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Etsy: Announcing Direct Checkout. (No longer just PayPal.)

93 points by NelsonMinar 15y ago

descentintomael 15y ago
Is this because no one likes PayPal? Personally I've been screwed over by PayPal using Etsy when a seller didn't ship. It's since made me hesitant to buy anything there.
- lnanek 15y ago
  PayPal charges more than working with credit card companies directly. I was talking to a guy who runs an app that sells music the other day, and he got a much better rate by cutting out the middle man (less than Etsy is charging, by the way). If you are running a startup, you probably shouldn't waste your limited implementation and support time with payment processing and all the customer issues that arise vs. just using a third party, though.
  - dangrossman 15y ago
    > PayPal charges more than working with credit card companies directly You'd think so, but in the general case that's untrue. Most MOTO merchant accounts advertise better rates but the effective rate the merchants pay is more than PayPal's 1.9-2.9%. PayPal's rate is flat, but anywhere else it's not. Virtually all credit cards (all rewards/points/cashback cards, all business cards, etc) are downgraded to a higher fee schedule -- plus AVS fees, auth misuse fees, batch settlement fees, statement fees, customer service fees, PCI compliance fees (virtually everyone added at least $100 a year in PCI fees in the past 2 years), chargeback fees, etc. And these are all variable and will generally be raised, one piece at a time, every month you have your account open. I've worked with 3 direct merchant accounts and my effective rate is between 4% and 8% of transaction volume. At PayPal it's less than 4% including the fixed ($0.30) portion of the fee. A company with the expected volume of Etsy can probably negotiate a contract with fixed rates for some number of years, but the other 99% of small businesses accepting credit cards online (card-not-present transactions) are not beating PayPal's rates.
inmygarage 15y ago
If any Etsy employees are reading, I am curious about why it took nearly 7 years to add direct checkout to the site -- Paypal is not known for being particularly kind to either buyers OR sellers, though perhaps there were all sorts of scaling/technical issues that took priority over something like this? It just seems like, with the amount of volume that Etsy does, Paypal's rates would be on the very high side. Congrats - looking forward to trying it out!
- alapshah 15y ago
  Seems like it might be a pretty complicated thing to add... No other marketplaces that I know of have their own processing capabilities... Third party aggregation (taking payments on behalf of someone else) has many quite-complicated regulatory issues.
  - gabaix 15y ago
    Yes. Also you need big sales volumes to justify the investment in time / money.
  - patio11 15y ago
    In addition to the regulatory issues, you're asking to get a bunch of customer support complaints over $25 transactions where your maximum upside is measured in pennies. And many of those complaints are going to sound like: Buyer: "The seller never shipped the itemz!" Seller: "I did, too! With no tracking number, because I'm new at this, like most of your users!" Buyer: "I fell off the Internet for two weeks because I didn't pay my phone bill but I'm back now and hopping mad because the booties that just got delivered have WOOL instead of COTTON in them!" Seller: "It says right in the description NATURAL FIBERS!" Buyer: "There is nothing natural about FACTORY FARMS!" Accountant: "Total cost to read this email thread so far: $14 and counting. Value of this transaction to us: $0.57." Buyer + Seller: "YOU GREEDY CORPORATE BASTARDS."
- blueprint 15y ago
  Curious about that too. Recently we have some great alternatives like Stripe (https://stripe.com https://stripe.com ).
jdp23 15y ago
here's the pricing info: "Direct checkout will cost a 3% + $0.25 USD payment processing fee per sale."
- rellik 15y ago
  This is worse than PayPal for sellers with products over $5 (after shipping, tax). I wish they could've come up with better pricing. I would think most shops would be selling things over the $5 mark, but I can't say for sure.
  - dangrossman 15y ago
    > I wish they could've come up with better pricing. It's nearly impossible since their processing fees on some card types will be over 3%. They're already taking a loss on those transactions; most will be under 3% to balance it out, but not enough that they could offer better pricing than everyone else. They're not going to be able to negotiate barely-above-interchange rates like PayPal probably gets from its banks with billions of transactions in monthly volume. Visa's interchange fee to the bank is still as high as 2.7% on some cards, which is the floor upon which the processor can set its markup to the merchant like Etsy.
callmeed 15y ago
Having direct experience in being a third party payment aggregator, here's some notes based on this post and their FAQ (if anyone cares): 1. Fraud will now be your #1 issue (if it isn't already). People will make fake Etsy accounts, add fake products, and then make "purchases" using stolen credit card numbers. They will have the $ deposited to an E*Trade bank account, a pre-paid debit card that accepts ACH, or use some rube's account they found on Craigslist. Most of the time, you won't catch it until the money is already deposited. Then the chargebacks start coming. I don't have the luxury of having a $50M warchest of VC money. You will definitely have to spend money and engineering resources towards this soon. 2. Based on your FAQ, you're requiring sellers to mark an item as "shipped" before depositing their money. We actually had to turn this requirement off because it annoyed so many sellers. When a seller gets an order (in our case, photographs), getting it fulfilled becomes their focus. Making them go back to the web and mark it as fulfilled is something they will often forget. Getting their money deposited is something they won't forget. IMO, I would try to make this more automatic. Use something like Twilio to send the seller a text 5 days after the order ... "Has order 24039 (yellow scarf) been shipped to Suzie J yet?"
- patio11 15y ago
  Dang, the bad guys found out about eTrade? We used to use them to get Japanese folks US bank accounts because their Know Your Customer policy was so incredibly... Never mind, I understand how the bad guys figured it out now. [Edit for posterity: You could open a brokerage account from anywhere with minimal documentation. After having a brokerage account, one phone call from your "secretary" and they'd add a US checking account to it. No KYC verification required because of "preexisting business relationship." It was a great way to set up US bank accounts for folks who had business dealings with American clients before they got the opportunity to visit the US.]
  - callmeed 15y ago
    Yeah, we actually ended up blocking ETrade's routing number ... none of our legitimate customers actually used them. Our biggest problem has been the people getting duped on Craigslist. Actually talked to a guy from Arkansas who gave up his entire ID, SSN and all bank accounts to a "business partner" in Africa.
beagle3 15y ago
Does anyone know how AirBnB and Uber and their likes do this? Are they also "third party payment aggregators"?

93 points by NelsonMinar 15y ago

Is this because no one likes PayPal? Personally I've been screwed over by PayPal using Etsy when a seller didn't ship. It's since made me hesitant to buy anything there.

lnanek 15y ago
PayPal charges more than working with credit card companies directly. I was talking to a guy who runs an app that sells music the other day, and he got a much better rate by cutting out the middle man (less than Etsy is charging, by the way). If you are running a startup, you probably shouldn't waste your limited implementation and support time with payment processing and all the customer issues that arise vs. just using a third party, though.
- dangrossman 15y ago
  > PayPal charges more than working with credit card companies directly You'd think so, but in the general case that's untrue. Most MOTO merchant accounts advertise better rates but the effective rate the merchants pay is more than PayPal's 1.9-2.9%. PayPal's rate is flat, but anywhere else it's not. Virtually all credit cards (all rewards/points/cashback cards, all business cards, etc) are downgraded to a higher fee schedule -- plus AVS fees, auth misuse fees, batch settlement fees, statement fees, customer service fees, PCI compliance fees (virtually everyone added at least $100 a year in PCI fees in the past 2 years), chargeback fees, etc. And these are all variable and will generally be raised, one piece at a time, every month you have your account open. I've worked with 3 direct merchant accounts and my effective rate is between 4% and 8% of transaction volume. At PayPal it's less than 4% including the fixed ($0.30) portion of the fee. A company with the expected volume of Etsy can probably negotiate a contract with fixed rates for some number of years, but the other 99% of small businesses accepting credit cards online (card-not-present transactions) are not beating PayPal's rates.

inmygarage 15y ago

If any Etsy employees are reading, I am curious about why it took nearly 7 years to add direct checkout to the site -- Paypal is not known for being particularly kind to either buyers OR sellers, though perhaps there were all sorts of scaling/technical issues that took priority over something like this? It just seems like, with the amount of volume that Etsy does, Paypal's rates would be on the very high side. Congrats - looking forward to trying it out!

alapshah 15y ago
Seems like it might be a pretty complicated thing to add... No other marketplaces that I know of have their own processing capabilities... Third party aggregation (taking payments on behalf of someone else) has many quite-complicated regulatory issues.
- gabaix 15y ago
  Yes. Also you need big sales volumes to justify the investment in time / money.
- patio11 15y ago
  In addition to the regulatory issues, you're asking to get a bunch of customer support complaints over $25 transactions where your maximum upside is measured in pennies. And many of those complaints are going to sound like: Buyer: "The seller never shipped the itemz!" Seller: "I did, too! With no tracking number, because I'm new at this, like most of your users!" Buyer: "I fell off the Internet for two weeks because I didn't pay my phone bill but I'm back now and hopping mad because the booties that just got delivered have WOOL instead of COTTON in them!" Seller: "It says right in the description NATURAL FIBERS!" Buyer: "There is nothing natural about FACTORY FARMS!" Accountant: "Total cost to read this email thread so far: $14 and counting. Value of this transaction to us: $0.57." Buyer + Seller: "YOU GREEDY CORPORATE BASTARDS."
blueprint 15y ago
Curious about that too. Recently we have some great alternatives like Stripe (https://stripe.com https://stripe.com ).

jdp23 15y ago

here's the pricing info: "Direct checkout will cost a 3% + $0.25 USD payment processing fee per sale."

rellik 15y ago
This is worse than PayPal for sellers with products over $5 (after shipping, tax). I wish they could've come up with better pricing. I would think most shops would be selling things over the $5 mark, but I can't say for sure.
- dangrossman 15y ago
  > I wish they could've come up with better pricing. It's nearly impossible since their processing fees on some card types will be over 3%. They're already taking a loss on those transactions; most will be under 3% to balance it out, but not enough that they could offer better pricing than everyone else. They're not going to be able to negotiate barely-above-interchange rates like PayPal probably gets from its banks with billions of transactions in monthly volume. Visa's interchange fee to the bank is still as high as 2.7% on some cards, which is the floor upon which the processor can set its markup to the merchant like Etsy.

callmeed 15y ago

Having direct experience in being a third party payment aggregator, here's some notes based on this post and their FAQ (if anyone cares): 1. Fraud will now be your #1 issue (if it isn't already). People will make fake Etsy accounts, add fake products, and then make "purchases" using stolen credit card numbers. They will have the $ deposited to an E*Trade bank account, a pre-paid debit card that accepts ACH, or use some rube's account they found on Craigslist. Most of the time, you won't catch it until the money is already deposited. Then the chargebacks start coming. I don't have the luxury of having a $50M warchest of VC money. You will definitely have to spend money and engineering resources towards this soon. 2. Based on your FAQ, you're requiring sellers to mark an item as "shipped" before depositing their money. We actually had to turn this requirement off because it annoyed so many sellers. When a seller gets an order (in our case, photographs), getting it fulfilled becomes their focus. Making them go back to the web and mark it as fulfilled is something they will often forget. Getting their money deposited is something they won't forget. IMO, I would try to make this more automatic. Use something like Twilio to send the seller a text 5 days after the order ... "Has order 24039 (yellow scarf) been shipped to Suzie J yet?"

patio11 15y ago
Dang, the bad guys found out about eTrade? We used to use them to get Japanese folks US bank accounts because their Know Your Customer policy was so incredibly... Never mind, I understand how the bad guys figured it out now. [Edit for posterity: You could open a brokerage account from anywhere with minimal documentation. After having a brokerage account, one phone call from your "secretary" and they'd add a US checking account to it. No KYC verification required because of "preexisting business relationship." It was a great way to set up US bank accounts for folks who had business dealings with American clients before they got the opportunity to visit the US.]
- callmeed 15y ago
  Yeah, we actually ended up blocking ETrade's routing number ... none of our legitimate customers actually used them. Our biggest problem has been the people getting duped on Craigslist. Actually talked to a guy from Arkansas who gave up his entire ID, SSN and all bank accounts to a "business partner" in Africa.

beagle3 15y ago

Does anyone know how AirBnB and Uber and their likes do this? Are they also "third party payment aggregators"?