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Merchants that think payment services should leverage software, be simple to integrate, carry low or no fees, and include digital-currency choices have a champion in PayStand, a startup that emerged Tuesday from private beta with $1 million in funding and a promise of no transaction fees for online sellers.
The Santa Cruz, Calif.-based company began operations last summer with a wait list that ultimately attracted some 2,000 merchants, according to Jeremy Almond, founder and chief executive. “We have multiple hundreds using the product with no announcement other than word of mouth,” he tells Digital Transactions News, though he won’t be more specific. “We know this is ultimately a really big market,” he says, referring to the small and medium-size retailers, professional-services companies, and non-profit organizations that are signing up so far. “Now we feel it’s time to open the doors.”
PayStand promises it can set up sellers and non-profits to accept card, e-check, and digital-currency transactions in five minutes. Merchants have the option of turning payment choices such as cards or Bitcoin on or off at any time. But at a time when merchants and card networks are at loggerheads as never before over transaction costs, the startup’s biggest selling point is its promise of zero transaction fees.
Instead of a fee per payment, merchants pay a fixed monthly subscription fee tiered at three levels, $49, $99, and $299. The level is determined by such factors as number of items for sale, images per item, and whether the seller wants to support recurring transactions and subscriptions.
While Bitcoin and e-check transactions (which are handled through an arrangement with Des Moines, Iowa-based processor Dwolla) carry no or very low transaction costs, neither PayStand nor its merchants can eliminate interchange and other credit and debit card acceptance costs. “We can’t wave a magic wand and make interchange go away completely,” Almond concedes.
So PayStand’s technology allows merchants to pass card discount fees on to customers. The idea, says Almond, is to make consumers aware of the costs cards impose and to contrast these costs with the cost of such alternatives as digital currency. “Consumers need to know that if they choose to use credit, they can, but there’s a cost to that,” Almond says. Besides e-checks and Bitcoin, PayStand accepts American Express, Discover, MasterCard, and Visa.
As with payment options, merchants can turn the pass-along option on or off at any time. If they turn it off, they must absorb card fees themselves. Almond says the majority of the merchants on the platform now has turned it on, but has also enabled e-check and Bitcoin to give customers an option without a fee. “This is really the first time someone has tried this concept at the digital level,” Almond says.
As for Bitcoin, Almond argues the time is right, despite the currency’s volatility and other issues. “Change is happening on the digital-currency side,” he says. “It’s sort of the gorilla in the room.”
Still, PayStand has rivals that have also emerged recently to use a software-based platform to serve merchants’ payments needs. Stripe, for example, has attracted prominent online sellers and service providers like Foursquare, Lyft, Rackspace, and Reddit. It also provides processing for Shopify, a fast-growing e-commerce platform. Stripe, however, charges 2.9% plus 30 cents per transaction, in contrast to PayStand’s fixed monthly fee.
Like these competitors, PayStand can act as a merchant aggregator, taking advantage of card-network rules to let small sellers piggyback on its merchant account. Larger sellers, however, use their own account, Almond says. He says the company uses more than one sponsor bank, but won’t name them.
Besides existing competition, a signal challenge for PayStand is that, despite ongoing fee disputes, payments may not be online merchants’ biggest focus right now, argues Dan Schatt, a former PayPal executive who has recently finished a book on electronic payments and mobile commerce. “Payment isn’t ultimately the pain point these days,” he says. “Chargebacks and returns, facilitating cross-border sales, that’s much more important.”
Services that support loyalty and exception handling, Schatt says, are more likely to attract merchants. “It gets down to [the fact that] you’ve got to go beyond payments,” he adds.
Almond doesn’t tip his hand on future services, but does say PayStand is likely to follow PayPal into physical stores. “There’s no doubt that in the long run we’d like to be there,” he says.
Backing PayStand are Cervin Ventures, Serra Ventures, Central Coast Angels, and TiE LaunchPad.
