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What many people don't realize is that the operational and customer service costs of payments don't scale with payment amount. Customers will cost almost just a

What many people don't realize is that the operational and customer service costs of payments don't scale with payment amount. Customers will cost almost just as frequently dispute, have questions, have problems, ask for help, attempt to defraud etc with a $1 transaction as they will a $100 or $1000 transaction. This is the real killer with micro payment schemes. Customer service costs scale more with number of payments than payment volume. And these real costs are born by Patreon, by the networks and by the banks which is why min txn costs exist. The crypto bros totally miss the point in understanding this too. Source: 25yrs experience building payment networks

onlyrealcuzzo 4y ago
Charge backs should also be less of an issue if the purchase is $1. Same with fraud. The stakes are lower the lower the amount. Who cares? It's not worth disputing. Fire the customer if it crosses a threshold.
- JumpCrisscross 4y ago
  > stakes are lower the lower the amount. Who cares? OP mentioned customer service. Pretty much any American can create 50+ hours of customer support and legal work for no reason at all in payments. Even an irate, clueless customer will waste an hour of your support staffs’ time.
  - mensetmanusman 4y ago
    Just give them their money back and shadow ban them from using your store.
    - pixl97 4y ago
      And then you get the HN post about you banning some rather well known tech figure because when your system created the issue in the first place.
      - mensetmanusman 4y ago
        Stores can ban patrons that aren’t following specific rules :)
- brendanyounger 4y ago
  Having run a B2C business with recurring monthly payments around $15, I assure you that fraud goes UP with lower payment amounts. You preferentially attract the worst possible customers who bank with the lowest common denominator banks and they charge back like crazy. Some choice moments: "Please keep my service on, I only charged back because I needed to make rent this month", "I know that wasn't my card, but that b---- owes me money." And it's hard to fire these customers because they come back with a different card and fake names. They don't care that they're committing fraud; no one will prosecute them for $10 here, $20 there. The real promise of crypto is to provide a system with 0% low level fraud like this.
  - cowtools 4y ago
    Well, in crypto there's still non-zero amounts of fraud if the merchant doesn't deliver their goods or if the sender executes double spend attacks. But theoretical double-spend attacks aside, almost all transactions require some minimal level trust between the merchant and the customer regardless of payment system. In this sense, Cryptocurrency doesn't prevent fraud completely but it does severely limit the extent and direction of fraud.
  - gjvnq 4y ago
    > And it's hard to fire these customers because they come back with a different card and fake names. Perhaps it is time to start asking for government IDs before accessing customer service.
    - UncleEntity 4y ago
      How would that work if you validly didn’t make the charge or were charged incorrectly and were calling to give them a chance to fix things? I once had someone enter my zip code as the payment amount and completely drained my bank account at a time in my life when I somewhat enjoyed eating and if they told me I would have to send them a copy of a government issued ID before they would even talk to me I don’t even know what would have happened. Nothing good I can tell you.
  - omegalulw 4y ago
- devwastaken 4y ago
  Organizations are incapable of properly dealing with "firing the customer" in that manner. You're talking about hundreds of office employees with generic technical knowledge. This ultimately ends up in firing the wrong customers, and when those customers end up being big, your company gets a poor reputation and lack of revenue. Therefore eating the cost is the most profitable outcome.
- maccard 4y ago
  This is a very naive view. Stripe have an excellent page [0] on why this doesn't work. The short summary is that each chargeback will cost you $15 (plus returning the transaction), and if you have more than 100 fraudulent transactions in a month you get put on a monitoring list and if you don't bring the number down your account will be suspended. The stakes are very high for the person accepting a merchant agreement with Visa and MasterCard. [0] https://stripe.com/docs/disputes/monitoring-programs https://stripe.com/docs/disputes/monitoring-programs
- Brystephor 4y ago
  You can get fined and kicked off the payment network if your business has an excessive number of chargebacks. The chargebacks measurement is the number of chargebacks, not the amount of dollars chargedback. These fines can be greater than $100,000 USD. Being kicked off a network such as Visa or MasterCard would be even worse.
rglullis 4y ago
> The crypto bros totally miss the point in understanding this too. I don't know which "crypto bros" you've been talking to, but as someone who is building a self-hosted payment gateway for crypto [0], the benefits from using crypto are two-fold: it eliminates the chance of fraud and it moves the cost of customer support to the merchant. Also, once again I will have to repeat that no one sane will try to completely replace the existing payment systems with crypto. Crypto is meant to be an alternative for the cases where the cost of existing processors make the transaction not viable. [0]: https://hub20.io/ https://hub20.io/
- MattRix 4y ago
  Doesn’t using crypto lead to more fraud, not less?
  - rglullis 4y ago
    I am talking from the perspective of the merchant. Imagine bogus chargebacks because of buyer's remorse or purchases done with stolen credit cards. None of this happens for a merchant that accepts crypto.
    - 1270018080 4y ago
      So if you just pretend there's no fraud, then there's no fraud?
      - rglullis 4y ago
        No, what I am saying is that if you reduce the methods for fraud, the cost of dealing with it are lower.
        1270018080 4y ago
        Crypto doesn't reduce the methods for fraud.
cowtools 4y ago
If it's a micro-payment system then fraud doesn't really matter because the risk per transaction is low. In an ideal crypto payment system there's no double spending and no charge-backs. The only cost in cryptocurrency is per-transaction fees due to limited network bandwidth (which can somewhat be mitigated with multisig setups).
deleted 4y ago
[deleted]
busterarm 4y ago
Yeah, all of the other payment processors have settled on somewhere between 2-4% fees to handle fraud. See PayPal. So either Patreon has an order of magnitude more fraud going on or is massively wasteful in its business operations. Probably both.
- thathndude 4y ago
  Yes, but that 2-4% works when 90% of the range of charges is 10-1000. But with Patreon the nature of its transactions are that 95% are $30 or less.
- RHSeeger 4y ago
  Or, to look at it another way... All the other payment processors have settled on needing to earn and average $0.50 / transaction in order to make a profit. Then they calculated their average transaction and came up with a 3% (or 2 or 4) being required to make that amount. Then Patreon came up with the same $0.50 / transaction number. However, since their average transaction amount is so much lower, they have to charge a higher number in order to make their target.
- xyzzy123 4y ago
  Would you say the same of app stores? I think there's a reasonable case to view Patreon as a platform, not a pure payment processor. Patreon is much more exposed to competition than the app stores, which are "protected" by the device duopoly.
- wodenokoto 4y ago
  Having never paid patronage, I don’t really know, but doesn’t patreon host a lot of content? Or where are all the paid-only content hosted?
  - pindab0ter 4y ago
    In my limited experience the Patron only content that Patreon hosts is in the form of blog posts. The actual content is often an unlisted YouTube video or something.
rag-hav 4y ago
> The crypto bros totally miss the point in understanding this too. I am not sure what you mean by this, but bitcoin transactions do have fees which are determined in an open market fashion.
deanCommie 4y ago
Patreon is also more than a payment processor. OP even calls this out - they like having different membership tiers. They're a content host for exclusive images. (Videos do tend to be offsite as unlisted Youtube videos)
- cowtools 4y ago
  So they also provide a service that imgur, catbox.moe, google drive, and others do for free?
  - finfinfin 4y ago
    Yes. Creators should upload content to Imgur and ask supporters to pay them directly through PayPal. That’s a fantastic alternative to Patreon.
    - deanCommie 4y ago
      https://news.ycombinator.com/item?id=9224 https://news.ycombinator.com/item?id=9224
      - cowtools 4y ago
        I mean, he's right. all these file-sharing services like dropbox merely exist because the general public doesn't know how to use something like bittorrent. Maybe you can grift off of that ignorance for a while, but that doesn't mean it's a sustainable business model.
        onetokeoverthe 4y ago
        deanCommie 4y ago
        I think you're missing the forest for the trees. You can apply a variance of that philosophy onto EVERYTHING. "Automatic transmission merely exists because the general public doesn't know how to use something like manual transmission" "Calculators merely exist because the general public doesn't know how to use something like a slide ruler" Note, these are analogies, I'm not saying Patreon is as innovative or world-significant as either. But it IS optimized for a very specific use case, and it does it incredibly well.
e-clinton 4y ago
The reason to have fees as a percentage vs a flat fee isn’t because costs scale with payment amounts, it’s because it’s a more fair way to levy fees. I can either charge everyone $3/transaction, even if the transaction itself is less than or equal to $3, or I can structure it as a percentage to encourage smaller transactions. If people think Patreon is making a killing with their fee structure, they should build a competitor.
- deleted 4y ago
  [deleted]
- mdavis6890 4y ago
  Still, why is a percentage more fair? What definition of 'fair' are you using? "If people think Patreon is making a killing with their fee structure, they should build a competitor." >> Yes! And honestly this could be applied in so many places where people like to complain, and yet nobody builds a competitor, or they do and it ends up looking like the original. So easy to complain, so hard to do better.
  - e-clinton 4y ago
    If Patreon took 75% commission of small payments, people would be outraged and quit the platform. You’re right that “fair” can mean many things, but a percentage is, in my view, the least objectionable way to do it.
- acchow 4y ago
  How are you defining "more fair"? By having the larger transactions subsidize the smaller transactions, how is that "more fair"?
  - permo-w 4y ago
    fair is the wrong word. it's certainly more practical
- markdown 4y ago
  Fair would be to charge the lower of $X or X%.
tatertots1234 4y ago
> The crypto bros totally miss the point in understanding this too. The crypto folks are pretty cognizant of it, which is why they built an entire technology that isn’t reliant on intermediaries, banks, and payment processors to manage transactions. A crypto Patreon in stablecoin like DAI on an L2 would basically be able to remove most of the high fees creators see in Patreon.
- Jakawao 4y ago
  That doesn’t address the criticism. If I pay for a good or service via crypto and it is not delivered satisfactorily, what is my remedy? Who even decides what “satisfaction” is? Yes, the dispute/chargeback process for cards is cumbersome today, but it is a solution - albeit inefficient. What is the crypto answer? I don’t mean to put you on the spot for this question, but I would love to understand how decentralized solutions might address this issue.
  - meowkit 4y ago
    > If I pay for a good or service via crypto and it is not delivered satisfactorily In this vague hypothetical situation, what a lot of crypto folk would tell you is that you should use a smart contract, and not a regular transaction, to pay. Hypothetically the contract/network will act as an escrow agent, and would only complete the transaction when all input parameters are true AKA all parties are "satisfied". The successful input parameters and their truth sources would be agreed upon before hand. I could argue more specific scenarios around fraud (buyer receives a good/service and pretends it was not satisfactory), but that can go on forever and I would encourage readers to go search for answers to specific edge cases because they are out there.
    - aahortwwy 4y ago
      Sounds like a lot of work. I'd rather pay someone to do it for me.
    - KallDrexx 4y ago
      That only works if all "input parameters" involved in the transaction are verifyably on chain. If I'm buying a physical good with crypto there's no way you can write a smart contract that verifies I did indeed get the good I paid for. Oracles don't count because that's just kicking the can to a different level (how do I dispute the oracle saying something happened that didn't).

onlyrealcuzzo 4y ago

Charge backs should also be less of an issue if the purchase is $1. Same with fraud. The stakes are lower the lower the amount. Who cares? It's not worth disputing. Fire the customer if it crosses a threshold.

JumpCrisscross 4y ago
> stakes are lower the lower the amount. Who cares? OP mentioned customer service. Pretty much any American can create 50+ hours of customer support and legal work for no reason at all in payments. Even an irate, clueless customer will waste an hour of your support staffs’ time.
- mensetmanusman 4y ago
  Just give them their money back and shadow ban them from using your store.
  - pixl97 4y ago
    And then you get the HN post about you banning some rather well known tech figure because when your system created the issue in the first place.
    - mensetmanusman 4y ago
      Stores can ban patrons that aren’t following specific rules :)
brendanyounger 4y ago
Having run a B2C business with recurring monthly payments around $15, I assure you that fraud goes UP with lower payment amounts. You preferentially attract the worst possible customers who bank with the lowest common denominator banks and they charge back like crazy. Some choice moments: "Please keep my service on, I only charged back because I needed to make rent this month", "I know that wasn't my card, but that b---- owes me money." And it's hard to fire these customers because they come back with a different card and fake names. They don't care that they're committing fraud; no one will prosecute them for $10 here, $20 there. The real promise of crypto is to provide a system with 0% low level fraud like this.
- cowtools 4y ago
  Well, in crypto there's still non-zero amounts of fraud if the merchant doesn't deliver their goods or if the sender executes double spend attacks. But theoretical double-spend attacks aside, almost all transactions require some minimal level trust between the merchant and the customer regardless of payment system. In this sense, Cryptocurrency doesn't prevent fraud completely but it does severely limit the extent and direction of fraud.
- gjvnq 4y ago
  > And it's hard to fire these customers because they come back with a different card and fake names. Perhaps it is time to start asking for government IDs before accessing customer service.
  - UncleEntity 4y ago
    How would that work if you validly didn’t make the charge or were charged incorrectly and were calling to give them a chance to fix things? I once had someone enter my zip code as the payment amount and completely drained my bank account at a time in my life when I somewhat enjoyed eating and if they told me I would have to send them a copy of a government issued ID before they would even talk to me I don’t even know what would have happened. Nothing good I can tell you.
- omegalulw 4y ago
devwastaken 4y ago
Organizations are incapable of properly dealing with "firing the customer" in that manner. You're talking about hundreds of office employees with generic technical knowledge. This ultimately ends up in firing the wrong customers, and when those customers end up being big, your company gets a poor reputation and lack of revenue. Therefore eating the cost is the most profitable outcome.
maccard 4y ago
This is a very naive view. Stripe have an excellent page [0] on why this doesn't work. The short summary is that each chargeback will cost you $15 (plus returning the transaction), and if you have more than 100 fraudulent transactions in a month you get put on a monitoring list and if you don't bring the number down your account will be suspended. The stakes are very high for the person accepting a merchant agreement with Visa and MasterCard. [0] https://stripe.com/docs/disputes/monitoring-programs https://stripe.com/docs/disputes/monitoring-programs
Brystephor 4y ago
You can get fined and kicked off the payment network if your business has an excessive number of chargebacks. The chargebacks measurement is the number of chargebacks, not the amount of dollars chargedback. These fines can be greater than $100,000 USD. Being kicked off a network such as Visa or MasterCard would be even worse.

rglullis 4y ago

> The crypto bros totally miss the point in understanding this too. I don't know which "crypto bros" you've been talking to, but as someone who is building a self-hosted payment gateway for crypto [0], the benefits from using crypto are two-fold: it eliminates the chance of fraud and it moves the cost of customer support to the merchant. Also, once again I will have to repeat that no one sane will try to completely replace the existing payment systems with crypto. Crypto is meant to be an alternative for the cases where the cost of existing processors make the transaction not viable. [0]: https://hub20.io/ https://hub20.io/

MattRix 4y ago
Doesn’t using crypto lead to more fraud, not less?
- rglullis 4y ago
  I am talking from the perspective of the merchant. Imagine bogus chargebacks because of buyer's remorse or purchases done with stolen credit cards. None of this happens for a merchant that accepts crypto.
  - 1270018080 4y ago
    So if you just pretend there's no fraud, then there's no fraud?
    - rglullis 4y ago
      No, what I am saying is that if you reduce the methods for fraud, the cost of dealing with it are lower.
      - 1270018080 4y ago
        Crypto doesn't reduce the methods for fraud.

cowtools 4y ago

If it's a micro-payment system then fraud doesn't really matter because the risk per transaction is low. In an ideal crypto payment system there's no double spending and no charge-backs. The only cost in cryptocurrency is per-transaction fees due to limited network bandwidth (which can somewhat be mitigated with multisig setups).

deleted 4y ago

[deleted]

busterarm 4y ago

Yeah, all of the other payment processors have settled on somewhere between 2-4% fees to handle fraud. See PayPal. So either Patreon has an order of magnitude more fraud going on or is massively wasteful in its business operations. Probably both.

thathndude 4y ago
Yes, but that 2-4% works when 90% of the range of charges is 10-1000. But with Patreon the nature of its transactions are that 95% are $30 or less.
RHSeeger 4y ago
Or, to look at it another way... All the other payment processors have settled on needing to earn and average $0.50 / transaction in order to make a profit. Then they calculated their average transaction and came up with a 3% (or 2 or 4) being required to make that amount. Then Patreon came up with the same $0.50 / transaction number. However, since their average transaction amount is so much lower, they have to charge a higher number in order to make their target.
xyzzy123 4y ago
Would you say the same of app stores? I think there's a reasonable case to view Patreon as a platform, not a pure payment processor. Patreon is much more exposed to competition than the app stores, which are "protected" by the device duopoly.
wodenokoto 4y ago
Having never paid patronage, I don’t really know, but doesn’t patreon host a lot of content? Or where are all the paid-only content hosted?
- pindab0ter 4y ago
  In my limited experience the Patron only content that Patreon hosts is in the form of blog posts. The actual content is often an unlisted YouTube video or something.

rag-hav 4y ago

> The crypto bros totally miss the point in understanding this too. I am not sure what you mean by this, but bitcoin transactions do have fees which are determined in an open market fashion.

deanCommie 4y ago

Patreon is also more than a payment processor. OP even calls this out - they like having different membership tiers. They're a content host for exclusive images. (Videos do tend to be offsite as unlisted Youtube videos)

cowtools 4y ago
So they also provide a service that imgur, catbox.moe, google drive, and others do for free?
- finfinfin 4y ago
  Yes. Creators should upload content to Imgur and ask supporters to pay them directly through PayPal. That’s a fantastic alternative to Patreon.
  - deanCommie 4y ago
    https://news.ycombinator.com/item?id=9224 https://news.ycombinator.com/item?id=9224
    - cowtools 4y ago
      I mean, he's right. all these file-sharing services like dropbox merely exist because the general public doesn't know how to use something like bittorrent. Maybe you can grift off of that ignorance for a while, but that doesn't mean it's a sustainable business model.
      - onetokeoverthe 4y ago
      - deanCommie 4y ago
        I think you're missing the forest for the trees. You can apply a variance of that philosophy onto EVERYTHING. "Automatic transmission merely exists because the general public doesn't know how to use something like manual transmission" "Calculators merely exist because the general public doesn't know how to use something like a slide ruler" Note, these are analogies, I'm not saying Patreon is as innovative or world-significant as either. But it IS optimized for a very specific use case, and it does it incredibly well.

e-clinton 4y ago

The reason to have fees as a percentage vs a flat fee isn’t because costs scale with payment amounts, it’s because it’s a more fair way to levy fees. I can either charge everyone $3/transaction, even if the transaction itself is less than or equal to $3, or I can structure it as a percentage to encourage smaller transactions. If people think Patreon is making a killing with their fee structure, they should build a competitor.

deleted 4y ago
[deleted]
mdavis6890 4y ago
Still, why is a percentage more fair? What definition of 'fair' are you using? "If people think Patreon is making a killing with their fee structure, they should build a competitor." >> Yes! And honestly this could be applied in so many places where people like to complain, and yet nobody builds a competitor, or they do and it ends up looking like the original. So easy to complain, so hard to do better.
- e-clinton 4y ago
  If Patreon took 75% commission of small payments, people would be outraged and quit the platform. You’re right that “fair” can mean many things, but a percentage is, in my view, the least objectionable way to do it.
acchow 4y ago
How are you defining "more fair"? By having the larger transactions subsidize the smaller transactions, how is that "more fair"?
- permo-w 4y ago
  fair is the wrong word. it's certainly more practical
markdown 4y ago
Fair would be to charge the lower of $X or X%.

tatertots1234 4y ago

> The crypto bros totally miss the point in understanding this too. The crypto folks are pretty cognizant of it, which is why they built an entire technology that isn’t reliant on intermediaries, banks, and payment processors to manage transactions. A crypto Patreon in stablecoin like DAI on an L2 would basically be able to remove most of the high fees creators see in Patreon.

Jakawao 4y ago
That doesn’t address the criticism. If I pay for a good or service via crypto and it is not delivered satisfactorily, what is my remedy? Who even decides what “satisfaction” is? Yes, the dispute/chargeback process for cards is cumbersome today, but it is a solution - albeit inefficient. What is the crypto answer? I don’t mean to put you on the spot for this question, but I would love to understand how decentralized solutions might address this issue.
- meowkit 4y ago
  > If I pay for a good or service via crypto and it is not delivered satisfactorily In this vague hypothetical situation, what a lot of crypto folk would tell you is that you should use a smart contract, and not a regular transaction, to pay. Hypothetically the contract/network will act as an escrow agent, and would only complete the transaction when all input parameters are true AKA all parties are "satisfied". The successful input parameters and their truth sources would be agreed upon before hand. I could argue more specific scenarios around fraud (buyer receives a good/service and pretends it was not satisfactory), but that can go on forever and I would encourage readers to go search for answers to specific edge cases because they are out there.
  - aahortwwy 4y ago
    Sounds like a lot of work. I'd rather pay someone to do it for me.
  - KallDrexx 4y ago
    That only works if all "input parameters" involved in the transaction are verifyably on chain. If I'm buying a physical good with crypto there's no way you can write a smart contract that verifies I did indeed get the good I paid for. Oracles don't count because that's just kicking the can to a different level (how do I dispute the oracle saying something happened that didn't).