they were "on
my side".

~~~
Gibbon1
> Amex

25 years ago my companies Amex card inexplicably hit it's 25k credit limit.
Their response when asked why; fuck off and wait for your monthly bill.

------
fbelzile
I'm right in the middle of looking to jump ship from Stripe and PayPal. Stripe
is increasing their conversion fees to 2% for grandfathered accounts on June
1st. They also have a 0.6% international card fee. Since I'm Canadian, this is
going to hurt.

2.9% + 0.6% + 2% + $0.30 = more than a 6-6.5% cut for 90% of my sales.

While looking around for alternatives, Braintree stood out for having
reasonable fees.

Although what really surprised me was that I'm not doing things by the book.
Although I'm adding a sales tax for Canadian customers, I don't do this
internationally. This is okay for the US and most of the EU since I'm well
below their reporting thresholds, but it certainly adds some risk in back-
taxes for other countries.

That's when I stumbled on a platform called FastSpring, which acts as a
merchant of record. They handle all international sales tax for you and have
cool features to show prices in your customers currency, etc... They have a
steep price (around 6-8% I heard) but with Stripe increasing their fees to
match close to this, why not switch and possibly make due-diligence a lot
easier if I decide to sell?

Anyone else in a similar position? How do you handle sales tax globally? Is
there a certain revenue number you should hit before worrying about this?

~~~
tzs
> That's when I stumbled on a platform called FastSpring, which acts as a
> merchant of record. They handle all international sales tax for you and have
> cool features to show prices in your customers currency, etc...

I don't know about international sales tax, but FastSpring does not handle
domestic US sales tax correctly. I noticed this when I ordered an upgrade to
BBEdit, and the tax came to 9.24% instead of the correct 9%. I contacted Bare
Bones Software (makers of BBEdit) about it.

They referred me to FastSpring, who hosts their store. I contacted FastSpring,
and their answer was:

> Thank you for contacting FastSpring. Due to the US Supreme Court ruling in
> South Dakota v. Wayfair, we have had the way we are required to collect
> state taxes changed. Right now, it is taken as an average across the state.

You are _probably_ safe using them, even though they are not collecting sales
tax correctly, because as you note they are the merchant of record.

When I passed FastSpring's answer back to Bare Bones, and suggested that they
talk to their own lawyers to make sure that FastSpring indemnifies them from
any liability for miss-collected tax, because everything I found when
implementing post Wayfair sales tax handling said FastSpring is doing it
wrong, they said that they too had asked FastSpring about this, found it
strange, but that they and their corporate counsel believes that because
FastSpring is the merchant of record that it will be FastSpring that is on the
hook if there is any liability here.

This was last October, but I just checked and FastSpring is still doing it
wrong. This does not fill me with confidence, because this is easy and cheap
to get right for at least half the states (including mine). That's because of
the Streamlined Sales Tax agreement [1]. The states that are a party to that
have agreed that if online merchants collect sales taxes for sales in all of
the member states, the states will cover the costs of using tax services like
TaxCloud, Avalara, and a few others I don't recall to lookup rates and file
all necessary reports and payments.

[1]
[https://www.streamlinedsalestax.org/](https://www.streamlinedsalestax.org/)

~~~
fennecfoxen
An interesting point about sales tax is that it isn't assessed by the state to
collect from the customer, it's assessed against the company. The company can
make up a shortfall from their own revenues (although overcharging the
customer might be problematic).

------
GeneralTspoon
This is unfortunately still very true....

On transactions of $5, we’re paying anything between 8-15%

This obviously doesn’t include the App Store/Play Store, where you could be
paying anything between 30-45% (the standard fee is 30%, but if you’re an
indie seller, then usually you wouldn’t have to charge VAT to EU residents (as
long as you earn under a certain threshold), but Google/Apple will still
charge this to customers (I assume this is because the sale is being made in
their name and obviously they’re VAT registered).

------
Eikon
The worst thing about chargebacks and fraud in general is that there's no
incentive for payment processors / card issuers to fix the issue as they are
benefiting from it by charging the merchant a fee when a chargeback is filled.

There's also a whole business made on the basis of providing anti-fraud
services.

By now, credit card security should absolutely be a solved problem and it's
crazy that we still in 2020, have to input numbers printed on the card to pay
online.

~~~
Silhouette
Card security is broken by design. It can't be fixed without turning it into a
fundamentally different payment mechanic.

What _should_ be happening is that governments should be clamping down on the
abusive practices of the financial services giants such that they can't push
responsibility for anything that goes wrong onto merchants and/or their
customers, thus making huge profits but sharing none of the risk created by
the flawed system they control.

It messes with my mind that in 2020, one of the biggest practical problems we
have with running an online business is the simple act of getting money
reliably and permanently transferred from a legitimate customer to us.

~~~
shadowprofile77
Not to take responsibility away from these financial services companies in how
they screw their customers but it's worth mentioning that governments
themselves are enormously responsible for causing many payment gateway
problems:

Extremely paranoid and grossly onerous regulatory compliance requirements make
innovation in this space difficult at best

KYC and AML rules that are both obscure, highly byzantine and don't even allow
banks to clearly communicate basics to their clients mean being arbitrarily
screwed for really stupid reasons and having little recourse, with financial
services companies further getting an excuse to continue abusing by passing
some of the blame onto government rules.

Oh and as another comment right near here mentions, payment processors simply
cancelling or denying service (sometimes even freezing funds on their own
account) for businesses, organizations and individuals who participate in
activities that a government (especially the U.S government) doesn't like for
arbitrary bullshit "moral" or political reasons. This too is despicable
because it often involves economic punishment for people who are doing nothing
even remotely illegal.

------
thiscatis
I hope that since 2015 this author has learned about interchange and realises
that this is not down to the processors but to the issuers and schemes. This
reads like a blog post about someone complaining that a bar charges more for
beer than for what the brewery sells it to the bar owner.

~~~
xrd
Just to clarify, are you saying there is a way to avoid the final percentage
of hidden charges by knowing about and using a different interchange?

Or, just that the blame lies with the interchange and not the payment gateway?

I'm curious if you are suggesting smart people can avoid those extra fees
somehow?

Do you have a link which summarizes this difference?

~~~
tzs
I believe he means that most of those things come from the credit card
networks or the issuing banks.

Many of these charges can vary quite a bit from transaction to transaction. My
understanding is that really high volume merchants (e.g., Apple or Amazon) can
get processing that just passes through all of those things to them. Each
individual transaction might involve scores of very small fees.

At the other end of thing, you have processors that work like the way
Braintree originally worked. They would look at all those little fees in
aggregate across all the transactions they were processing, and sorted the
transactions into two bins based on total cost for the transaction.

They then charged the merchant a fixed rate for each transaction depending on
which bin it fell into. From the merchants point of view, then, if you did 100
transactions each would incur fees of either X% or Y%, and the percentage that
got charged X% would be about the same every month.

There are processors who are kind of in-between. The have an X% that rolls up
most of the numerous underlying fees, but do expose you do some of those fees.
Here some examples I've seen on a bill from such a processor.

For Discover cards, there was an "authorization request fee" of $0.0025, a
"data transmission fee" also $0.0025, a "data usage fee" of $0.0185, an AVS
fee of $0.02, an "authorization fee" of $0.20, an "assessment/sponsorship"
charge of 0.12%, and an everything else of 2.48%.

MasterCard had fees ofr NABU, AVS, and authorization of $0.0195, $0.02, and
$0.20. Their percentage fees were for acquirer license, digtal enablement,
assessment/sponsorship, cross border, global acquirer support, and the
everything else bucket. These were 0.0055%, 0.01%, 0.12%, 0.6%, 0.85%, and
2.33%.

VISA had fees for variable debit, variable credit, AVS, transaction integrity,
and authorization, of $0.0155, $0.0195, $0.02, $0.10, and $0.20. Percantage
fees were CR product assessment, assessment/sponsorship, international
acquiring, international service, and the everything else bucket. 0.02%,
0.11%, 0.45%, 0.8%, and 2.316%.

------
fennecfoxen
This sounds like a good time to talk GoCardless. (Disclaimer: former employee,
still have unexpired options).

Now, the downside is that this is recurring subscriptions only (e.g. SAAS) and
not purchases. The upside is [https://gocardless.com/en-
us/pricing/](https://gocardless.com/en-us/pricing/)

    
    
      - Domestic pricing: 1% + $0.25 up to $2.50 maximum
    
      - International pricing: 2% + $0.25.
        Currency conversions at the TransferWise rate.
    

UK/Euro pricing is even better, as that's their home territory. (And, you
still can get chargebacks, but that's because some of these banking systems
demand it.)

~~~
aytekin
[https://gocardless.com/en-us/faq/merchants/](https://gocardless.com/en-
us/faq/merchants/)

“Do you take credit or debit cards?

No, GoCardless is an ACH debit company.”

Most people prefer credit cards. How does it work? Do you ask people if they
want to pay by ACH?

Or do you detect debit cards on your credit card form and use this instead of
the credit card processor?

~~~
fennecfoxen
> Most people prefer credit cards.

In the US, perhaps. If you're going after international customers — the topic
which the original article complains about — you'll find that this preference
isn't nearly as strong as you think.

~~~
Nextgrid
In the UK I disagree. I personally always prefer to pay by debit/credit card.
The charges are instant (and will be displayed instantly if you use a modern
bank), you get the ability to make chargebacks (or the UK's law-mandated
protection for credit card customers), etc. Direct Debits on the other hand
take 3 days to set up before the money actually leaves the account.

------
xrd
Is anyone here (or any business you know of) using crypto currency to avoid
these extra fees with international customers? If you use a crypto currency,
there is no way to reverse a transaction when the customer commits fraud.

~~~
shadowprofile77
And this by the way is the real beauty of crypto. It may have a lot of
friction, problems with potential fraud and associations with criminal
activity, but if you want to bill customers with near certainty that no
middleman service provider will arbitrarily be able to freeze your funds or
boot you off their service for whatever obscure reasons they decide to invent
and not share, crypto solves the problem. I just wish it could be streamlined
more for wider use.

~~~
xboxnolifes
It solves one problem, but creates another (the other side). If a truly bad
bad payment was made (say, account hacked) there is no way to reverse it.

Great for the receiving end, but potentially troubling for the sender.

------
raphaelj
Note that you can avoid the currency conversion fees using a Transferwise
account. You'll get bank credentials for USD, EUR, NZ$, AU$ and GBP, and not
pay the fees for these currencies:
[https://transferwise.com/help/19/transferwise-for-
business/2...](https://transferwise.com/help/19/transferwise-for-
business/2977935/does-stripe-work-with-my-transferwise-account)

~~~
GeneralTspoon
PayPal won’t let you add a TransferWise account, for unspecified reasons.

At least that’s the case for UK/EU. There are some reports of people being
able to add one in the early days - but now it’s like a blanket ban.

It could be because the address of the TW bank account is in New York, and
they require a domestic address.

Every time I call up I get a different reason - but the result is always the
same. “TransferWise bank accounts are not supported”.

------
peter_d_sherman
Joel Spolsky: "Where there’s muck, there’s brass":

[https://www.joelonsoftware.com/2007/12/06/where-theres-
muck-...](https://www.joelonsoftware.com/2007/12/06/where-theres-muck-theres-
brass/)

------
superkuh
I'd add a "4\. Payment providers often follow the political and social trends
of their host country, like Paypal/Visa/Mastercard/etc blocking payments to
journalists or other groups when the US State or Justice Dept. doesn't like
it."

Unfortunately the only way to get around this is with distributed systems of
value exchange. And those have lots of friction.

