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Ask HN: Facilitating payments between users

5 points by matt1 17y ago

When I bounce around startup ideas in my head, there's one class of ideas that seems so daunting that I don't even consider it an option: Facilitating payments between users. For example, take Google Answers. Someone posts a question and puts up a financial reward and whoever answers it gets the money. How complicated is it to set up a service like that? From a distance it seems simple enough: User 1 pays you and then you pay User 2. However... What big legal hurdles do you need to deal with? What about taxes for the money you pay people? Is there a some line that, once crossed, users become employees? What about money laundering? What about refunds and dealing with fraud and abuse? Is there an easy way to deal with all of this?

noodle 17y ago
well, that sounds basically like what the YC company tipjoy tackled, i do believe. http://tipjoy.com/ http://tipjoy.com/
- matt1 17y ago
  Looks like the user must have a Paypal account. From the Tipjoy FAQs: Click it, and from there you can cash money out of your Tipjoy account into your PayPal account. You can also give your money to another website (a charity, maybe?), or have us turn it into an Amazon gift card for you. For legal reasons, if you're going to cash out to PayPal you'll need to tell us a bit of info about yourself (name and address), which we will keep private in accordance with our Privacy Policy. Anyone know how they deal with the money laundering problems? And if they're using Paypal to transfer the money, how do they have smaller fees than them?
  - brk 17y ago
    Anyone know how they deal with the money laundering problems? I do not, but this is the Internet, so I can speculate wildly :) Tipjoy seems to be focused on micropayments. Unless you are only trying to launder $5 or $10, it would take a metric fuckload of "tips" to launder any significant amount of money. I would presume (which sounds so much more highbrow than assume) that it would be simple to look to filter out and flag potential laundering schemes. Either the average amount of tip, or the average # of tips between two users would be obvious outliers.
    - mahmud 17y ago
      What you describe (large amounts of small payments to one user) is called smurfing, and both banks and paypal have something in place to guard against it. One "benefit" of requiring Paypal is that you're offloading the responsibility of final delivery to them. http://en.wikipedia.org/wiki/Smurfing_(crime) http://en.wikipedia.org/wiki/Smurfing_(crime)
  - noodle 17y ago
    accounts that deal with higher volume in processing get lower fees. this is the case with most places. i imagine they're using paypal because its a bit easier to do account-to-account stuff with them, based on my (limited) understanding.
mahmud 17y ago
Scenario. User Alice pays you $10k and poses a list of 10 questions. Many people come to respond, Alice reads the replies, but consistently approves the answer provided by Bob. As required, you would pay Bob $10k minus your commissions. Congratulations, you have just facilitated your first money laundering operation. The major difficulty in e-payment solutions is not technical one, it's legal.
- secret 17y ago
  Exactly. The OP may want to look into what happened to E-Gold.
  - mahmud 17y ago
    What happened to E-Gold is that they tried to be hereos to their clientele and went out of their way to refuse to cooperate with Uncle Sam. Opening a foreign bank account and calling yourself a foreign entity does not save you; Saddam and Noreaga each owned an entire country :-) What he can do is what most freelancing websites do: show tangible products or services changing hands; make sure the amounts stay low, make sure you're not paying out U.S. citizens without reporting their income, etc. A tangible good or service would be something whose price is market dictated and doesn't seem too outrageous, the delivery of which you control. It's OK to facilitate the sale of a domain name for up to $1000, and require that the seller wait a certain number of days, then transfer to a U.S. or EU bank. However, it's not OK to setup an auction room for impossiblystupiddomainthatnoonewouldbuy.com and have one buyer start bidding at $10k. That's a rigged auction. It might be far easier to setup an escrow service (if you can even survive the bad name the escrow industry has) and just deal with people in the U.S., taking SSNs from all the payees. We tried something like this a while back but it wasn't worth the trouble.
    - secret 17y ago
      You make a good point about controlling the delivery of a tangible good. That may get around some of the regulation that applies to money transmitters, but either way I think this type of business is going to require some rather expensive lawyers to review.
deleted 17y ago
[deleted]

5 points by matt1 17y ago

noodle 17y ago

well, that sounds basically like what the YC company tipjoy tackled, i do believe. http://tipjoy.com/ http://tipjoy.com/

matt1 17y ago
Looks like the user must have a Paypal account. From the Tipjoy FAQs: Click it, and from there you can cash money out of your Tipjoy account into your PayPal account. You can also give your money to another website (a charity, maybe?), or have us turn it into an Amazon gift card for you. For legal reasons, if you're going to cash out to PayPal you'll need to tell us a bit of info about yourself (name and address), which we will keep private in accordance with our Privacy Policy. Anyone know how they deal with the money laundering problems? And if they're using Paypal to transfer the money, how do they have smaller fees than them?
- brk 17y ago
  Anyone know how they deal with the money laundering problems? I do not, but this is the Internet, so I can speculate wildly :) Tipjoy seems to be focused on micropayments. Unless you are only trying to launder $5 or $10, it would take a metric fuckload of "tips" to launder any significant amount of money. I would presume (which sounds so much more highbrow than assume) that it would be simple to look to filter out and flag potential laundering schemes. Either the average amount of tip, or the average # of tips between two users would be obvious outliers.
  - mahmud 17y ago
    What you describe (large amounts of small payments to one user) is called smurfing, and both banks and paypal have something in place to guard against it. One "benefit" of requiring Paypal is that you're offloading the responsibility of final delivery to them. http://en.wikipedia.org/wiki/Smurfing_(crime) http://en.wikipedia.org/wiki/Smurfing_(crime)
- noodle 17y ago
  accounts that deal with higher volume in processing get lower fees. this is the case with most places. i imagine they're using paypal because its a bit easier to do account-to-account stuff with them, based on my (limited) understanding.

mahmud 17y ago

Scenario. User Alice pays you $10k and poses a list of 10 questions. Many people come to respond, Alice reads the replies, but consistently approves the answer provided by Bob. As required, you would pay Bob $10k minus your commissions. Congratulations, you have just facilitated your first money laundering operation. The major difficulty in e-payment solutions is not technical one, it's legal.

secret 17y ago
Exactly. The OP may want to look into what happened to E-Gold.
- mahmud 17y ago
  What happened to E-Gold is that they tried to be hereos to their clientele and went out of their way to refuse to cooperate with Uncle Sam. Opening a foreign bank account and calling yourself a foreign entity does not save you; Saddam and Noreaga each owned an entire country :-) What he can do is what most freelancing websites do: show tangible products or services changing hands; make sure the amounts stay low, make sure you're not paying out U.S. citizens without reporting their income, etc. A tangible good or service would be something whose price is market dictated and doesn't seem too outrageous, the delivery of which you control. It's OK to facilitate the sale of a domain name for up to $1000, and require that the seller wait a certain number of days, then transfer to a U.S. or EU bank. However, it's not OK to setup an auction room for impossiblystupiddomainthatnoonewouldbuy.com and have one buyer start bidding at $10k. That's a rigged auction. It might be far easier to setup an escrow service (if you can even survive the bad name the escrow industry has) and just deal with people in the U.S., taking SSNs from all the payees. We tried something like this a while back but it wasn't worth the trouble.
  - secret 17y ago
    You make a good point about controlling the delivery of a tangible good. That may get around some of the regulation that applies to money transmitters, but either way I think this type of business is going to require some rather expensive lawyers to review.

deleted 17y ago

[deleted]