Handling of fee processing to Balanced

[SecurityForUs]

[12:30] <mahmoudimus> secforus_ehansen, really, this is a side effect of a bad naming, "balance"
[12:30] <mahmoudimus> we called it balance on your merchant resource
[12:31] <mahmoudimus> however, really, what it should be: "invoice_amount_due"
[12:31] <mahmoudimus> basically, we just instrument the operations you perform on our api and tally up some numbers, multiply by your marketplace fee, then that amount is what we're going to charge you (invoice you) for using our API
[12:31] <mahmoudimus> just like amazon
[12:32] <mahmoudimus> which is why it's -
[12:32] <mahmoudimus> does that make sense?
[12:32] <secforus_ehansen> never used amazon, lol.  but i think i get what you mean now
[12:32] <mahmoudimus> just like your electric company
[12:32] <mahmoudimus> you use electricity right?
[12:32] <mahmoudimus> its not like they charge you per minute
[12:32] <mahmoudimus> they just see how much you used and then send you a bill
[12:33] <secforus_ehansen> basically like msot other pay as you go services then
[12:33] <mahmoudimus> basically
[12:33] <secforus_ehansen> my thing though is too i'm not a big fan of it taking it directly out of my bank account
[12:33] <secforus_ehansen> like, say i don't have the funds right then, i get overdrawn
[12:34] <secforus_ehansen> most of my clients right now are using paypal
[12:34] <mahmoudimus> hmm makes sense, so you'd rather us take it out of your earnings then?

Basically right now Balanced takes out fees directly from the bank account tied to a Marketplace (or merchant). However, if the funds aren't in the account right then it can cause drastic issues (like overdraft fees of $30 for a 50-cent withdraw). It'd be easier and better to either have the person pay it on their own time OR at least have the option available for automatic withdraws.

[matin]

Balanced has solved this issue by allowing customers to prepay their fees.

[jkwade]

@matin call for reopening this ticket. We don't really do prepayments anymore and I've been hearing more and more requests to have fees taken from escrow balance rather than the marketplace owner's bank account.

[matin]

@jkwade what's the reasoning behind the preference of net-settlement of fees?

[mahmoudimus]

@matin what customers want is an account where they can have funds sitting on Balanced instead of deposited in their bank accounts. We already support this, they just want the option of paying out fees to an account instead of us pull money out of their bank accounts.

[mahmoudimus]

@jkwade I am opposed to touching the escrow for any marketplace.

[jkwade]

@matin Imagine a MP that has $0 in their operational account and takes a 10% fee. On day 0:

• they issue a debit for $100
• credit for $10 to their bank account, and are
• charged $3.20 from their bank account

They will not have enough money in their account on day 1 when the credit and debit clear to cover the fees we assess them. In the best case scenario, I'm not sure if the credit will settle before the debit, which would fund the account. The feedback from some marketplaces is to deduct the fees from the escrow balance rather than the MP's bank account. An alternative proposal would be to invoice 1-3 days later, so credits have time to settle to MP's bank accounts.

@mahmoudimus I'm not yet sure what customers want exactly, but I'm hearing requests for net-settlement. Is your proposal different than prepayment? If not, what I understand you to be saying is that Balanced already supports a separate, non-escrow, but MP controlled account that fees could be paid to immediately, and fees could be assessed to. I wasn't aware this was possible.

[mahmoudimus]

@jkwade yes, I'm proposing something different than prepayment and it is.

[jkwade]

@mahmoudimus:

[timnguyen]

@jkwade Correct me if I'm wrong, but I think the major perceived advantage of net settlement is that someone can bootstrap development and, in effect, not have to pay anything to get started.

I think this advantage is fairly illusory because of risks like chargebacks. Additionally, as a business grows the accounting behind netting out fees very quickly becomes extraordinarily messy. I'm speaking both from the personal experience of handling the reconciliation and financial reporting work resulting from working with different processors as well as seeing numerous customers go through the same process. Customers have gone to us asking at the beginning for us to net out their fees, their book keeper/accountant comes to me in a few months later thanking us for how clean our fees reconciliation is.

From an accounting perspective, you want to be able to compare and reconcile the payments invoices/records from us against records derived from another source (typically your bank account). Since we gross out fees all that needs to be done is to check your bank account and compare it to the invoices received from us to make sure that we're debiting what we say we are. Additionally, if you want to see how much you're holding to pay out to merchants or refund to customers, you just look at your balance. Grossing out keeps the whole thing much more one to one and transparent. At a glance you can see what you've been charged, what you've paid, and what you've collected

However, if you work with a processor who nets out your fees you have to do a lot more work to figure out how much you should be receiving before you compare invoice amounts to any bank credits received and of course transaction timing makes it all even messier and that's just to compute your actual fees. If you're trying to also figure out the available balance collected on behalf of your sellers... you have to do all that work again and hope that you got transaction costs correct.

Honestly, from a risk perspective netting out fees is much safer for Balanced because we'd be getting the money without having to debit a customer, but for our customers grossing out is a much better proposition from an operation and accounting perspective.

In any case, if the perceived bootstrapping advantage of netting out is why customers want it, prepayment doesn't really solve that (and a better solution would be for a customer to pre-fill the attached bank account rather than pre-pay us). What might instead solve this would be an initial grace period on our fees.

[mjallday]

I think @timnguyen nailed an important item. Essentially this would allow you to take funds that are earmarked for a merchant for a sale and use them to pay your own fees. Bernie Madoff would +1 this feature.