I don't think this is it. If Patreon is using Stripe, they are likely using "Stripe Connect" (https://stripe.com/connect) - which was built specifically for marketplaces like Patreon to take in funds and pay out. The compliance/legal issues around being a money services business are automatically handled by Stripe in this case.
My hypothesis is that this is really around fraud risk more than anything. Batched payments are notoriously confusing to cc customers. If you made a bunch of small donations and got confused as to why you saw one $18.XX charge on your credit card statement, you might open a dispute with your bank, which would have the action of automatically reversing the entire charge with Patreon's processor (i.e. Stripe). Assuming Patreon is eating this and not reversing every donation that is currently batched, then the average chargeback amount (and therefore loss to Patreon) is much higher in the current scenario than if donations are charged individually.
I don't see the 'balance' issue as an inherent part of batched payments. Your hypothesis makes far more sense.
It's like a customer with a shopping cart of items from different vendors. The additional complication of some of those vendors also turning around to support others is interesting... That part I could see needing to be cut or at least discussed with legal. However if /that/ were the issue they could do much better PR by being upfront and public about it.
It's rare to see a company destroy itself so quickly and thoroughly.
"Hey, our company does exactly one thing: saves people from paying a bunch of processing fees to send someone $1 a month. Let's get rid of that!"
That this is apparently an intentional move to get rid of small fry creators is icing on the cake.
"Hi, New York Yankees manager here! We only want superstars on our team, therefore, as of next week, I am disbanding our entire farm system. That's right! No more non-superstars on the Yankees payroll! I can't see any possible problem with this."
Most of the patron outrage is because this change was done unilaterally (I don't think I had to click through anything to agree to the new fee structure).
There are two changes, one to pledge amounts and the other to payment schedule / batching. I'm only going to talk about the pledge amounts.
A much more palatable way to roll out the pledge amount change would have been:
1. give more notice. I got an email on Dec 7th announcing that the new fee structure would take effect on Dec 18th. Unless there were some urgent circumstances for the company, this should have been more like 3 months between announcement and implementation.
2. There seems to be at least two options for Fee Change Day:
a) increase 'base' pledge amounts so that the creator gets 95% of the purported pledge. That is if the pledge is for $1 / mo right now, increase it to $1.32 / mo (depending on payment provider) so that the creator gets the $0.95 / mo that Patreon says is "more clear".
b) The other obvious option is to keep the base pledge amount the same and the creator ends up with less money coming in.
I would have made 'b' the default and communicated a lot to inform patrons something like "We had to change fee structures to stay afloat and to make pledges less confusing for everybody. We defaulted everybody to paying the same amount because we don't want to bust anybody's budget. CLICK HERE to review your pledges and make any adjustments to make sure the creators you love get what you think they deserve." and then the resulting page has a super obvious pancake button on each pledge (and one for 'do it for all pledges') that adjusts their pledge to option 'a' above, but critically let them adjust it to whatever they want. I think over time people are more likely to increase pledges if they have the occasion to rather than decrease them, so Patreon could have actually come out ahead through the generosity of patrons.
The reasons invoked by patreon were a bit different (see the update in their blog post[1]), they argued that
- the new model would make it easier to understand for creators (they are now certain to earn 95% of each pledge, where they could earn less before)
- it also makes it clearer for patrons, because now they are paying exactly at the date they made the pledge. And it also avoids double spend for CUF (charge up front) payments, where you could pay twice the pledge within a few days.
But your point is interesting, I hope patreon will give more details about this. If this is true, the business model itself is flawed, and competitors (drip, gratispay, liberapay) will face the same issue.
> "the business model itself is flawed, and competitors (drip, gratispay, liberapay) will face the same issue"
It's only an issue if the goal is to make the platform itself highly profitable. Some of its competitors are driven by a desire to support creators. Patreon used to be, as it was started to support YouTube creators, but clearly they've lost focus and forgotten the platform itself was only meant to be a means to an end.
This argument is interesting, but I don’t think it’s true. The App Store batches payments to bill the card once every few days (making $0.99 songs and apps cost effective), and Apple didn’t register as a money transmitter.
Amazon, Apple, Google, Intuit and PayPal are lobbying for national regulation of money transmitters to solve that problem. They have a lobbying front, "Financial Innovation Now", for this.[1] What they want reads like a giveaway to the "payday loan" business, though. They want federal preemption of state usury laws.
Right, this is odd speculation completely divorced from anything Patreon or Jack Conte has said. Unless you're a lawyer or an accountant or something, it's silly to hypothesize that some legal requirement has doomed their heretofore successful business model.
There's some discussion of this in the Gratipay buy reports related to their issues, and apparently taking payments for goods and services is somewhat exempt from classification as a money services business.
This theory is plausible but I don't think it's a perfect explanation. Someone else has pointed out that Apple does the same thing and does not run afoul of money transmitter regulations. But I would point out that Patreon has faced a ton of heat for this decision, they KNEW they were going to, and they could easily have said "We had to do this so we didn't run afoul of money transmitter regulations."
My theory is that this is mostly making people angry because it addresses the pains of a different group of creators.
We know that Patreon exhibits a winner-take-all dynamic, in that the largest creators are orders of magnitude more successful than the average creator, similar to music, books, and other entertainment markets. (I suspect that Patreon also has a "whales" dynamic, where a small number of patrons are responsible for an outsized proportion of payments, but that is not necessary for this explanation).
The largest creators on Patreon face a free-rider problem with the existing system. Someone can subscribe, access the back catalog of content, then cancel without ever reaching the batch date. The largest creators are probably giving Patreon the feedback that this is a major issue. Since the largest creators make up 80-99% of Patreons revenue, the solution for them is to make the first month an immediate payment, but to do that means you need to get rid of batching.
Small creators also face the free-rider problem, but most aren't doing it as a professional enterprise (by definition they don't make a living off it). They face less of an risk of piracy since no one is motivated to pirate everything, and they care less in any case since the stakes are lower. The patrons who support the small creators mostly are supporting many, so they will have to pay a much larger tax to PayPal and Stripe under the new system, but since this isn't really where Patreon's bread is buttered, their concerns did not control the product decision.
Other explanations (fraud, money service regulations, unwillingness to take on technical complexity) can explain why they didn't follow any of the obvious mitigation strategies (like prorating the second month) but they don't explain fundamentally why this change is being made despite the obvious harm it causes to vocal prior fans of the company.
The fact that Patreon is trying to put an altruistic spin on it is just normal business behavior.
Honestly, if Patreon would just invoice me like everyone else does and let me do an ACH/electronic check payment to get current, they could skip the CC payment fees all together. ACH isnt free, but my understanding is that it's a lot cheaper than processing credit cards.
I used to work in finance and this theory makes a bunch of sense to me.
One way they could address this is to focus bundling on the content side. The scenario. PatreonX then operates as a monthly online magazine with variable content (patronize/subscribe to the creators you like). Content from creators is held until the monthly publication date. Everyone is charged for the content they patronize on publication date. Creators are paid once the bookkeeping is done. The people who use Patreon to collect funds to support other activity could issue a monthly "progress report" as their content (a paragraph or two).
Not hugely surprised. This is probably why many systems, like Steam, won't let you take money back out of your account.
On the other hand, it makes me curious. If you use Stripe entirely to handle the 'stored value' portion of the system, is it Stripe that assumes the role of being the money transmitter or the service? In Patreon's case, they go between systems, so they manage the balances of stored value - but Stripe is capable of managing per-customer stored value, and it is done for even basic subscription tasks such as prorating.
All in all, I find this subject interesting and will definitely read the Gratipay links when I get a chance.
My ignorant speculation is that the VCs are pushing for them to become a money services business, where Stripe and PayPal are currently external dependencies of theirs.
I mean, if you want the billion dollars valuation, you should presumably be bold enough to solve an actual problem, not to mention one that is so profoundly uninteresting to the customer.
Not to mention one that every app store in existence seems to solve that offer plenty of prepaid options.
The problem of "making patrons pay up front" is one that is profoundly interesting to a certain vocal segment of Patreon's customers: creators who are using Patreon to create a paywall for their work.
As a creator who's been supporting herself via Patreon for a while, I'd like to give Patreon the benefit of the doubt and assume that they do not, in fact have any hidden motives involving "making lots more money" and/or "running afoul of financial regulations". It's worth noting that "paywall-as-a-service" is not the problem Patreon ever set out to solve; they've always been about figuring out how to aggregate micropayments to support creators who are giving stuff away for free.
Sadly, the fact that this change completely breaks the original micropayments-aggregation model makes this hard to do. And their continued insistence that this change is all about "giving creators more money" makes me trust them less and less.
I think we are in agreement. Patreons want the micropayments-aggregation. They are profoundly uninterested in whatever legal quagmire that puts Patreon in, and it is my opinion that this is presumably something a $1B company should work at solving.
My hypothesis is that this is really around fraud risk more than anything. Batched payments are notoriously confusing to cc customers. If you made a bunch of small donations and got confused as to why you saw one $18.XX charge on your credit card statement, you might open a dispute with your bank, which would have the action of automatically reversing the entire charge with Patreon's processor (i.e. Stripe). Assuming Patreon is eating this and not reversing every donation that is currently batched, then the average chargeback amount (and therefore loss to Patreon) is much higher in the current scenario than if donations are charged individually.
In fact, they even wrote about chargebacks and "friendly fraud" in a blog post earlier this year -> https://patreonhq.com/chargebacks-tips-to-fight-friendly-fra...