

Crowdfunding is too expensive - shawnee_
http://ink.hackeress.com/2014/12/crowdfunding-is-too-expensive-payments.html

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egypturnash
_shrug_ As someone who's done Kickstarters for comic books, it's still a hell
of a lot less expensive than printing a ton of books on spec and getting them
into the bookstore/comic shop distribution system. You'll lose like 50-75% of
your cover price to all the middlemen involved in that.

When you plan your campaign, you look at the cuts taken by your crowdfunding
site and its payment processor, and you work out all your numbers with that
taken into account. I just go with a flat 10% of the take going to Kickstarter
and Amazon. And if you're shipping stuff, build a lot of slack into the budget
for that too. It keeps creeping up.

If 2% of the final number either way matters to you, then good luck finding a
way to take payments without them. I mean, yeah, it'd be nice to live in a
world without payment fees, sure. You'd have to battle the huge amounts of
money banks have available to pour int politics. Have fun tilting at that
windmill, Hackeress.

~~~
delinka
To add to your comment, it's not so much that banks have money to pour into
politics. It's that A) the infrastructure to process the payments has a
tangible cost and B) that fraudulent transactions need some form of insurance.
B) is a large part of the system.

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a_c_s
The overblown rhetoric used makes this piece hard to read.

For example, charging a rate that the market will bear for a product like
payment processing is simply the free market, not some kind of 'evil'
practice.

~~~
munificent
> simply the free market

This is a common misconception. A market is only "free" to the degree that it
is perfect[1].

I hope we'd all agree that payment processing is nowhere near a perfect
market. The barriers to entry are quite high. It takes a huge amount of
lawyers and regulation wrangling to get a new financial startup up and
running. Consumers certainly do not have clear information or free choice
about which payment processor to use. I'm sure there are other things making
this area far from perfect.

I like the idea of the free market, and it seems to work tolerably well for a
lot of things, but I really get frustrated by this idea that it's a magic
bullet. Free markets are pretty great for determining prices for brain-dead
simple physical commodities that are simple to produce. As soon as you start
straying from that, they very quickly become inefficient.

[1]:
[http://en.wikipedia.org/wiki/Perfect_market](http://en.wikipedia.org/wiki/Perfect_market)

~~~
eropple
I upvoted your post, but I wanted to reply because this is so on-point. So
very many people who talk about free markets fail to understand that imperfect
markets and free markets are at odds. The veneration of free markets _sounds_
so very good...and then the people who cheer for them happily go along with
unregulated, imperfect markets which hurt them.

~~~
ChuckMcM
Of course there are market imperfections for other reasons. Back at the turn
of the century when people were railing at Ebay because it "raised the price
of junk incredibly" I defended it as just bringing more buyers and thus making
the market "more free". The result was higher prices.

In that case, buyers _wanted_ their imperfect markets because nobody at the
local garage sale realized this old Lionel electric train was "collectable"
and so would sell it for $10, but on Ebay it was going for $300 and that
caused the garage sale prices to skyrocket.

From the payments market perspective it is one of the reasons I find Dwolla so
interesting as they decided to just take on payments completely. That was a
really interesting move.

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PaulHoule
Given the business model of credit cards, where the banks eat losses due to
fraud, there is some justification for a percentage of the transaction since
the liability involved in a $1000 fraud transaction is much greater than that
of a $10 fraud transaction.

In some other business model that might not be the case, but on that kind of
platform you might have much stronger technical and procedural protections
against fraud so it might be like PayPal where if you do anything that is even
slightly sketchy (i.e. a crowdfunding campaign) you get kicked.

~~~
dangrossman
A bit tangential to your point, but... banks generally don't eat losses due to
common credit card fraud (a stolen/cloned card number being misused). When you
call your bank and say that some charges on your card were unauthorized, and
they give you back that money, it immediately comes out of the bank accounts
of the stores that made the charges. They are paying for the reversals, not
the card issuer. Each of those stores also pays a significant chargeback fee,
which more than covers the cost of that customer support agent that took the
call, and reissuing the physical card if necessary. Plus, much of the
transaction fee goes to paying out rewards to card holders and to the
processing networks that make everything work (e.g. VisaNet), rather than to
the banks' profits. That reflects the fact that the banks generally don't have
significant fraud losses to cover. The cost to banks from reissuing cards
after massive data breaches at major retailers is a relatively new phenomenon
and isn't priced into those fees.

~~~
toomuchtodo
Could crowdfunding sites require ACH transfers instead of credit card network
processing, thereby substantially reducing their processing fees?

~~~
dublinben
Dwolla has been working on a better interface for that, and their transaction
costs are far lower than anything mentioned in this article.

~~~
toomuchtodo
I'm aware of Dwolla, but unsure why an additional middleman is required.
Direct ACH transfers cost 15-20 cents/transaction, and Dwolla isn't required
to do that, just a bank that supports you submitting properly formatted text
files.

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notahacker
We're living in a world where anyone, anywhere in the world can raise money
from complete strangers, with essentially no oversight into whether the money
actually is effectively directed towards what they claim it's going to be, and
some financial intermediary takes single digit fees for doing so[1]. Sounds
rather _low_ compared with the cost of sending out emissaries to persuade
people to part with money by hand, or dealing with the rich people and
financial institutions that traditionally sponsor such programmes and their
expectations...

[1]not to mention the crowdfunding platform, which often takes a larger chunk
of fees for providing a pretty interface to the payments infrastructure, some
eyeballs and some t&cs but apparently isn't subject to the same criticism?

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tomasien
This isn't about crowd funding at all its about payment processing. Makes the
title pretty misleading. As somebody who spends virtually all my time running
a company combatting online payment fees I love anything that seeks to shed
light on the horrific online payment processing fees but this title seems
completely mismatched to the content.

~~~
antidaily
Yes it is. Some sites take 5-7% on top of processing fees.

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dictum
Obligatory non-US HNer snark: I wish I my credit card processing rates were
_2.9% + 30¢ expensive_ , not _8.9% expensive._

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al2o3cr
"For the record, MOST online payment processors have been treating debit card
transactions like credit card transactions, and therefore charge the higher
interchange -- even when they have no legal right to do so."

Erm, you are aware that lower interchange fees for debit cards used at point-
of-sale is because users have to type in a PIN on a (nominally) secure
terminal? That reduces fraud risk, so the rate is lower.

Most payment UIs don't prompt for PIN, so they don't get the rate. Tighten
down your tinfoil hat before typing next time.

(full disclosure: I'm a developer at a payment processor)

~~~
InclinedPlane
The fee will be different even for a credit card depending on whether or not
the card is present.

------
stevendaniels
Here's a breakdown of who gets what fees during payment processing:

1\. Credit Card issuer. They get the bulk of the fees because they assume all
cardholder risks. Besides fraud risk, they also care about the riskiness of
the loan to the cardholder.

2\. Gateway / Third Party Processor. The gateway helps a merchant process some
part of the fees(e.g. tokenization, authorizations, settlements, etc.).
Generally, they get a smallest percentage of the transaction. Authorize.net or
Stripe would be examples of these.

3\. Merchant's bank. They basically buy a merchant's credit/debit sales. They
get a percentage of the transaction. If your transaction volume is high
enough, you can probably convince your bank to lower your rate.

4\. Visa/MC. Technically, they don't get anything. However, banks are required
to pay dues in order to offer or process MC or Visa cards.

Some other things to note:

Online sites often use a Gateway directly and don't have a merchant bank. In
those cases, the Gateway is acting as both a gateway and a merchant's bank.

Issuing banks (the bank that gives customers a credit card) charge higher fees
for reward cards so that they can provide customers with rewards. Rewards
cards are annoying for merchants because one can't always tell if a card is a
reward card or a regular credit card. Additionally, fees for different rewards
are different. These fees can be found in the voluminous fine print in your
credit card agreements.

------
mike_hearn
For the last eight months I have been working on an app called Lighthouse.
It's nearly ready for public (beta) release, probably in the next couple of
weeks.

Lighthouse is an all-or-nothing crowdfunding app that uses the smart contracts
feature of the Bitcoin protocol. You do not need to deposit money with a third
party site. Anyone can create a project, or pledge money to someone elses
project and revoke that pledge before the project is claimed if they want the
money back.

Unlike Kickstarter, there are no fees and it works in any country, although
you do have to use Bitcoin so you are exposed to volatility and exchange fees
(if your costs are in some other currency which is quite likely).

Over time I expect and hope that volatility will slowly decrease, and there
are lots of ways to optimise currency exchange fees. So whilst this is
somewhat exploratory today, I hope it can grow into a real competitor over the
long run (5-10 years).

[http://blog.vinumeris.com/2014/09/12/lighthouse-alpha-now-
op...](http://blog.vinumeris.com/2014/09/12/lighthouse-alpha-now-open-source/)

------
corbet
I have no love for the payments industry, but this article overstates things a
bit. I dropped out when it started ranting about charging credit-card-level
fees for debit cards. There is a reason why those cards are run as credit from
an online site - there's no alternative. Have you ever typed a PIN number into
a web site? The whole infrastructure is set up to make it impossible (in
theory) to capture and store the PIN number; it's supposed to be proof that
the card holder was present. That property is not present for arbitrary web
sites, so they have to run the cards as credit.

~~~
sleepyhead
Perhaps in the US. In other parts of the world you can use debit cards online.
Far from as common as it should be though. Fees are naturally much lower for
such transactions.

~~~
rhino369
Do you type in your pin?

~~~
mtmail
In Germany the debit card would be tied to a bank account. In that case you
select a different payment method and just type in your (SEPA) bank account
number.

For VISA debit and credit cards some banks now require online PIN (different
from the card PIN) and then send a transaction code to your mobile which you
type into the web form.

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TimPC
The merchant complaint is legitimate: Many credit cards have variable rates
depending on the type of credit card. Many premium cards have higher
transaction rates and a merchant is forced to accept all cards of that brand
or none. So no, a credit card is not just a credit card and a debit card is
not just a debit card. That simplification can happen at the 2.9% + $0.30
level, but many of the discounted rates get much more complicated with tiers
for various cards -> You are extremely unlikely to get a 1% rate at high
volume on a 1.25% cashback card for example.

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jakobegger
I think the title is a bit misleading. The article only talks about payment
processing fees. The situation for crowdfunding is even worse. Crowdfunding
platforms like kickstarter take an _additional_ 5% fee...

But of course, there is a way around some of the fees charged by paypal or
stripe. You can open your own merchant account and handle card payments
yourself; then you might get lower per-transaction fees. But then you need to
do a lot of bureaucratic nonsense that will probably end up costing you
more...

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Avalaxy
I hope we will see more crowdfunding websites adopt Bitcoin. It allows
projects to get a lot more money because basically all of the money could go
to them.

~~~
Marazan
Apart from, you know, the Bitcoin transaction fees. Plus the fees to convert
money into Bitcoin.

~~~
illumen
Plus fraud costs.

~~~
yebyen
What fraud costs? Bitcoin transactions are (basically) irreversible.

You either received them or you didn't, and if your policy is to allow refunds
to your customers (when they report a fraud or for any other reason) then all
you have to do is send it back. So, what fraud costs?

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cnst
Crowdfunding is by far not the worst offender in all of these fees.

What about event tickets? Even
[http://www.dnalounge.com/](http://www.dnalounge.com/) charges outrageous
"service" fees when buying tickets online. For NYE, the ticket price is 50$,
service fee is another 10$ -- that's some 20% commission! (And not at all
unique to NYE, either.)

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HeyLaughingBoy
If card processing fees bother her so much, then why doesn't she take
checks/cheques?

I'd hazard a guess that after a few weeks of doing that, the overhead of card
processing looks pretty good.

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Svip
I wonder if the typo in the HN submission (crow instead of crowd) was
intentional.

~~~
dang
Thanks, we missed that one.

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BenjaminN
Is that guy saying Paypal is crowdfunding? WTF.

