Payment Providers and Micro-Payments

One of the questions I got while talking with people about the (micro)-Payment on Content Nation is "why do you need to pay in at least 10 Euro before I can donate 1€ to my favorite Creator?"

A suggestion was, this should be a full article not just a FAQ entry.

So here it is.

How do payment transactions, micro and macro ones work?

The exact details vary between payment providers, but essentially you have a one-time transaction fee plus 1.5%-3% of the transaction volume.
So let's take an example: You want to pay 1€ per credit card (at your local merchant, online or here). Also assuming a cheap rate.
1x 1€ Transaction
1x one-time-fee (20 Cent)
1.5% of 1€ (1.5 Cent)
total 21.5 Cent out of this 1€ is just for the money processing of the purchase. Hopefully the product you bought had a profit marge of more than that.

Let's see how the costs are for 10€, the minimum pay-in on Content Nation:
1x 10€ Transaction
1x one-time-fee (20 Cent)
1.5% of 10€ (15 Cent)
total is 35 Cent, but on 10€, so 3,5% not 21.5% as above.

And in the end, the payment method does not vary that much between different methods, it's roughly the same if you pay per credit card, apple or google pay, paypal or others.

If you do above math with a worse contract, it becomes even less attractive for low amounts.
If you are a huge store chain you probably get better conditions, but you can also cope with the occasional 10Cent loss for micro payments.

And please remember, this is just the cost for payment, you need to buy, store and present the article, pay your employees, the store rent, heat and electricity, insurances and never forget the taxes if you actually make any money after all.

What are the costs for cash payment?

I don't have exact costs for larger shops where a security car picks up the money, but if you have a small shop and bring the cash to your bank directly, it also costs money. Business bank accounts usually have fees for pay-in and pay-out.
0-3 Euro per transaction and 1.5% are not uncommon. That's not too far from the above costs.

Why can't you offer pays via bank transfer directly without using a payment provider?

Short answer: Legal reasons.
Long answer:
Again, depends on the Country, but here in Germany I had the "fun" to find that out for Content Nation.
This was the original plan, have people send money with SEPA transaction which is cheap (private bank accounts can do that for free in many cases), and for business it's cost depend on the bank. But usually incoming is free.
But to be able to do this, you need banking licenses. Welcome to bureaucracy hell.

License 1: money transactions

If you collect and forward money for third parties (by providing a online marketplace for goods, or just offer a place to order food and forward this your local pizza place), you are handing money that technically does not belong to you.
For this you need a money transaction license. I got an offer from specialty lawyers that help you getting such a piece of paper.
They offered a nice package without success guarantee for a mere 50.000€ (plus taxes of course).
And you need someone in the management who has already experience in providing such a service. Even in part time at least 50.000€ per year.
And the person will be busy with paperwork, probably the full year. Because you need report, do money laundry things, verify users and other fun stuff.
But that's just the one piece of parer. If you want to be not just real-time in-and-out and for example collect Money and transfer at the end of the money: you need a second piece of paper.

License 2: credit business

Yeah fun. This is also a roughly 50.000€ one-time for for legal help, but since you already got the banking expertise from license 1, just more time spent for paper work.

And yes, your favorite online site to order food from many restaurant (and pay online) does have at least those banking permission. So technically you order your Hamburger from a bank.

This seems not plausible. What's the source for that?

If you think that, you never did business in Germany.
But I got (expensive) papers from the BaFin (Federal Financial Supervisory Authority) and the German Central bank stating that.
My specialty lawyers asked the right questions for me. You never want to do this directly, never wake sleeping dogs, especially not your own ones.
Also search for "pizza.de vs lieferheld bafin".

Summary for Content Nation or tl;dr

So in the end we have the following options

1. have direct payments of 1€ and loose money (we only collect 7% fees, but pay more than above ideal example)
2. take way higher fees (like 30% or more) as other services take
3. have upfront pay-ins of at least 10€, pay <4% for the transactions and make a little income (not profit) for the otherwise free services without ads
4. have one-time fees of 100.000€ plus and yearly costs of 50.000€ plus and get cheaper transactions (still have to pay credit card fees)

So as long as we do not get donations in the millions per month, the only viable option is 3.
And spoiler, we are not there yet.

Suddenly those fees do seem to be not that high if you compare the service that they offer.