small payments are still hard

[cellio]

If you use Patreon, a site that connects creators (writers, artists, musicians, cartoonists, anybody) with people who'd like to support their work, then you probably already know that they're about to start charging the patrons (funders) for the credit-card transaction fees. (So you signed up to pay somebody, say, $1/month, and you'll now be charged $1.38.) What you might not have noticed is that they're charging a little more than what the credit-card companies charge them, and they're charging for each individual transaction even though they charge your card once for all the creators you support each month. Uh huh. siderea did some money math on their current practices.

One of the complications in trying to do online financial match-making, whether that's Patreon or PayPal or others, is that actually holding money is messy, legally speaking. So creators who have income and support other creators don't get to pay from their income (which is just bookkeeping); each transaction has to start with a credit card and end with a deposit. Or so it sounds.

Back in 1995 when the web was still young, I went to work for a micro-payment research project at CMU, NetBill. The idea was that consumers used a credit card to load some small amount, like $20, into a NetBill wallet, and merchants could sell digital goods for a nickle or a dime or $1/month or however they wanted to structure things. There was a secure protocol with escrow so nobody got screwed, and nobody was paying transaction fees on ten-cent sales. Since this was a university research project it was never set loose in the wild, so nobody ever had to decide what NetBill's fees would be. What made me think back to that now is that I have no idea how the financial regulatory stuff was supposed to work; we were holding money, after all. What I do know is that the project had Visa and a major bank on-board from the start to make sure it would be legal. Now I wonder how they planned to do that. I assume the rules have changed since then anyway, but I now realize that this was a part of the business model that I had no real insight into.

(I joined the project in part because it sounded interesting and in part because it sounded like something that could launch a start-up and that sounded interesting. Instead, two years after I joined, CyberCash licensed the technology and that was the end of that.)

Making small payments was hard then and it hasn't gotten much easier since. If you want to publish through Amazon Kindle or iTunes you can still make some income that way (and of course the platform takes a large cut), but self-publishing for small amounts is still hard. And supporting people without going through the "make a sellable thing on Amazon or iTunes" is even harder.

Edited to add: Some donation-processing systems give donors the option to pay the transaction fees. For example, Jewcer, the site we used to raise funds for "Days of Awe - Mi Yodeya" a couple years ago, was like that, and most donors tacked on the fees. My congregation asks members to kick in the fees when we make credit-card payments and, again, it's optional. Sometimes I do, sometimes I don't -- depends on what the payment is for. But the key is that it's optional. If Patreon had offered patrons the choice instead of imposing the change, this might have gone over better -- but they couldn't do that, because they're using this to overcharge for those fees so people who know that won't go along with it.

Comments

[shewhomust]

durham_rambler and I have been managing websites for small businesses and individuals since - oh, I don't know, let's say for twenty years. Setting up online payment systems for clients has got easier and easier over that period, and really I thought this was a problem that was pretty much solved.

That said, I've always been put off Patreon because I didn't know what it was going to cost me in currency conversion: my bank charges a per payment fee on non-sterling transactions, which makes those small regular payments a whole lot less inviting. And now Patreon are double-loading that per-transaction fee...

Though there are two separate things going on herr, aren't there, the technical issue and Patreon's business model...

Sorry, I'm rambling - just thinking aloud!

[cellio]

Ouch, currency-conversion fees on top of transaction fees sounds frustrating.

If their goal was really to enable easy patronage of creators, they'd allow patrons to specify a total in their currency of choice, with the conversion fees and transaction fees getting taken out of that. Yes it's less predictable for the creators, but patrons who find they're being hit with extra fees tend to drift away or not take on any *more* creators, so that's not good for creators in the long term.