Actually... since these guys are YC - I offer my .02Cents.
There are a number of us in this exact situation and it is a GIANT pain point. This market is basically untapped... if you can/want to tackle non-US payment processing, you will make a killing.
I do consulting work for a friend who has a surprisingly common problem:
He needs to do card processing but only certain times out of the year. He goes to conventions and sells merchandise, etc and wants to be able to take credit cards but the monthly & inactivity fees would wipe him out.
So far all I've seen that could fix this potentially is Square, but they have yet to ship out their swiping widgets to use to try it out.
If someone can find a way to make it affordable to process cards "When you need it" it might be huge.
Pretty strict, normally all merchant account agreements mention that you can't process cards for anyone else or any other business/purpose/website other than the one listed. They like to keep a tight eye on that.
You can of course deal directly with credit card companies like Visa and Mastercard - they have well documented APIs for interfacing with them directly.
Back in the late 90s, RedHat bought a small company in Pittsburgh which made a rather awesome product called CCVS (http://en.wikipedia.org/wiki/CCVS) which allowed you to talk directly to the credit card companies, circumventing the merchant accounts.
My employer started using CCVS to provide direct credit card services at the time, and I wrote a PHP module which shipped for a few years as part of PHP core for using it.
Sadly, RedHat discontinued the product ; I'm not sure if anyone else has stepped up to do something similar but it was incredibly easy to use, powerful and got around the absurd restrictions most merchant accounts provide.
I'm assuming Square is talking directly to the CC clearing houses, which is how they keep their costs reasonable.
You are right on the money (pun intended). Europe and Asia are two huge markets with no fast and easy solution to payment processing. There's about a handful of providers who are 'so-so'.
We ended up going with Paylane (merchant account setup took about a month - which is insane). Worldpay was another option but they required people who wanted to pay for our service to have an account on theirs (seriously).
How are they doing things differently from a merchant account perspective?
We just finished setting up a merchant account for one of our products and that process is a huge productivity bottleneck. There are a number of solutions out there today for startups who want to process payments (chargify comes to mind) but they all pretty much have the same problem - having to deal with a merchant account setup. If that takes weeks, the setup takes weeks too, even if the new gateway needs only a few minutes to get you started on their end.
Specifically, there's almost nobody out there that can handle payments to non-US citizens. Give me something exactly like Amazon FPS, but that allows sending money to somebody in Peru, and I'll pay you for it.
I just sent them an e-mail. I'm hoping this is a payment gateway :D Have a call with Braintree, but they require monthly minimums and a setup fee. If there was a scalable solution as follows, I'd jump onboard immediately:
-Create an account (Free)
-Start accepting payments at a slightly higher percent (3.5%?)
-Percentage goes down as volume increases
End the negotiation, setup fees, etc that are stuck in this archaic business please :(
The big turn off for me with Braintree was the ridiculous application requirements. You could imigrate into the US five times and provide less documentation.
I know why they ask for that info (to cover their asses), but it was enough for me to avoid them.
A really simple (and fast!) application process could be a very big selling point. People are impulsive, and when evaluating processors I'd probably go for the easiest/fastest all other things being roughly equal.
For application requirements, we (Braintree) work with Visa, MasterCard and the sponsoring banks to make sure that all our merchants are in compliance. There are other payment providers that will turn a blind eye to these requirements in addition to postponing proper due diligence and underwriting until it's a problem for a merchant. We regularly have merchants approach us that are in some sort of bind (e.g. violation of card association rules, account was frozen / shut down) because their previous payments provider didn't do things correctly. The payments industry is very complex with a lot of layers and nuances. We try our best to do things right even if it means more upfront effort.
An example: "With increased revenue, the merchant bank became concerned with the increase in liability. So, the bank closed the merchant account." And because they couldn't get their credit card data back, they had to ask all their customers to enter their payment information again. http://blog.recurly.com/2010/05/credit-card-portability/
People are impulsive, but businesses aren't. If you're some guy wanting to start transaction, you might need a smaller solution. For businesses, I think they want a big set up process because it makes the managers feel safer.
I had some small amount of issues getting started with Braintree as well, because of my business model. We had to provide a ton of documentation... but the end result is worth it. It's been great after that initial hump.
I'm with you and see this as the solution to this mess as well. Give me a high % no monthly and lower my risk, once I've gotten some business and scale we can do the monthly thing.
Unfortunately, the credit card companies seem to disagree :( Or at least that's the response my brick and mortar payment gateway has given me in the past for something like this :(
To get a decent rate for our salon, we had to project ridiculous revenue and pray that we came close to it to even get a reasonable rate.
You should checkout squareup.com/features - I don't work for them. No monthly fees. 2.75% + $.15 if card is present. Though I think they are in beta and people in the forums were complaining about not getting the hardware last I looked about a week ago. It's for brick and mortar operations.
Feel free to shoot me an intro e-mail. I visited your site and we would definitely try out something at our salon just to see how it goes :) Probably more like a pilot program but who knows! bradley@getmochi.com
100% agree, I have spoken with Braintree and they seem solid. They were not interested in removing min. monthly fees for startups until we are out of beta and actively selling...
I don't understand why I need anything more than Paypal? Everybody else seems to just charge more and I don't see what you get for that. Isn't credit card processing online a commodity and using the least expensive solution the way to go?
I'm gradually leaning toward your way of thinking.
For a long time, I had the perception, which, I believe, was the correct one, that PayPal == Amateur in the minds of your potential customers.
I believe that this is no longer the case. Well, it is the case, but it no longer matters. I still think "small time", when I see a PayPal button, but now I also think "trusted" and "easy refund". These tend to make the "small time" thought less of an issue.
I also think that it's gradually losing it's "small time", "amateur" connotations among savvy web users. For non-savvy web users, which in reality, is the larger population, it never mattered anyway, and I agonized over all of this for nothing.
I went through the same thought process. The way I see it, if you're a big enough name to be reputable, then you should definitely handle payment yourself, but if you're still trying to get traction and a reputation, leveraging PayPay's reasonably trusted record is a good way to go.
For quite awhile both wordpress.com and stumblupon both were using paypal as their payment method for buying credits.
The least expensive solution is not always the best. I formerly used Paypal exclusively, now I lose out on some work because I refuse to use it. They can lock your account at any time for any reason. It's nearly impossible to get support and it doesn't matter. Paypal is easy to game in that a buyer can use a credit card, and initiate a charge-back. Paypal sides with a charge-back 100% of the time that you can't prove shipment which of course is impossible with digital goods. I've had my account locked down for 6 months in the past for attempting to use some of my funds to buy actual physical gold as an investment. No fraud anywhere, but they decided that's money laundering. I am happy to see a new start-up come through and try and change something because Paypal is broken.
Perhaps it's just a question of scale, and maybe I'm trying to solve problems that don't really exist. I'm hesitent to use paypal because when I _DO_ move to something more legit (ala Braintree or Authorize.net), I have to re-bill all of my customers and they have to put in their CC info again. This doesn't seem ideal to me.
Our (Braintree) fees are competitive. We have a higher monthly minimum than some, if that's what you're referencing, but otherwise if a merchant is processing a few thousand dollars a month our fees are right in line. We are different than others in the industry. We engage in a meaningful way with our customers. We educate them on the risks, nuances and best practices. We try to properly assess risk upfront instead of surprising afterwards. We proactively help them lower fees. We assist with PCI Compliance and credit card data security. We don't hold stored credit card data hostage. We don't hide fees and then deny that we hid them in the first place. We answer our phones and respond to email very quickly. Our goal always been for our customers to conclude that we're the best payments provider they've ever worked with and many of our customers maintain that opinion which we're always very pleased to hear.
Braintree does even out on fees once the merchant hits a few thousand dollars a month in transactions. After grueling research, I wanted to use Braintree for a number of reasons, many of which you've pointed out. But the thing I am bootstrapping may take 6-24 months to get to the point where the Braintree minimums aren't putting me in the red. My calculations showed I might have had $3,000 to $5,000 in fees stacked up with Braintree before my volume caught up. A Braintree salesman did try to work with me and agree to reduce _some_ of the fees for the first 3 months, but the numbers still didn't work out Its a startup, I have no idea when Google will decide I'm worthy of being indexed. I have no idea how many experiments I have to run before I hit a sweet spot. So I begrudgingly went with PayPal Standard. Now, I have a few subscribers and I'm going to upgrade to PayPal Pro since that's only $29 a month fee, which is better than most. I have to roll the dice and hope I get the service I need from PayPal if it comes to it.
I can see why Braintree would have no interest in businesses that are destined to maintain smallness, but they're missing out on getting into bed with some young companies whose payment volume will eventually pop. And leaving the door open for a more nurturing payment portal to grab young companies (and presumably keep them).
So it might be wise to for Braintree to loosen up the fees a bit for promising young companies - an incubator program for payments of sorts. At least for the YC/HN community :)
Though, honestly, looking at their pricing, Braintree ins't crazy expensive even for a company that gets $0 sales out of the gate... $99 initial setup, $35 monthly, $10 for cc storage, $75 as a zero sales "penalty". Setup delay seems to be an issue here as well, but that just seems like Braintree doing its diligence.
Still, for a startup, with potentially 3-6 months of low sales, its nearly $750 wasted. Many of us would allocate the funds somewhere other than "minimum fees" and "low sales penalties"
If we fail then we stop using Braintree, authorize or paypal (then use them again on the next startup). But if we succeed, we will continue to be a customer (and recommend them to our friends on HN) for a long, long time.
Your fees look much lower than last I looked (I also seem to recall I had to contact someone at Braintree to get rates last time I was shopping...I don't think it was prominent on the website as it is now). Anyway, I take it back, Braintree does appear to be competitive with PayPal Payments Pro and others.
At low volume, PayPal Payments Pro is as good as anything I've found, and it is cheaper than almost every other merchant services provider (especially by the time you factor in the gateway fees). But, it's definitely not cheap. I ache every time I see how much of our revenue is going to PayPal, even if it's better than the prior provider we were using. Our prior merchant services provider had cranked up rates gradually from the time we signed up, and always found reasons to charge us the highest tier of pricing (higher risk transactions got the higher rate, and it seemed like 90% of our orders qualified as "high risk" according to their metrics, even though at the time we were only dealing with about one chargeback per month). When we signed up a few years ago it was dramatically cheaper than PayPal, but by the time we switched it was almost a couple of points more expensive.
But PayPal is also not particularly great. The UI is agonizingly slow (I can only imagine how painful it would be to use if we were doing thousands or millions of transactions per month instead of hundreds). Their response time on payment processing is also slow...slow enough to confuse our shop sometimes.
The good things about PayPal are its better fraud management tools (which you have to pay extra for), its pervasive support in shopping carts (though Payments Pro is a little more rare), and its really comprehensive online interface. I used to have to send faxes for everything with the old processor, which was just ridiculous. I can do anything online with PayPal.
I also love that PayPal does everything. I hated never even knowing who to call when we had problems with the old service. There were three web interfaces for three different companies (Authorize.net, merchant services bank, and some sort of reporting service that I never could figure out) that did god knows what, and we were being billed by all of them. All of them had different points of contact and different procedures for dealing with issues (and issues pretty much never got dealt with), and I never, in years of dealing with them, figured out who was responsible for what. PayPal is the gateway, the merchant services provider, and everything else. When I'm confused about something, or need to issue a refund or whatever, I login to one place and all the data is there.
I also haven't been able to figure out how to use recurring payments at PayPal. But, that's probably a failing on my part. I'm kinda dumb sometimes, when accounting and money and such comes up.
But, I definitely don't think PayPal is the last word in payment processing. If there were something better, faster, or cheaper, I'd happily switch (any one of those three things would do it, assuming it's equal on the others).
It's a really hard market to tackle, since so much of it is regulatory compliance (both private and government regulations) and interacting with really old-fashioned industries (banks modernized about 30 years ago, and seemingly decided that was a one-time expense that they never needed to do again).
The issue that you describe where your prior merchant account provider billed you a downgrade rate for 90% of your transactions isn't really because they were "high-risk" (they weren't, you have no downgrades). It's an example of "marking up the downgrades" which is a strategy that unscrupulous merchant account providers use to increase their profit. http://transfs.com/blog/marking-up-downgrades/
What they really mean is that the interchange rate that your transaction qualified for is worse than the rate that they set to be your default or "qualified" rate. http://transfs.com/blog/what-is-interchange-again/
These billing tiers are a problem because there is no standard on what is "qualified" and what is "unqualified", it varies between processors and between customers within the same processor. http://transfs.com/blog/tiered-pricing-for-merchant-accounts...
There is a way to solve those billing tier ambiguities (which never are in the favor of the businessowner) - its called interchange plus pricing. Insist upon it, every processor can do it, for any size business.
Basically interchange is the wholesale rate that visa/mc charge the processor. In an interchange-plus pricing scheme the processor pass those charges on to you and explicitly disclose the markup you are paying above that wholesale rate. It's the best way to ensure no funny business is going on with your rates - http://transfs.com/blog/why-you-should-want-interchange-plus...
Only accept interchange plus or a no-downgrade flat percentage (like Paypal offers) - it will save you money and aggravation.
This is another of the problems with the payments industry. A serious lack of transparency pervades it. I never knew what was going on with our payments and fees and such. They just kept getting higher every couple of months. They hide behind wall-of-text terms of service (pages and pages of it), and ridiculous application processes wherein you don't know what your rates will be until after you jump through all the crazy hoops and send a bunch of faxes back and forth for several weeks.
Obviously, I've got a lot of hostility about the payments industry. Switching to PayPal (which took less than 24 hours to setup, and took just a few minutes of my time for filling out the application) was a breath of fresh air over Authorize.net, where I had to deal with a mentally retarded reseller (I'm not being facetious; retardation is the only explanation for some of the questions she asked and her grasp of the English language, despite being a native speaker) for three weeks to get things working.
We've had a merchant account for several years, the last few on an interchange-plus plan. Last weekend, we sat down and calculated the average interchange-only discount rate, i.e., before the "plus" of the merchant account provider, for the last four months. We found the average interchange rate, including the interchange transaction fees, was about 2.05%.
Given that PayPal only charges 2.2% + $0.30 per transaction for businesses with > $10K in sales, it seems to me that it is increasingly difficult for any merchant services provider to compete with PayPal in the online space, given the high basic interchange rate.
The added benefits of not having to deal with the cost and complexity of PCI compliance and a separate credit card gateway has made us decide to switch to PayPal.
Chargebacks are such a pain in the ass that any number of chargebacks is a lot, in my book. One of the reasons I chose PayPal when we were switching providers a while back was to get better, and finer-grained, anti-fraud capabilities. It's still an issue, but it's manageable now.
Interestingly, adding a really expensive product (about $1000) to our store provided a nice mechanism for catching fraud. Nearly 100% of our fraudulent orders purchase the really expensive product right off the bat, while most of our legitimate purchasers of that product buy a less expensive one first, and then upgrade to the more expensive version later. So, I automatically flag orders for the most expensive product, and interact with the customer personally before letting the order go through. This is also a pain in the ass, but it does reduce the number of chargebacks.
We were thinking of doing a similar approach, basically verifying people's ID upon first purchase. However, we thought it might significantly decrease the number of customers. I suppose there's no free lunch here... verification will sacrifice volume.
In some states in the US, it's illegal to ask for id for a credit card purchase. In all states, the credit card companies don't like it. Here's a good set of google answers about the issue:
This is all to say, credit card processing is incredibly complicated. Here's another quote, directly from the federal government [1]:
"MasterCard wants to hear about merchants who break their rules. Send the name and address and an account of what happened to MasterCard International, c/o Radio City Station, P. O. Box 1288, New York, NY 10101. The merchant's bank will get a stiff letter, ordering it to investigate and bring the offending store into line - or pay a $2,000 fine.
Visa enforces the same rules as MasterCard. "When we hear about a violation, we ask the bank that signed the merchant to get together with the merchant and see that the practice is stopped," Visa representative states. To report a merchant, send a letter to the bank that issued your Visa card.
American Express also prohibits merchants from asking for IDs. "All a merchant is supposed to do is take an imprint, make sure the signature matches and swipe the card through the terminal, to get authorization."
We haven't launched yet, but we're a digital goods marketplace and my intuition is that our niche audience may have a high chargeback rate. We're looking for any additional protection so we don't stumble out of the gate.
Thanks. I had never heard of Clickbank before now. However, a quick look at their terms is a non-starter. They want 8.5% + $1 + 50% to the affiliate. On top of what we would charge, our sellers would be getting something like 30% of their sales.
It's also not exactly the type of product we're selling. There are some subtle (but important) differences between Clickbank's target product and our product.
Just to put my two cents out there in case someone knows someone who does this. I consider what Apple does to be exactly what I want on the web. I just fork over 30% (no minimums) and literally never think about it. I get that I need to integrate for the web, but I don't want much more than that.
I'm not trying to build a big business, just some side stuff where any time spent on payment processing is a huge impediment. I don't want a merchant account. Subscriptions would be nice.
I'm a little confused what you're asking for. Do you want them to run the web store as well, so you really don't have to think (such as yahoo does?), or do you just want somebody to process transactions for you, (such as PayPal, Amazon Payments, and Google Checkout do?)
For somebody willing to drop 30% (or even 3%-5%) on a payment processing solution, there are lots of them.
But, I bet we could convince Steve Jobs to create "Apple Payments", and charge you 30%, and I bet there are a lot of people who would do it.
Basically no minimums and no merchant account. My account is with whoever is providing the service and that's it. Apple does a great job of making is seamless -- so I would want the equivalent of that for the web. I feel like Google Checkout + app engine could get there, but they don't do subscriptions.
I have the same questions. The most frustrating part of shopping around for these types of services is trying to figure out whats included and what isn't. Perhaps its just the nature of this market, but the fact that I have to purchase and manage additional services just to someone's special 'payment subscription service' is a pain.
This is a shameless plug, but at http://transfs.com (transparent financial services) we have a free webservice that helps you compare various payments options.
It's strictly private and requires no commitment of any kind. Basically it's like Kayak for payments.
However, we don't do international yet, so probably can't help the original poster. International payments are really hard, there are many fewer options in most foreign countries.
Even in Canada and UK the number of merchant account providers is many fewer than in the US, giving the customer less choice and enabling the providers to maintain more of their archaic practices.
I'm sorry but what does that mean "developer focused payment processing"? From the SaaS provider perspective - less time I spend on integration with such thing is better.
"Developer focused payment processing" suggests rich API with high learning curve. Not really compelling value prop...
BTW - don't get me wrong. I'm not suggesting they have a bad product. I'm really curious how they can make payment processing developer focused!
Braintree is a good example of developer-oriented payment processing. They provide very good APIs and client libraries, and they respond very quickly to developer suggestions and feature requests.
I don't know what this startup is, but one option for startups to get started with payments is http://chargify.com , their api is pretty solid and they are good with support and are focused recurring payment processing. Only issue is you still need a payment gateway such as Braintree, Authorize.NET, etc.
chargify itself, not too long. Especially if you do everything their way(we are kind of doing some weird things with it currently). If you don't want to write your own, there are a bunch of API libraries available for a bunch of languages as well as hosted paged for registration and payments if you need them. As everyone else has said, the long parts have been the up front setup time of the merchant account and payment gateway.
All in all though, I'm pretty impressed with Chargifys offering.
Its just that much of our billing system was done before we ended up switching to chargify, so some of integration pieces are kind of weird(probably not how we initially would have designed them) and we are looking at doing some things with quantity based pricing, where we do something similar to linode and charge you a prorated amount up front for a item then charge you the full amount during the next period. As well as offering prorated credits for removal of a product.
This is not supported by Chargify yet, they only charge for items at the beginning of a period. If we were using a simple recurring subscription for this and not quantify based model this wouldn't be an issue, because they do offer prorated upgrades and downgrades for recurring subscriptions.
Nothing overly complicated here, just have to hack around some of the current limitations of the platform.
WE integrated with Amazon FPS. But customers didn't have AMZN accounts etc, so we started using the POMC method. "Plain Old Mail the Check". No more cuts. no more hassles.
From a startup SaaS perspective, is it really that detrimental to have your customers sent to another site (Google Checkout or Amazon FPS, for example) and then brought back after the conclusion of the sale? Do enough customers walk away if the payment system is 3rd party visible as opposed to 3rd party behind the scenes? For any small startup trying to minimize costs, it seems like eliminating those monthly minimums and setup costs might outweigh the benefits of a more seamless customer experience. Can those with firsthand experience chime in?
What I have a hard time finding is a service that offers low fees for small purchases, or micropayments.
I sell a small software application that goes for $7. After trying a few places I've settled on PayPal micropayments which charges 5c + 5%, which comes out to about 7.5% for me.
I'd be interested in anyone that could give good micropayment rates.
Clearly there is a pain here, so it would be awesome to see someone solve it.
I'm really curious how they plan to do it though - since it seems like you'd essentially have to start your own bank to streamline the process. Too much regulation for that. What work around did they find??
In the next few months, I'm going to launch a site with micropayments for particular bits of content. I'm currently researching different options and defaulting to FPS for obvious reasons, I wonder how this new service compares?
Awesome! Thank you! Will there be plug-in capabilities for people who use CMS-type systems, such as wordpress? I see an increasing number of smaller e-commerce sites running on that platform lately...
Chargify and Cheddargetter and Recurly are competitors and their products are pretty similar. I cannot speak to their specific benefits and disadvantages.
