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Amazon forces Unglue.it to Suspend Crowdfunding for Creative Commons eBooks (unglue.it)
107 points by PanMan on Aug 9, 2012 | hide | past | favorite | 71 comments

Providing payment services to structural crowdfunding efforts is a legal grey area when it comes to financial regulations.

Amazon is not the first to suspend taking on such accounts until they have better grip on the regulatory implications.

I never understood how the semantics of a crowdfunding payment are any different to when your credit card is taken on file at a hotel for room charge bills.

You hand over your credit card upfront in anticipation of a possible payment in the future.

I think the real problem here is classifying crowd funding as a product purchase or an investment.

Why do they allow it for kickstarter (as stated in the article)?

Is it possible the reason is because kickstarter is not interfering with their primary business?

They've given us the impression that they're not onboarding new crowdfunding companies, but KS is not new. I haven't heard any comment from Amazon about Kickstarter specifically and I'm not going to speculate.

Why is it a grey area? Which regulations?

Seems like a pretty straightforward transaction to me.

At least for Kickstarter, a lot of people seem to think of their payments as part of a transaction ... while they aren't. My understanding is that there are a number of Kickstarters which never produced the promised rewards / end output, and that they have no legal obligation to do so.

Money laundering is the first giant red flag that should come to mind.

At first glance, I suppose there would be that potential. I think unglue.it has chosen their business model very wisely. By starting with already-published books, they make money laundering rather difficult to carry out and easy to detect -- to launder money through their service, one would first have to publish a book, which would probably have to sell a significant number of copies for unglue.it to even consider it.

Any brick-and-mortar shop that accepts cash and charges a lot for labor can be used for money-laundering, but that doesn't make it illegal.

An online business is actually less useful for laundering than the brick-and-mortar shop, since you don't have cash payments.

Brick-and-mortar shops don't have botnets.

From the desk of a WePay API employee: 1. We have a 24 hour approval process and we support rewards based crowdfunding companies; equity is wait and see

2. Numerous companies already use us so our api is battle tested and offers all standard features (all or nothing, real time charges, split payments...etc)

3. Smooth and quick onboarding process for fundraisers using an OAuth 2.0 flow. No disjointed flow or long application process for your fundraisers. They can accept payment directly in their WePay account.

4. No redirect on checkout. Pick from an iframe or tokenization. White label experience for your donors.

5. Our api was built for marketplace/platforms.

So you're telling me that Amazon (who makes a pretty good living selling books) shut off payment processing for UnglueIt (who seems to be working to give away books for free). Who would have seen that coming?

With all the payment services available, why go with the one that is run by the company that your "business model" threatens most?

Edit: ok... not knowing exactly how delayed payments work for pledge style funding, I don't know which payment services can handle that. As far as other options, there are many. I just don't know if any others will handle the delayed payment part. If the options truly are only PayPal and Amazon then I see a huge hole that needs to be filled.

I doubt it's due to the Creative Commons nature. Amazon allow publishers to sell non-DRMed and creative commons books on the Kindle Store, and have done for years.

> Amazon... sell... Kindle Store

UnglueIt could cut Amazon out of that entirely. Rights holders would get the money directly and Amazon would get jack. May be it isn't about that but they would never admit that anyway so who knows.

@rmc Interesting, I have been doing research on Kindle publication, and most information online suggests that they sell only kindle file format, which is DRMed. Is there a way for publishers to sell and distribute PDFs and ePubs via Amazon?

No, you have to sell .mobi files. However .mobi files don't have to be DRMed. You can have non-DRMed .mobi files. When you sign up to the KDP (Kindle Direct Publishing), and are setting up a book to be published, there's a checkbox "Enable DRM". just don't check that.

Lots of self published authors use creative commons work as a cover art, so it even can be creative commons licenced.

Many books are sold on the Kindle Shop without DRM. Some large publishers (e.g. science fiction publisher Tor) is selling books on the Kindle Shop without DRM.

What are the alternatives? (Don't say PayPal -- they seem to have a habit of locking out these types of accounts too.)

(I work for Gluejar on unglue.it) We've struggled with the issue of finding the right payment processor. We went originally with PayPal, but 7 months after we submitted our application, we still don't have a decision (see http://blog.unglue.it/2012/05/03/unglue-it-payment-options-a...). Amazon FPS was easy to get started with, and we got what seemed to be approval very quickly. So it was a bit surprising to then get shut down by Amazon after running for a while and demonstrating unglue.it works in practice.

We'd love to hear of alternative payment systems. I'm looking at using subscriptions in https://www.braintreepayments.com/docs/python/subscriptions/ to simulate conditional payments. http://www.quora.com/Online-and-Mobile-Payments/What-payment... leads to https://www.wepay.com/ and https://www.balancedpayments.com/ I'd love to hear of people's experiences with these payment systems and any others we should look at for unglue.it

Can you not get a traditional merchant account provider to approve your business? If you accept credit cards yourself instead of through a 3rd party, just about every payment gateway supports storing customers' info to charge at a later time. You can also use something like SpreedlyCore to store the payment info and have the ability to switch to different payment gateways without losing the info.

I think you're referring to an Authorization, which is valid only for a limited time. To store enough details to re-bill a non-pre-auth transaction in the future will get you into PCI DSS Level D compliance, which is not cheap - to say the least. Full compliance with the PCI DSS with stored credit card data, including PAN and CVC generally requires a number of products/services from 3rd party vendors and a dedicated team to manage compliance.

Then, you have the issue as to whether or not the card has the amount available in the future when you intend to charge it...

No, you simply send the card details to the payment gateway which vaults them. You get back a token to reference to make the actual charges in the future. You don't have to do an authorization up front. Virtually every payment gateway has such a feature. There's no need to implement storage on your own and take on the compliance burdens.

If you use SpreedlyCore, for example, you point your signup/billing form to their server, which stores the card data then redirects back to your site, so the user never sees anything but your site yet the payment data never hits your server. If you use Stripe, for example, the form submission gets intercepted by JavaScript that sends it to Stripe instead of your server, then returns a token in a callback. If you use services like these, there's virtually no compliance burden at all.

> Then, you have the issue as to whether or not the card has the amount available in the future when you intend to charge it...

You'd have that issue whether you used a 3rd party processor or your own merchant account. Amazon Payments wouldn't have given them money when the customers' cards had no funds either.

BTW: There is no PCI-DSS or PA-DSS level that allows storing of verification codes, for either businesses or payment software companies. The whole point of that code is that it's never stored.

"just about every payment gateway supports storing customers' info to charge at a later time."

"No, you simply send the card details to the payment gateway which vaults them. You get back a token to reference to make the actual charges in the future. You don't have to do an authorization up front. Virtually every payment gateway has such a feature. There's no need to implement storage on your own and take on the compliance burdens."

Neither Authorize.net nor MES do. (Two of the largest in the US, that I've been using for the past few years.) I only know of a few specialized players that offer such functionality.

Huh? Both of them do. I've been using Authnet's vault for almost 8 years. I've also integrated with 8 other gateways that offer payment info vaulting. It's a standard feature for any competitive gateway at this point.



I'm surprised you've been using these gateways for years and didn't know about these features. CIM is prominently advertised on the first page you see every time you log in to the gateway.

Dang, color me educated =)

I haven't had either of those features enabled in my UI, but that wouldn't surprise me as I've often had to ask them to re-enable basic features (like backoffice w/ MES) when they get accidentally turned off. I'm presuming these features need to be negotiated as part of the deal, and as I haven't needed them, they were never brought up.

I guess the issue is that you have to store the CC number?

With Braintree you could put customer CC numbers in their vault and then manually run the transaction later, but it'd cost you a flat fee plus a penny or two per/card/month. (They do support running validations without completing a transaction.) It doesn't seem like the end of the world, though. And the architecture isn't super complicated. I assume you already had to handle telling Amazon whether to go through with the charge or not after the time period? Maybe Amazon also was keeping track of the pledge amounts for you?

(Contrib Id or Card Id, Pledge Amount, Campaign Id) doesn't seem like that crazy of a thing to store on your own system.

When we were initially investigating the space Amazon and PayPal looked to be the only payment processors who supported pledges (as opposed to instantaneous transfers). PayPal actually had some advantages, but they were outweighed by the disadvantage that they have never actually processed our paperwork: http://blog.unglue.it/2012/05/03/unglue-it-payment-options-a...

If there are other processors that support pledges, we aren't aware of them (though we welcome suggestions!).

We're working on an alternative funding model that lets us deal with this, but that's a question of business logic as well as software. Mind you, we have a fair amount of both in place already, but there are a lot of moving pieces. We'll keep people posted via our blog, newsletter, Twitter, & Facebook page.

You could ask WePay. I don't know that they have pledges now, but maybe they could be persuaded to add them.

What you can do quite easily with WePay is to send bills by email, each including a link to the payment page with the amount filled in. This makes it pretty simple for people to pay at that point. But it isn't, admittedly, automatic, and some people could ignore the bill. I don't know how big a problem this would be in practice.

Most of the problems people face with PayPal are because they ran afoul of fraud concerns. In many cases (though not all), these issues could have been avoided if PayPal had been alerted before big changes happened at the account.

ok... I can understand why you went with Amazon over PayPal in that situation. But are PayPal and Amazon really the only ones that will handle this sort of payment processing?

Why not use Stripe?

While TeddyPass is not a crowdfunding app, it is a recurring billing app and Stripe works well for it.

So why not, for every pledge, obtain a Stripe token with the project funding date as the one and only rebill date? If the project does not fund then you cancel the "subscription".

Again, we're not in the crowdfunding business but that's how I would do it if I were in your position.

Shhhh... you're not supposed to tell anyone...

Anyone have any guess why Amazon pulled the plug? There must be a reason beyond "Amazon has decided against “boarding fresh crowdfunding accounts at this time”" - just pulling the plug on an entire category of products willy-nilly is a terrible image for a cloud service provider to project.

I was told that crowdfunding presents regulatory and contractual challenges that Amazon Payments is trying to deal with. They don't want new crowdfunding clients at this time.

Something to do with the regulations for credit card payments? IIRC you can't 'pre-pay' for goods on a credit card: the merchant agreement says that you can only be charged when you actually ship the goods.

This makes crowdfunding projects like this a little tricky, since they doesn't map well to the legal agreements that make up the existing payment systems.

You can charge the customer as long as you give them the ability to cancel for a full refund if you can't ship within the promised timeframe. The FTC enforces this rule, see "Mail or Telephone Order Merchandise Rule"[1].

I think the legal gray area comes from customers believing that they are buying a product from the crowdfunders. This is covered by an advisory by the FTC; to be covered by dry-testing exception, the following conditions need to be met:

* In promoting the merchandise, the merchant can make no suggestion that the merchandise will be shipped or that customers expressing an interest in it will receive it.

* In all promotional materials, the merchant must disclose all material aspects of the promotion, including the fact that the merchandise is only planned and may not be shipped.

* If any part of the promotion is later dropped, the merchant must notify subscribers of the fact within a reasonable time after soliciting their subscriptions.

* If, within a reasonable time after soliciting their subscriptions, the merchant has made no decision to ship the merchandise, it must notify subscribers of this fact and give them the opportunity to cancel and, where payment has been made, make a prompt refund.

* The merchant can make no substitutions of any merchandise for that ordered.

It seems obvious that crowdfunding efforts don't meet these criteria.

[1] http://business.ftc.gov/documents/bus02-business-guide-mail-...

Much more likely SEC/investment regulations.

No. You're thinking of equity crowdfunding. No equity is changing hands here.

The purchase of publication rights is an equity transaction, in that a valuable piece of (intellectual) property is changing hands. And the law as written is murky enough that it's not simple to say that crowdfunding of public benefits wouldn't be covered. Not to say that Amazon couldn't be a bit more transparent about what their concerns are. By running a crowdfunding site under the new rules; is Amazon taking on unacceptable liabilities? Could Amazon be held liable by funders if unglue.it failed to secure rights to a book they had nominated to publish?

Those are serious questions that only a lawyer can answer.

The purchase of publication rights is an equity transaction, in that a valuable piece of (intellectual) property is changing hands.

Uh, no. By that definition, every transaction would be an equity transaction.

Equity specifically refers to an ownership interest in a business.

Likely fraud related. Not that unglue.it is running a scam, but Amazon probably can't be bothered to separate the money laundering operations from the legit crowdfunding operations.

It's pretty easy to surmise that Amazon doesn't want to facilitate crowd-source funding for a group whose purpose is to provide free e-books.

Thus is born another startup idea for someone to tackle:

Wanted: a dedicated backend for crowdfunding that other businesses can leverage for their crowdfunding projects.

The only two competitors are Paypal and Amazon Payments, and they should be easy to beat because they are actively turning away legitimate business.

Actually, it's a bit harder than that... Both of these companies have transaction volumes in a high enough range that they can afford to be their own aggregator and process their own transactions. Any new company would have to work with an ISO/MSP, which places severe restrictions on what kind of transactions they can handle and how, and the fees paid. For example: waiting more than seven days to capture an authorization can double or triple the rate with some banks (SVB's Merchant E-Solutions shows you such warnings in the virtual terminal, for example), and exceeding a certain rate of transactions captured over seven days after the fact can cause a shutdown of your account. (My contract with MES has such a clause, for example.)

In other words: if it were "that easy," there'd already be a lot of competition. But, Visa et. al. aren't real big on letting just anyone be direct inputs to them and the kinds of activities we're talking about here look a lot like fraud to existing ISOs/MSPs.

Or payments is such a massively hard problem that it's not "easy" to beat the incumbants.

Guess you could start be setting up on top of, say, Stripe, and see how long until the regulators come knock on your door.

It’s always very sad to see these Big companies give hard times to startups mostly for the simple reason that they can. They don't generally give a good reason, with a generic overnight internal policy rule they will just shut down a service. It’s even more so when you think that they too were startup. Just hang in there Unglue.it team, implement a new payment process, it’s the hard way to success I guess.

Amazon making it up as they go? I used their payments to support a couple of Kickstarter projects. Maybe Unglueit is seen as competitor to Kickst?

The fact that Amazon payments powers Kickstarter led me to think that Amazon would allow other crowdfunding sites such as unglue.it.

I came to the same conclusion about using Amazon payments for everythingfunded.com (my crowdfunding site). After testing on the sandbox and moving to a production payment account, I got the same letter. "We are currently not on-boarding any new crowd funding/social fundraising sites at this time." So after some comparison I moved to Wepay. They can handle a 'marketplace' or three-party transaction and I liked that stunt with the block of ice.

Perhaps there is a market for a crowdfunding payment processor. Such payment processor could then focus on regulations and legal implications.

Is it at all legal for Amazon to selectively disable it's services for no real reason? I'm surprised that it looks like this.

I really like the Unglue.it model, so I'm upset by this decision, too, but I suspect there aren't any legal grounds for complaining about it. I fully expect that Amazon's contract language gives them plenty of latitude to refuse services at their discretion.

Even if there were some non-discrimination law that touched on this sort of situation, it's not inconceivable that they view Unglue.it as competing in their core market. I can't imagine many cases where a company would be legally obligated to provide services to support a competitor. (Sure, local phone utility companies are in that situation, but that's for solid historical reasons related to government backing of their monopoly on infrastructure.) [I'm obviously not a lawyer or an expert on these things, so corrections are welcome.]

If Visa and other card processors much higher up the value chain can do it (e.g., Wikileaks), Amazon certainly has the same option.

why would it be illegal?

The implication being that they're abusing their market position as a payment service to prevent potential competition against their other business (book sales). Not being able to get to unglue.it here at work I don't know the specifics. However, since Amazon isn't (as far as I know) in anyway a monopoly or majority concern in the payment processing business then this could be abusive, but is likely not illegal.

Seems unlikely.

I agree, I've just heard enough people making arguments about situations like this that I thought I'd share the reasoning they offer, and then followed it up with why it's flawed.

For instance, I have a coworker who keeps insisting that Apple should have been hit with an anti-trust suit like MS since they only allowed the Safari browser on iOS (for a time). He was dead serious (for some reason he truly hates Apple and wants to see the corporation fail, still owns an iPhone though). It was based off a flawed understanding of the laws and the markets the laws apply to. A lot of people seem to jump to the legality of the actions of the group in charge of a particular platform without considering whether that platform is one of a larger marketplace.

The much longer and slightly funnier version is up on my personal blog: http://go-to-hellman.blogspot.com/2012/08/why-im-not-mad-at-...

Wow, so no one in this thread chimed in on the fact that maybe it wasn't Amazon's Payment Services that pulled the plug, but in fact the publishing companies?

Yet another reason to support bitcoin. Bitcoin empowers payments that aren't subject to the whims of corporations (or any central authority for that matter).

How would you do "pledges" in bitcoin? Credit/Debit card pledges work by only extracting the money of the funding goes though. That seems impossible with Bitcoin without either (1) trusting the crowdfunding site to refund you (2) trusting the users to go through with the payment when the date hits (3) Some kind of third-party, trusted, card company-like escrow server

Title is inaccurate. Amazon did not force Unglue.it to suspend crowdfunding; it merely forced Unglue.it to stop using Amazon as the backend for their crowdfunding payment system. Also, the license for the ebooks and the distribution model were irrelevant to Amazon's decision. After all, Amazon sells/gives way plenty of CC'd books.

As other comments have noted, Amazon has decided as a matter of policy not to accept new crowdfunding customers until the legal and regulatory issues (i.e., money laundering, refunds, undelivered goods/failed projects, etc.) are worked out.

You can still use Paypal (takes a long time to get approved) or Stripe (you must set up your own backend). Alternatively, you can go directly to a card processor (but you must then satisfy very stringent and expensive security requirements).

Blocking payments to them, including ones already set up, sure sounds like forcing them to suspend to me.

We submitted our PayPal application in January and it has not been either approved or rejected at this time. So, yes, it does take a long time, but no, we can't use PayPal. Not today, anyway.

Don't forget Google Checkout.

They don't do delayed payments, only immediate purchases. So that doesn't work with a crowdfunding "pledge" model.

Amazon is not a good company. I don't know why more people aren't talking about it.

They treat their 3rd-party sellers like garbage. They make up a large percentage of their yearly income and don't even offer any kind of support beyond automated responses. Amazon also doesn't keep the same standard of service as their sellers.

They have bots that will auto-ban your account with no recourse.

If a customer complains, they get their money back in 99% of the cases (even if it's > 1 year later) without ever having to return the item (I got scammed by many customers this way). Amazon also has no way of banning a customer, so they can keep doing it, leaving you negative feedback, and their bots will auto-ban you (good luck getting it un-banned after this happens). So you end up losing all of the money and the item you sold.

If I buy an ipad and complain, Amazon (If I'm buying from Amazon.com..and not a 3rd party seller) will make me return it before I get a refund.

I was a seller for many years and finally called it quits. They know they can get away with it because they are biggest site on the Internet (besides Ebay).

Ebay has its problems, but at least you are treated with respect as a seller. After moving everything to Ebay, all of my problems went away.

We have been treated respectfully by Amazon's customer service people, FWIW.

> If I buy an ipad and complain, Amazon (If I'm buying from Amazon.com..and not a 3rd party seller) will make me return it before I get a refund.

What's wrong with that?

The implication was that if a third party sells an iPad via Amazon, the customer can complain, get an immediate refund, and the customer is never forced to return the iPad to the seller.

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