Ask HN: How to create a service similar to Patreon?
I'd like to create a service similar to Patreon, I know how to do the technical side but not so sure about financial side: how do I charge users to send the funds to other type of users (creators), while subtracting a small percent? How does it need to be set up from the POV of financial compliance? Can it be reported as "payment to support Creator xyz" without a specific product? Does the company need to register as a bank or something similar to a bank? Financial services company? Where can I find some relevant resources, and how can I narrow down my research so that I don't have to read everything about all types of financial services but only more or less relevant info? (located in the US).
96 comments
I built a patreon competitor using stripe connect. It wasn’t super successful, had a handful of creators making $20-$100/month, but it’s definitely doable without a ton of legal work. Stripe makes it pretty easy. You can set it up so payments go directly from supporter to creator’s stripe account, with a percent going to you. If you want to batch payments or have more control over funds then you actually need to collect funds and do the payouts, which makes things a bit more complex. Feel free to email me if you want to chat.
Honestly, dealing with payments is nothing compared to the amount of hand holding required to help creators set up a nice profile, pick good rewards, do a good job promoting their page, actually fulfill their rewards so they don’t lose backers, etc. It often took months of back and forth with creators to finally get their page launched. I’d avoid building a patreon competitor unless you personally know some very big creators (500k+ followers) or have a very specific niche in mind.
Honestly, dealing with payments is nothing compared to the amount of hand holding required to help creators set up a nice profile, pick good rewards, do a good job promoting their page, actually fulfill their rewards so they don’t lose backers, etc. It often took months of back and forth with creators to finally get their page launched. I’d avoid building a patreon competitor unless you personally know some very big creators (500k+ followers) or have a very specific niche in mind.
How did you handle taxes for the creators?
I'm not a financial expert, but the creators have to do their own taxes (as earnings). However, what the 'paying' party in this case has to be able to do is give reports of payouts to the IRS (in various countries).
Data retention is super important. Make sure to read up on that and your legal obligation on how long to retain that data - which may be decades.
Data retention is super important. Make sure to read up on that and your legal obligation on how long to retain that data - which may be decades.
If you set the creator's Stripe account as the destination account when issuing a charge you can take a % and not be considered the paying party (don't need to send reports of payouts): https://stripe.com/docs/connect/destination-charges
As far as retention goes, that's going to depend on which data. The rules are different for different data. For financial information the general rule is 7 years. But that varies wildly on circumstance.
Why can't the creators handle their own tax?
> Why can't the creators handle their own tax?
If you're accepting payments from the EU within the EU, you have to collect evidence of where the payer is from, pay different VAT amounts (i.e. different percentages per country) and have VAT paper work to prepare every year. It's time consuming, you're likely to make mistakes and that's only for the EU.
For what it's worth, I use https://paddle.com/ for a paid Chrome extension who deal with country specific tax for me. They're more expensive than Stripe though.
If you're accepting payments from the EU within the EU, you have to collect evidence of where the payer is from, pay different VAT amounts (i.e. different percentages per country) and have VAT paper work to prepare every year. It's time consuming, you're likely to make mistakes and that's only for the EU.
For what it's worth, I use https://paddle.com/ for a paid Chrome extension who deal with country specific tax for me. They're more expensive than Stripe though.
It's not just the creators, it's also the backers. As soon as I am receiving something in return it's no longer purely a donation, but a purchase in some jurisdictions. This means, as a backer, I need to pay VAT (in Germany). There's a few options here: The service handles this for me, the creator does it or I do it.
If the creator does it they now need to deal with the authorities in multiple countries, that doesn't work for any but the really big ones. If I do it, I now need to collect the receipts and list then on my tax return to pay the VAT. Or the service just takes care of it for me, like Patreon does.
Honestly, if I had to deal with paying the VAT "manually" I don't think I would back anything.
If the creator does it they now need to deal with the authorities in multiple countries, that doesn't work for any but the really big ones. If I do it, I now need to collect the receipts and list then on my tax return to pay the VAT. Or the service just takes care of it for me, like Patreon does.
Honestly, if I had to deal with paying the VAT "manually" I don't think I would back anything.
Financial intermediaries often have reporting duties in the US. However, there are several services that greatly automate the process.
If there’s a possibility to not handle the tax i would use that service in a heartbeat. The less i have to do the better.
Heh "Like Uber, but for tax accountants": attract tax experts from the creator's state/country to work for a percentage of their earnings.
Does it get more complicated if the creator has donations from different states/countries? I have a feeling yes. Oh geez.
Does it get more complicated if the creator has donations from different states/countries? I have a feeling yes. Oh geez.
There used to be exactly this, called Teaspiller. It was acquired by TurboTax.
Creators would have to handle taxes themself, no different than if it was their own site with custom stripe integration.
I’ve worked in the fintech space for 6 years this month. I’ve been a ceo/founder, vp of product, and managing partner. there’s no way to shortcut this, you’re going to need a chief compliance officer and to adhere to the right financial regulations, likely money transmission but possibly others as well. you need to contact a lawyer and get started BEFORE you process your first payment.
i will warn you, starting down this path can be lucrative in extreme cases, but in all situations will lead to massive frustration, headache, and stress coupled with minimum 5 year reporting and record keeping requirements.
this is a hard life for a solo entrepreneur and i do not recommend it wothout having raised a minimum of $2-5 million usd and 5-10 years of experience in regulated industries. this is not the industry where you get to move fast and break things. if you want more information or help hashing things out, you’re welcome to reach out directly. i think my email is in my profile or its my username.
i will warn you, starting down this path can be lucrative in extreme cases, but in all situations will lead to massive frustration, headache, and stress coupled with minimum 5 year reporting and record keeping requirements.
this is a hard life for a solo entrepreneur and i do not recommend it wothout having raised a minimum of $2-5 million usd and 5-10 years of experience in regulated industries. this is not the industry where you get to move fast and break things. if you want more information or help hashing things out, you’re welcome to reach out directly. i think my email is in my profile or its my username.
[The "email" in the profile is secret and only the mods can see it. If you want to make it public, you should put it in the "about" field.]
> if you want more information or help hashing things out, you’re welcome to reach out directly. i think my email is in my profile or its my username.
Can you email me on my username at gmail dot com or update your profile? I would really like to reach out and get your thoughts on some topics/issues. Thanks.
Can you email me on my username at gmail dot com or update your profile? I would really like to reach out and get your thoughts on some topics/issues. Thanks.
> this is a hard life for a solo entrepreneur and i do not recommend it wothout having raised a minimum of $2-5 million usd
Let's not get everyone in the mindset that venture capitalism in the US is a good thing. Many startups and entrepreneurs in Europe and other continents have found success without raising any capital.
Let's not get everyone in the mindset that venture capitalism in the US is a good thing. Many startups and entrepreneurs in Europe and other continents have found success without raising any capital.
I read this comment as "You can't do this as a scrappy one-person startup," not "You must raise VC." Bootstrapping by using $2-5MM you / your cofounders have (from previous ventures, happening to be rich, etc.) would work fine.
Many startups and entrepreneurs can work great with minimal capital, both in Europe and outside Europe. The claim of this comment was this is the wrong business to be in if that's your goal (and I think that claim is intended to apply equally well in Europe).
Many startups and entrepreneurs can work great with minimal capital, both in Europe and outside Europe. The claim of this comment was this is the wrong business to be in if that's your goal (and I think that claim is intended to apply equally well in Europe).
thanks for helping me get the point across, that's exactly what i meant.
VC funding is so overvalued, esp considering you don't need a money transmitter license to become a subscription service.
Literally just use Stripe or something.
Literally just use Stripe or something.
So have many people in the US. However, I also don't think people should act like VC is a four letter word.
There is absolutely no shortcut in this things. As soon as you are paying users there will be all sort of legal requirements/side effects which you need to be aware of. Starting with money laundering, taxes (yours and from your users even!), pleasing your payout provider that your content is not illegal, beeing able to payout in US&Europe or even global and ending with costs (you will probably never be able to compete with 5% from patreon).
The thing is that all this risks apply mostly to your payout provider (this is why it is a hard problem, it's not only your risk alone). Good luck in finding a good partner.
I'm betting that sites like Patreon have developed this things from scratch and in-house.
One question (since I do like shortcuts) -- what about if you have uses pay each other (through whatever means is available to them), and only act as the sort of negotiation point? Here's what I'm thinking:
- user signs up
- user registers x supported payment accounts (Paypal, Venmo, etc)
- when a user wants to pay another user on their site, you send them to the appropriate payment provider with the details of the other user
- take confirmation from user that received payment and use it to update "trustworthiness" scores for both users.
This seems like it could work as a way to sidestep some of the legal requirements?
Though the amount of value the OP's company offers is a little lower (since you're not handling payments), I think the other benefits (discoverability, concentration of information, etc) that patreon offers are still seemingly on the table. Fraud of course is still an issue, but the upside is you can punt that to whatever payment provider they specify.
- user signs up
- user registers x supported payment accounts (Paypal, Venmo, etc)
- when a user wants to pay another user on their site, you send them to the appropriate payment provider with the details of the other user
- take confirmation from user that received payment and use it to update "trustworthiness" scores for both users.
This seems like it could work as a way to sidestep some of the legal requirements?
Though the amount of value the OP's company offers is a little lower (since you're not handling payments), I think the other benefits (discoverability, concentration of information, etc) that patreon offers are still seemingly on the table. Fraud of course is still an issue, but the upside is you can punt that to whatever payment provider they specify.
https://streamlabs.com/ does exactly this with PayPal. It goes directly to the streamer, and shows the name of the streamer’s PayPal account. For Chess Grandmaster Benjamin Finegold whose stream I watch on Twitch, that’s some chess education center in Atlanta. It also shows their email address and possibly a physical address, and it might show mine to them. I think the privacy issue might not make it work well for casual users like Patreon has, but for commercial users it would probably work better. I feel like I’m more likely to get my PayPal account flagged by donating to random streamers on StreamLabs than with an intermediary like Twitch or Patreon. I’m not too worried about it but I am more careful.
It also helps that tipping is just a minor feature of the product. Their product is an OBS which shows overlays and stuff in the stream, including an animation when someone leaves a tip. They also sell merchandise much like CafePress. I have a coffee mug with Hikaru Nakamura on it. Some info: https://venturebeat.com/2018/10/07/how-streamlabs-is-helping...
If you can find a way to make tipping part of a larger product/service, it seems less likely to be used for money laundering, and to be more likely to work without a huge amount of expertise in the area of payment platforms.
It also helps that tipping is just a minor feature of the product. Their product is an OBS which shows overlays and stuff in the stream, including an animation when someone leaves a tip. They also sell merchandise much like CafePress. I have a coffee mug with Hikaru Nakamura on it. Some info: https://venturebeat.com/2018/10/07/how-streamlabs-is-helping...
If you can find a way to make tipping part of a larger product/service, it seems less likely to be used for money laundering, and to be more likely to work without a huge amount of expertise in the area of payment platforms.
Exactly what streamlabs does is a thing I thought I might make some day -- now I can wipe it off my list since it seems like they are already producing a fantastic product.
I really think that the streaming world could benefit from a decentralized streaming application but this seems like something streamlabs could easily pursue in a pivot or as a new feature so I think it could happen some day.
Thanks for sharing how you feel using the service as well (being a bit more careful) -- I'm sure it will help OP a bunch
I really think that the streaming world could benefit from a decentralized streaming application but this seems like something streamlabs could easily pursue in a pivot or as a new feature so I think it could happen some day.
Thanks for sharing how you feel using the service as well (being a bit more careful) -- I'm sure it will help OP a bunch
Decentralization would require the streamer to have enough bandwidth to upload to each viewer. Uploading one stream to a CDN is ideal.
Right, except that decentralization is also the solution to fast data delivery -- CDNs work by decentralizing data, and if the people who built this were smart, they'd work in a way where users could get discounts for helping to spread/rehost paid streams (for a discount to their sub fee, for example), or choose to help a streamer out by replicating their stream for free.
I personally think you could find a lot of people who would be willing to help CDN/share/host for streamers they support, a nice step between watch for free and upvote/like and send the streamer money.
Even if you didn't want to go the P2P route, there's no reason that streamlabs can't step in to help provide that infrastructure if it's cost effective (i.e. if the streamer is paying) -- surely a streamer is going to be willing to drop $50 on extra resources for a stream if they think it's going to bring them >$50 worth of recognition/good content for their streamers. Streamlabs wouldn't even have to keep these resources on hand, they could spin them up on demand and just charge a slight premium. Even better, streamlabs could give streamers easy tools to enable purchasing cloud resources for better stream quality, and charge them for the convenience (and let them know of course that they pay the AWS bills at the end of the day).
I personally think you could find a lot of people who would be willing to help CDN/share/host for streamers they support, a nice step between watch for free and upvote/like and send the streamer money.
Even if you didn't want to go the P2P route, there's no reason that streamlabs can't step in to help provide that infrastructure if it's cost effective (i.e. if the streamer is paying) -- surely a streamer is going to be willing to drop $50 on extra resources for a stream if they think it's going to bring them >$50 worth of recognition/good content for their streamers. Streamlabs wouldn't even have to keep these resources on hand, they could spin them up on demand and just charge a slight premium. Even better, streamlabs could give streamers easy tools to enable purchasing cloud resources for better stream quality, and charge them for the convenience (and let them know of course that they pay the AWS bills at the end of the day).
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Won't work for sure.
Alternative: The only shortcut (which is also interesting from a technical standpoint) I know of is going with this things 100% into crypto (but not develop your own crypto currency, use established ones like BTC, XRP, LTC, ETH). I'm not a big crypto fanboy but this is an area where it shines, of course it will make your audience smaller!
Alternative: The only shortcut (which is also interesting from a technical standpoint) I know of is going with this things 100% into crypto (but not develop your own crypto currency, use established ones like BTC, XRP, LTC, ETH). I'm not a big crypto fanboy but this is an area where it shines, of course it will make your audience smaller!
Could you discuss why?
You are not directly dependent on banks, financial companies and all the regulations they have. Actually you only need to concentrate then mostly on the software side and keep sure that nothing really illegal happens on your platform (sooner or later you also need legal advice with this thing!).
And it will lower your costs because no middleman needs to be payed here (except maybe you alone)
I think I'm misreading your response, those sounds like benefits, not reasons that it definitely wouldn't work?
I've edited my response once again. Yes it could definitely work with crypto :) at the cost that your audience will be smaller. At least you are less dependent on good working financial partners/banks/visa etc. for this setup.
Gotcha, thanks for clarifying!
I agree that crypto honestly exactly is what would have solved this problem, if it had come to be used as it was intended, as a currency versus a store of value. It's still early days in the course of human history (hopefully), I'm cautiously optimistic about bitcoin at every moment when I'm not bashing it :)
I agree that crypto honestly exactly is what would have solved this problem, if it had come to be used as it was intended, as a currency versus a store of value. It's still early days in the course of human history (hopefully), I'm cautiously optimistic about bitcoin at every moment when I'm not bashing it :)
Patreon does this automatically. I, as a patreon, do not want to be sent somewhere each month to confirm my payment.
You're saying that patreon provides this for you automatically right -- I wasn't disagreeing with that... That's part of the value that patreon provides and I recognize that.
With regards to your comment, you're right that it's inconvenient but that can be worked on (API integrations?), and even if it can't, the people who are willing to confirm monthly payments to things they support might not be 0.
With regards to your comment, you're right that it's inconvenient but that can be worked on (API integrations?), and even if it can't, the people who are willing to confirm monthly payments to things they support might not be 0.
How would you get paid in that scenario?
A subscription might work, or trying to get payment from the creators to be on the system.
It's a bit of a chicken and egg problem of course -- as the service needs to be popular to justify a creator paying anything, but that's the same regardless, and if the price is right then you can at least get people in the door. for example $12 (so $1/month) for a high quality patreon funnel that you don't maintain and also (theoretically) helps people discovery you doesn't seem like an impossible sell.
It's a bit of a chicken and egg problem of course -- as the service needs to be popular to justify a creator paying anything, but that's the same regardless, and if the price is right then you can at least get people in the door. for example $12 (so $1/month) for a high quality patreon funnel that you don't maintain and also (theoretically) helps people discovery you doesn't seem like an impossible sell.
There is, read my last comment on this thread.
May I ask what is pushing you to want to create a competitor?
I bet it is because you strongly disagree with their stance on free speech (they ban creators based on all type of nonsense backed with the typical "Hate speech" excuse). This is actually a very difficult problem, as you will now depends on Stripe, and behind that Visa and Mastercard. Those companies will happily ban you if you support any creator that isn't Politically correct based on the consensus at that time.
I'm myself considering jumping into that space, but the financial world is held together by a couple of Titans, and it is unfortunately extremely difficult to go against the general "mobbing" that happens on the usual platforms.
I bet it is because you strongly disagree with their stance on free speech (they ban creators based on all type of nonsense backed with the typical "Hate speech" excuse). This is actually a very difficult problem, as you will now depends on Stripe, and behind that Visa and Mastercard. Those companies will happily ban you if you support any creator that isn't Politically correct based on the consensus at that time.
I'm myself considering jumping into that space, but the financial world is held together by a couple of Titans, and it is unfortunately extremely difficult to go against the general "mobbing" that happens on the usual platforms.
No, that's not the reason. Also it's not a direct competitor, I want to focus more on microtips.
Start with a legal team. Seriously.
That said, I feel like this is a bit of a weird post for HN. You are asking the hardest questions of “How do I build a successful competitor to an already successful competitor?” - isn’t that the essence of founding a company?
Like i don’t want to discourage thoughtful discussions on this site and I’m not saying any rules are being broken, but it feels a bit disingenuous to be asking these questions in the sense that people that have real answers to this are probably charging REAL fees, if not already doing the whole thing themselves.
That said, I feel like this is a bit of a weird post for HN. You are asking the hardest questions of “How do I build a successful competitor to an already successful competitor?” - isn’t that the essence of founding a company?
Like i don’t want to discourage thoughtful discussions on this site and I’m not saying any rules are being broken, but it feels a bit disingenuous to be asking these questions in the sense that people that have real answers to this are probably charging REAL fees, if not already doing the whole thing themselves.
I didn't mean a clone of Patreon or anything like that. On the tech side, it's quite different, but on financial side it's similar, so the easiest way to ask about it was to refer to Patreon as the most widely known service with this type of setup.
Not OP, but I think there are tons of different application of the basic idea that patreon is based on. I took this as a technical question which could also be worded as "how do I build a service where I can link a buyer with a seller and earn money on that transaction?"
The OP specifically states that they know the technical part and are asking about the "financial side".
But - > "How do I build a service where I can link a buyer with a seller and earn money on that transaction?"
I googled that exact phrase just to see what came up, and the first link was this: https://www.sharetribe.com/academy/how-to-design-your-market...
Which highlights Paypal and Stripe as clear and strong answers to this question, which I'd expect most people asking it to already know - it's the other questions that are tougher.
But - > "How do I build a service where I can link a buyer with a seller and earn money on that transaction?"
I googled that exact phrase just to see what came up, and the first link was this: https://www.sharetribe.com/academy/how-to-design-your-market...
Which highlights Paypal and Stripe as clear and strong answers to this question, which I'd expect most people asking it to already know - it's the other questions that are tougher.
That article is about creating a marketplace rather than a "support" type of setup that Patreon has. From a financial & compliance POV it's quite different because it's not a payment for a specific product.
On a code specific sidenote there's LibrePay which is open source under CC0. This might be a good starting point code wise. If you do make a profit off their codebase I advise you donate some back to them, but you're under no obligation to do so, likewise with any code improvements, but again no obligation. I know you're asking more business geared questions, but figure it wouldn't hurt to mention. The only thing is LibrePay doesn't take a cut, not sure if you'd have to go out of your way to implement that 'cut' into the service. But reading about their setup might guide you towards what you do need to do in order to start your service. I am no lawyer, financial or other kind of expert (just a lowly Software Engineer on HN), just pointing out availability options.
https://github.com/liberapay/liberapay.com
https://github.com/liberapay/liberapay.com
Here's a post about a story that made the rounds back when Patreon made some changes a while back: https://geoffkratz.wordpress.com/2017/12/10/is-patreon-about... It should give you a few pointers on things not to do in order to steer clear of violating financial regulations. It's probably far from a complete list, but should give you some starting points of things you'll need to be aware of.
Although that post should have a heavy disclaimer to talk to a lawyer; I wouldn't risk my savings/a business based on a blog post.
Yep, that's why I only suggested it as a starting point. Anyone embarking on a business that potentially involves a (heavily) regulated industry needs to step carefully.
There needs to be a Patreon alternative. I decided to contribute to a favourite author and found that I could register for an account, but logging on and paying people? Ha! I'm not a robot but I'm fscked if I'm going to battle through 19 Captchas (I gave up at 19). I even wrote to Patreon but not even the courtesy of a reply was forthcoming.
Sod'em
/rant
Sod'em
/rant
People are trying. See Hatreon (shut down) (https://hatreon.net/) and NewProject2 (https://newproject2.com/)
As a creator on Patreon, I find this disturbing. I've had problems battling through captchas to log in, but I didn't consider the supporter side. I wonder what's going on there.
Were you trying to do it through Tor or some other system that resulted in you having a sketchy origin IP?
I was pondering doing a stellar based platform for this a few weeks ago. It wouldn't be that hard to do technically but there are many legal and practical hurdles.
Using something like stellar would sidestep some of the financial headaches around trying to do this through the existing financial system at the cost of being less user friendly. IMHO particularly recurring payments would be a big headache (like monthly donations). On the flipside, any fiat interactions, and the associated tax consequences would be offloaded to exchanges and users.
One cool thing that you could do with stellar is use so-called federated accounts to represent content owners and users. This simply means you have a database with accounts that you map incoming payments (from stellar) to based on a memo that is attached to the transaction. So, this allows us to have lots of accounts represented by a single stellar wallet. More importantly, it allows most of the users/owners to sidestep the issue of wallet and key management until they have to care. And finally it allows us to do micro payments. Imagine distributing 5$ worth of XLM or whatever token on stellar across hundreds of content owners based on likes or preferences of the user.
Another thing you could do is represent content owners preemptively (i.e. before they've even heard of you) with their own little federated wallet. The way that could work is that users reward whatever they think is worth rewarding and those rewards go to a dedicated account for the content owner. When owners register, they claim their rewards by proving ownership, doing KYC, and whatever else we need them to. Unclaimed rewards simply get redistributed periodically to selected good causes related to open content (e.g. wikimedia).
Building this technically is not that hard. But the organizational challenges around this are big. You need legal staffing and IMHO this only makes sense when run as a foundation and not as a VC funded walled garden/money grab for investors & shareholders. The foundation itself could run off donations via its own platform plus maybe some kind of base fee of e.g. 2-3%. When restricted to R&D and operational cost, it should not need a lot of resources and IMHO incentives for profit contradict the overall goal of the site which is to allow users to reward content producers.
Using something like stellar would sidestep some of the financial headaches around trying to do this through the existing financial system at the cost of being less user friendly. IMHO particularly recurring payments would be a big headache (like monthly donations). On the flipside, any fiat interactions, and the associated tax consequences would be offloaded to exchanges and users.
One cool thing that you could do with stellar is use so-called federated accounts to represent content owners and users. This simply means you have a database with accounts that you map incoming payments (from stellar) to based on a memo that is attached to the transaction. So, this allows us to have lots of accounts represented by a single stellar wallet. More importantly, it allows most of the users/owners to sidestep the issue of wallet and key management until they have to care. And finally it allows us to do micro payments. Imagine distributing 5$ worth of XLM or whatever token on stellar across hundreds of content owners based on likes or preferences of the user.
Another thing you could do is represent content owners preemptively (i.e. before they've even heard of you) with their own little federated wallet. The way that could work is that users reward whatever they think is worth rewarding and those rewards go to a dedicated account for the content owner. When owners register, they claim their rewards by proving ownership, doing KYC, and whatever else we need them to. Unclaimed rewards simply get redistributed periodically to selected good causes related to open content (e.g. wikimedia).
Building this technically is not that hard. But the organizational challenges around this are big. You need legal staffing and IMHO this only makes sense when run as a foundation and not as a VC funded walled garden/money grab for investors & shareholders. The foundation itself could run off donations via its own platform plus maybe some kind of base fee of e.g. 2-3%. When restricted to R&D and operational cost, it should not need a lot of resources and IMHO incentives for profit contradict the overall goal of the site which is to allow users to reward content producers.
Don't want to discourage you but money health and law are the three worst thing to work with in IT
First of all you can't neither "term-of-service-away" nor delegate diligence, second because the regulatory frameworks around them updates almost yearly if not more often.
Self research these three topics doesn't seem a good idea. Budget for or partner up with an expert in the field, because even using a third party service doesn't fully absolve you from responsibilities.
First of all you can't neither "term-of-service-away" nor delegate diligence, second because the regulatory frameworks around them updates almost yearly if not more often.
Self research these three topics doesn't seem a good idea. Budget for or partner up with an expert in the field, because even using a third party service doesn't fully absolve you from responsibilities.
This is a really hard problem. You do not want to have to register as a bank or hire an expensive compliance team. Use Stripe.
It's not a "hard problem" in the typical sense of the term. Money is not fundamentally hard -- the current state of financial law is what makes this hard. It's just a regulatory nightmare which makes this problem infeasible for random, unconnected people to try and solve.
sounds like a hard problem to me!
Does Stripe actually allow this type of use though? Does it have to be special agreement / account with them or just a regular plain stripe account?
They literally have a product for this use case, it's called Stripe Connect.
Hire someone that knows the answer, ideally someone that's worked on exactly this type of system before. Don't make any decisions about something this delicate based on the advice of random people on the internet.
From a short cut perspective, you could do the following:
Require each of your customers (creators) to sign up for a Stripe account and have them input into your system their processing keys. Whenever somebody wants to pay them, use their keys to process the payment and it goes directly into their Stripe account. This would offload all legal liabilities (Stripe would determine whether their business is okay to operate from a processing standpoint) and tax responsibilities fall completely on them.
Here are the drawbacks:
1) You wouldn’t be able to automatically take a percent of a creator’s billings but rather would have to calculate it and invoice them / charge their card
2) Patrons wouldn’t be able to save a credit card and use it across multiple creators
3) Your fees would be on top of the 2.9% that Stripe charges a creator which would be limited to 2.1% if you want to compete with Patreon at 5%
Require each of your customers (creators) to sign up for a Stripe account and have them input into your system their processing keys. Whenever somebody wants to pay them, use their keys to process the payment and it goes directly into their Stripe account. This would offload all legal liabilities (Stripe would determine whether their business is okay to operate from a processing standpoint) and tax responsibilities fall completely on them.
Here are the drawbacks:
1) You wouldn’t be able to automatically take a percent of a creator’s billings but rather would have to calculate it and invoice them / charge their card
2) Patrons wouldn’t be able to save a credit card and use it across multiple creators
3) Your fees would be on top of the 2.9% that Stripe charges a creator which would be limited to 2.1% if you want to compete with Patreon at 5%
> You wouldn’t be able to automatically take a percent of a creator’s billings but rather would have to calculate it and invoice them / charge their card
Stripe Connect allows you to collect an "application fee": https://stripe.com/docs/connect/direct-charges#collecting-fe...
Stripe Connect allows you to collect an "application fee": https://stripe.com/docs/connect/direct-charges#collecting-fe...
There was a story on HN a while ago about Bootstrapping 10er, a Patreon-similar service for Danish creators https://news.ycombinator.com/item?id=18820196
It was a single person running it.
Oh wow, I had no idea failory did success interviews.. I've been assuming anything that's appeared there has shut down
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In Europe you would need to set yourself up as a payment services provider (PSP). I believe the US has a similar regime. https://paymentscompliance.com/us-money-transmitters
You'll need a reasonable amount of capital behind you. Next step would be to find a law firm specialising in payments and go and get some advice.
Heya, I built something similar for a startup usig stripe connect:
https://stripe.com/connect
I'd start with their docs.
We pushed all tax concerns to the client (we used standard accounts for our sellers, which might not be an option for you) and made it clear it was their responsibility.
The downside was the price. Not a lot of alternatives at the time (Braintree, PayPal) but that may have changed.
https://stripe.com/connect
I'd start with their docs.
We pushed all tax concerns to the client (we used standard accounts for our sellers, which might not be an option for you) and made it clear it was their responsibility.
The downside was the price. Not a lot of alternatives at the time (Braintree, PayPal) but that may have changed.
Oh boy. You are in a world of hurt here.
The issue here is on the banking regulations than the technical side. The technical side here is a breeze, an absolute breeze that any technically competent developer can knock out a Patreon clone in about a week.
I've gone through most of the answers already and not surprised by the lack of knowledge. I've been looking at banking for the l8 months - almost 2 years. My next step is to approach someone competent and with a track record in the industry to start up a fintech company and approach a bank to start the long process of becoming a bank.
But I digress :)
To do this yourself. Let me explain the following steps you'll need to fulfil.
1) The ability to on-board individuals and perform KYC.
2) Taking and validating the individuals bank account for payments.
3) Processing credit card payments and splitting them up between the % for you and the rest for the creator.
4) Dealing with fraud when taking the credit card payments.
5) Sending the payment to the creator and doing FX spot transactions where necessary.
6) Performing AML on each payment.
There's so much more, but I want to keep this post succinct.
As others have said. Stripe is the quickest shortcut to this. They have already built it all out and you just need to connect your platform to their API.
The downside is that whether rightly or wrongly. Patreon is their preferred partner in this space. Let's say "Sargon of Akkad" joined your platform and Stripe is processing your payments. You would be shut down when word got out.
If you don't understand what I mean. Please do some googling. I won't go into it with this post.
Now if you definitely want to do this yourself, here are some of the problems you'll face.
The first thing you need to realise, that by not actually running right now. No credit card processor is going to touch you. I've been knocked back by many processors because I have no volume. It's a chicken and egg problem. How can I start if I have no credit card processor? They don't care.
If you do find a credit card processor, there are still some issues. Can the processor split the incoming payment? Many can't. If that is the case you'll have to become the merchant of record which means you'll be responsible for all the chargebacks/refunds/etc instead of the creator. But then also means you'll need banking licenses for all the geo-locations of the individuals that on-board on the platform. The reason being that you are holding client's monies.
The next thing is that KYC and AML checks are very expensive. Although the credit card processor will do the checks themselves, you'll have to do it as well when monies flow into your account. You'll have to KYC the individual on-board and then AML whenever a payment is sent out. I haven't yet found an all you can eat. They want you to purchase packs ahead of time and also they run out. Also KYC and AML are separate companies as well. So that's double the cost.
The next thing is that you'll need to find a company to help you sending ACH payments and then either SWIFT or XRP for international payment as well.
Finally, there is another way. If you do find a credit card processor that can on-board individuals and hold them accountable for the payments instead of you and can then split the payments and put the funds in their home bank account or an intermediary for moving on later. Subscribe Star does something similar to this. You can achieve that.
However, you are back to square one. You are not current processing and thus service providers won't work with you.
You have a long road ahead. I suggest going with Stripe. Build out your platform, get some processing and when you want to cut the cord with Stripe. The other financial service providers will be willing to work with you. Because you'll have volume.
Oh and ensure you have well over 100k a month of transactions. That's the sweet spot from my many conversations. I've lost count now of how many service providers I have spoken to. 250 or more lol.
The issue here is on the banking regulations than the technical side. The technical side here is a breeze, an absolute breeze that any technically competent developer can knock out a Patreon clone in about a week.
I've gone through most of the answers already and not surprised by the lack of knowledge. I've been looking at banking for the l8 months - almost 2 years. My next step is to approach someone competent and with a track record in the industry to start up a fintech company and approach a bank to start the long process of becoming a bank.
But I digress :)
To do this yourself. Let me explain the following steps you'll need to fulfil.
1) The ability to on-board individuals and perform KYC.
2) Taking and validating the individuals bank account for payments.
3) Processing credit card payments and splitting them up between the % for you and the rest for the creator.
4) Dealing with fraud when taking the credit card payments.
5) Sending the payment to the creator and doing FX spot transactions where necessary.
6) Performing AML on each payment.
There's so much more, but I want to keep this post succinct.
As others have said. Stripe is the quickest shortcut to this. They have already built it all out and you just need to connect your platform to their API.
The downside is that whether rightly or wrongly. Patreon is their preferred partner in this space. Let's say "Sargon of Akkad" joined your platform and Stripe is processing your payments. You would be shut down when word got out.
If you don't understand what I mean. Please do some googling. I won't go into it with this post.
Now if you definitely want to do this yourself, here are some of the problems you'll face.
The first thing you need to realise, that by not actually running right now. No credit card processor is going to touch you. I've been knocked back by many processors because I have no volume. It's a chicken and egg problem. How can I start if I have no credit card processor? They don't care.
If you do find a credit card processor, there are still some issues. Can the processor split the incoming payment? Many can't. If that is the case you'll have to become the merchant of record which means you'll be responsible for all the chargebacks/refunds/etc instead of the creator. But then also means you'll need banking licenses for all the geo-locations of the individuals that on-board on the platform. The reason being that you are holding client's monies.
The next thing is that KYC and AML checks are very expensive. Although the credit card processor will do the checks themselves, you'll have to do it as well when monies flow into your account. You'll have to KYC the individual on-board and then AML whenever a payment is sent out. I haven't yet found an all you can eat. They want you to purchase packs ahead of time and also they run out. Also KYC and AML are separate companies as well. So that's double the cost.
The next thing is that you'll need to find a company to help you sending ACH payments and then either SWIFT or XRP for international payment as well.
Finally, there is another way. If you do find a credit card processor that can on-board individuals and hold them accountable for the payments instead of you and can then split the payments and put the funds in their home bank account or an intermediary for moving on later. Subscribe Star does something similar to this. You can achieve that.
However, you are back to square one. You are not current processing and thus service providers won't work with you.
You have a long road ahead. I suggest going with Stripe. Build out your platform, get some processing and when you want to cut the cord with Stripe. The other financial service providers will be willing to work with you. Because you'll have volume.
Oh and ensure you have well over 100k a month of transactions. That's the sweet spot from my many conversations. I've lost count now of how many service providers I have spoken to. 250 or more lol.
If I were to withhold 3% of everyone’s total to cover credit card fees plus $0.10 per every transaction because the bank fees range from 1%-3% per card and it’s difficult to sort them, would it be legally acceptable? Any insights?
I wish you the best with this if you do move forward!
Lots of room for competitors in this space for now. I think one of your focus should be on helping someone that was previously on Patreon make more on your platform.
Lots of room for competitors in this space for now. I think one of your focus should be on helping someone that was previously on Patreon make more on your platform.
Related: How to create Stripe or Paypal? Again, from the finance and I guess soft-skill perspective. Do I need to negotiate with particular banks, countries, etc...?
I would also be interested in the technical side of it. What kind of domain model, system design would you use? What tech stack would be suitable? etc.
Sharetribe does this as a service, and I don't understand why they are not bigger than Patreon.
Before reading this thread, I had all but written off cryptocurrencies. This is the use case. Now the only thing missing is content compelling and unique enough for people to buy the tokens to access it.
Funny that it will be art that will do what gambling, drugs, money laundering, tax evasion, and black markets could not.
Before reading this thread, I had all but written off cryptocurrencies. This is the use case. Now the only thing missing is content compelling and unique enough for people to buy the tokens to access it.
Funny that it will be art that will do what gambling, drugs, money laundering, tax evasion, and black markets could not.
My advice would be to join Patreon/Stripe/some other payment services company, and realize that it isn't something a single engineer, no matter how skilled, can throw together in a week, a month, a year, or a decade.
How did Patreon start exactly? IIRC it was just two guys without major backers, I'm really curious what was their MVP like.
Stripe Connect [1] handles almost everything for you. A single engineer could definitely build something with this, maybe in a few weeks or months.
[1] https://stripe.com/connect
[1] https://stripe.com/connect
there is an uncensored version using Bitcoin at bitpatreon
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There was an alternative named Hatron that used Visa until Visa pulled services because they funded conservatives. Libertarians, and white nationals.
So contact the credit card companies and watch who you fund.
So contact the credit card companies and watch who you fund.
it was probably the white nationalists that caused visa to pull out
Yeah. And I mean, they called it Hatreon. "What if Patreon but for hate" is _the brand_. They weren't subtle.
My friend does it, he operates a company (In NYC) which accepts the payments and he then wires the creators after holding back X% in reserve fee less the service fee
He's been doing it for a while (4 years) now averaging 500K per month in payments.
All his customers are people from third world or second world countries like Russia, India etc...where accepting international credit cards is bit difficult and probably has more fees.
He raises invoices in his own company name then the creators are written off as independent contractors.
So creators will need to do their own taxes.
He's using Braintree and Stripe and load balancing between these two.
He's one man show and knows nothing about law/accounting.
He also got one accountant who is helping him calculate and make financial reports
It can be done I guess
He's been doing it for a while (4 years) now averaging 500K per month in payments.
All his customers are people from third world or second world countries like Russia, India etc...where accepting international credit cards is bit difficult and probably has more fees.
He raises invoices in his own company name then the creators are written off as independent contractors.
So creators will need to do their own taxes.
He's using Braintree and Stripe and load balancing between these two.
He's one man show and knows nothing about law/accounting.
He also got one accountant who is helping him calculate and make financial reports
It can be done I guess
There are a lot of sites doing similar things, which aren’t as well known as Patreon. Patreon is popular, but it does have some drawbacks, such as only taking USD.
Some alternatives include:
Sther - A site all about inclusivity, aimed at the LGBTQ and POC communities. Steady - Designed more as a way for freelancers to fund their work. Podia - Recently launched membership crowdfunding, building on their short course and digital download platform. Ko-Fi - It is a freemium model that requires paid membership to receive monthly payments from fans, instead of one offs. Drip - A recently opened membership funding site which is owned by Kickstarter. Liberapay - A site for repeat donations. Open Collective - for transparent ongoing funding of groups. Backerpass - Another membership funding alternative, based on reaching goals. SubscribeStar - For subscribing to Social Media influencers and helping them with payment subscriptions. Collide - Yet another alternative which has recently been launched. Ratafire - Another small creator membership site. Minds - A Cryptocurrency option for subscriptions. Kind of. I’m sure there’ll be many more sites like these in future, as fan funding is certainly something that’s catching on!
Some alternatives include:
Sther - A site all about inclusivity, aimed at the LGBTQ and POC communities. Steady - Designed more as a way for freelancers to fund their work. Podia - Recently launched membership crowdfunding, building on their short course and digital download platform. Ko-Fi - It is a freemium model that requires paid membership to receive monthly payments from fans, instead of one offs. Drip - A recently opened membership funding site which is owned by Kickstarter. Liberapay - A site for repeat donations. Open Collective - for transparent ongoing funding of groups. Backerpass - Another membership funding alternative, based on reaching goals. SubscribeStar - For subscribing to Social Media influencers and helping them with payment subscriptions. Collide - Yet another alternative which has recently been launched. Ratafire - Another small creator membership site. Minds - A Cryptocurrency option for subscriptions. Kind of. I’m sure there’ll be many more sites like these in future, as fan funding is certainly something that’s catching on!
Let's not forget about Tipeee, which might be the only platform actually not in debt (they merely raised 150 000€ 3 years ago, and officially declared benefits last year).
Open Collective has the most fiddly website I've ever tried (and failed) to use. I eventually gave up asked the project I wanted to fund to add a Patreon page.
Liberapay looks promising.
Liberapay looks promising.
Partner up with someone knowledgeable, perhaps a paralegal who has worked in finance. They will know when to call in the big guns.
OP needs a team of experienced regulatory compliance attorneys. Suggesting a paralegal to assist with this issue is akin to suggesting an x-ray technician to help
someone who needs surgery.