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.
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.
This is a common misconception. A market is only "free" to the degree that it is perfect.
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.
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.
Customers of payment processors have plenty of choice: a business, such as Amazon, can choose whomever it wishes. (Of course customers of Amazon don't have visibility of processor, neither to they choose which services Amazon uses for cardboard recycling nor internet connectivity)
What are you saying? That choosing among a bunch of services that offer basically the same system at the same rate is empowering to customers??
This sounds like the same old useless argument that some surface-level choice automatically means everything is justified. Choice in itself is neutral. It's not a great thing just for its own sake. It's about what the choices actually are.
2. There is no single rate, especially once different fee structures are accounted for: https://www.sba.gov/blogs/best-credit-card-processing-small-...
3. Having dozens of companies to choose between ranging from simple-yet-expensive to complicated-but-potentially-cheaper seems like the ideal situation to be in. This seems like a functional market to me.
It's 10 dense pages of tables, but it essentially sets a lower bound on the pricing you can get from one of the companies discussed in the article. Everyone would love to see the card networks lower (and simplify) their fees, but that's not what's being railed against in the article.
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.
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?
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)
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.
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).
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.
I could rant about how bad the 3-D Secure idea is, but that's another discussion entirely.
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...
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?
What about event tickets? Even 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.)
I'd hazard a guess that after a few weeks of doing that, the overhead of card processing looks pretty good.