PA Now Supports Bitcoin Payments

You guys get to hear it first.

Full article here. It was literally released just a few moments ago, but since I like you guys, figured I'd drop a special not here

Next week, I'll drop another note with regards to the things we are planning for the last half of the year, some of which is based on some of your feedback.

Cheers,
j

 

Perfect timing.

 

That will drum up business.

 

True lol.

Not to be rude or anything, but why did it take so long to implement BTC when it's so much secure than Paypal, which is a living nightmare in terms of legal and customer support stuff?

 

Cool, glad to see this back

 

This is great news, good job!

 

still 10% fees? btc is impossible to chargeback, so you should lower ur fees.

 

+1, would never use or refer someone to use btc on PA if the % stays the same.

 

As others have mentioned, you should definitely offer a discount to those using BTC.

 

Yeah BTC should lower up the fees, I can understand for Paypal/others but first of all BTC is not even able to chargeback.

 

Fair question, simplest answer: politics. Both internal & external.

The basic low-down is we had to first establish some additional compliance measures to make sure that our business is above reproach with the legal and regulatory requirements surrounding this special piece of technology. We also had to find the right partner with legitimate banking for which we would feel comfortable moving forward with.

But here it is.

Fees keep coming up don't they? I believe in the near future, I will write a very in-depth article with regards to what our fees actually cover, because there is a lot more involved than just the protections afforded to you guys in the fraud that we swallow. (not even eBay or Amazon protect it's users from Chargebacks, and their fees are anywhere between 10% - 20%, not to mention all of the small premium charges they have for storefronts, offer listing limitations, etc. etc.).

I'll save the business lesson for later, but I will say very candidly, that PlayerAuctions provides a huge service for hundreds of thousands of users, but even at this rate... it doesn't mean we are at critical mass. In fact we are far from it.

Does anyone realistically believe that a business could survive on let's say processing a $100 order and just taking $5? (that is optimistic btw, our average order value is much smaller than that)

Well. We could. I would just have to fire half the staff (around 25 people), adopt the eBay system of direct payments [i.e. we no longer protect seller's payments], and consign ourselves to never growing [i.e. no budget for marketing... which is already pennies compared to what our competitors spend].

I don't believe this would keep coming up, if we did a better job of making the economics of a c2c platform more transparent. I'll write something up later with more details. If you guys understood the reality, you'd likely be brand ambassadors of PA rather than detractors (we fracking do a lot , on a very very lean model:love: ). The cold reality is that there could be a very real possibility of PA no longer existing. For which case, all of us would be back to square one, and all of you would be on your own

 

I understand what you're saying but to counter-business-lesson you, 100 sales at 7% fees is superior to 10 sales at 10% fees.

How many sales did you just lose?

I understand margins and all that but just for this one payment method maybe you could re-run the numbers?

 

You guys are forgetting something, PA is not only accepting the bitcoins and securing your order - they are also paying you guys in PayPal and Skrill. Let's say any of you offer bitcoin as a payment method for a customer (bitcoin is a commonly used payment method by RS Gold customers). If you don't use bitcoin a lot - it may cost you more than 10% of the value of the trade in time / fees to cash out of it and also you run the risk of losing money if the value of btc changes before you withdraw.

On top of this, bitcoin payment processors charge about 1% fee which I'm pretty sure is not added to the purchase price of a payment made through playerauctions. So PA is covering that 1%, plus paying you in PayPal or Skrill and depending on what you're selling and who you're selling to - giving you the customer also. A business needs to earn money to survive, and in my opinion 10% is not an outrageous fee when you consider the seller protection and other benefits. You guys won't even know which orders are made with bitcoin or not as they don't display what payment method was used for individual orders.

TLDR: With PA introducing the bitcoin payment method - it should be seen at the very least an added convenience to those sellers who aren't prepared to accept bitcoins themselves.

 

I understand that PA has plenty of overhead, but the reality is that BTC processing fees are lower than Paypal. You do not need to offer any protection to sellers with BTC, since BTC is 100% irreversible. Buyers essentially forfeit all of their protections when using BTC, and in this industry they expect compensation for that forfeiture.

I am not here claiming that PA's fees are killing us. PA obviously provides orders to many sellers which they would not receive by selling on other platforms. However, they've slowly introduced new fees over history, and now you would be hard-pressed to explain how the 10% you charge does not provide your business enough profit.

PlayerAuctions charges the full transaction costs on both ends of the transaction to the buyer and seller. These are not included in the 10%. The only variable cost you incur on transactions after that point is fraud. You've mentioned your fraud rates to be somewhere around 0.5%. So now you have a 9.5% gross profit margin on all revenue.

Revenues on PA must be near or above $100 Million USD per year. That means you have $9.5M to pay employees, use for marketing, and other overhead. Your employees are mostly based in the Philippines, where labour is very cheap. Even if the average employee cost $100,000 USD annually to retain, that would still be only $5 Million USD @ 50 employees. The real cost of retaining an employee in the Philippines is probably no more than $20,000. Now, you have your marketing costs. These costs are partially used to grow the business, and partially used to maintain current revenues. Either way, you'd be hard-pressed to spend more than $1-1.5M on advertising / marketing. Even an ad on Sythe wouldn't run more than $20,000 per year.

Tell me if I'm missing something. Perhaps I've overvalued you revenues, or under-priced your employee costs. But really, I think you guys should be soaring in your current business structure, and I'd argue that if you aren't, your management team is doing something very wrong.

 

Glad to hear that, maybe someday I'll use it

 

Theoretically you would be correct Snowbear... provided that PA was churning a good profit and could stand to lose a few percentage points in margins.

Conversely, if PA were not churning a good enough profit to sacrifice those margins... then doing so would mean a (potential) cannibalization of current business over to a payment method which contributes less to our bottom-line (meaning, we sink into the red).

The only way this would work, is if by doing the reduced margin, this would create *new* business for us (and lead to critical mass), then I would be 500% on board.

But it is too great a risk to take (i.e. PA could get tanked). There will be some more useful information related to this in my responses below, so check those out.

Arcus is correct on all points, and because he transacts in very large volumes in PA, he probably has a closer understanding to the reality of our margins.

To give you guys an alternative example of what a successful "profitable" secondary market looks like... I would direct you guys to Blizzard. They had done all of the number crunching, and in order to have an acceptable "return on investment" (for all of the development costs, customer support costs, risk management costs, marketing costs, & other operations related items), they needed to set their cut at 15%. Higher than PlayerAuctions (this is one of the reasons why Diablo remained very big on our platform. We were cheaper than Blizzard).

IT DOESN'T STOP THERE

With Blizzard it doesn't stop at 15% however. If you guys recall, that if you chose to use PayPal as your payment method, then an additional 15% was added.

That's 30% to our 10%.

You guys have to trust me, at least a little... when I say we are running *very* lean. And it is because of this leanness that we have some of our current inherent problems (i.e. we don't have customer support to rival starbucks/apple, it takes us a bit of time to develop things [but we're doing way better than before], we have next to nihl of a marketing budget to help grow the business more).

This isn't to say PA is small. But we are not as large as you may imagine (or as large as we could be, more on that... read my responses in the next frame).

Major kudos for your deductions. For all intents and purposes, if you're initial assumptions were correct, you would definitely be on the right track.

In fact your post is very telling, and I am not sure if in a good way or a bad way (perhaps you can weigh in).

Here is the reality however: In most user's eyes, PA is grossly overvalued. There is a lot of historical information I could share (though not sure if you guys would be interested), but we are definitely nowhere near the $100m mark. If we were, then yes... I 100% agree with you...the management team (myself included lol) is doing something terribly wrong. ;-)

If we were at that mark, we'd see a very different PA:
- Excellent customer support (I'd probably be running a satellite office in Los Angeles exclusively for customer support, and I'd hire a lot of you
- Pretty fantastic marketing/advertising (you'd see us on all the major trading sites, as well as non-trading sites. Wikia, ZAM, thottbott, lolhero, etc).
- There would be a dedicated community manager hanging out with you guys here in Sythe (instead of me, the business head).

R2, I so wish we were at that point. It isn't to say that PA is small. We're not in fact. We are the largest player to player trading marketplace dedicated for video-game based assets. But the market is hugely fragmented (again, I can tell you why this happened, but it's another thread).

I can't disclose numbers. But I believe you could figure it out, at 10% with current volume, PA is unable to lower it current fee schedule without going out of business (you're also not close on the average employee salary. many of you likely make much more than I do personally transacting through PA, despite me being the head of the marketplace ).

All in all though R2... I do want to lower fees. We're just not there yet. If you guys have any creative ideas on how we can grow and get to that point (that R2 ran through), I would love to hear.

You guys get quite a lot of information out of me, much more so than the other communities I interact with PA is for gamers, and by gamers, and I hope this brings better understanding. I really appreciate engaging with you guys. I glean a lot from it, and I firmly believe that us reaching our dreamed-of successes will only be from engaging with you guys, and from your support.

 

Could you give actual numbers for revenue and salaries? Also, if you were somehow able to cut your fees by 5%, I would bet your revenue would increase significantly(maybe even double). I'm sure if you cut corners enough, you could cut your fees down slightly, which would increase business, allowing you to cut fees even more, and the cycle would continue.

 

Slashing the fees by such a large margin would leave no room for profit, and each transaction could potentially put them in the red
(especially when factoring in fraud-related cases... which can be unexpectedly high for BTC [beta, unstable, dangerous, etc]).

 

I just gave an example of 5%, if they dropped their fees to 9%, I bet business would increase by at least 11% which is what they need to maintain the same profits.

 

Min. wage per day in the Philippines is about $11-12, I think it was just over $1 an hour. You'd be lucky to get a job paying $500 a month. Oh and over here they cheat the system. Employees don't get benefits. You are replaced every 6 months so the companies can avoid it. I doubt PA would grossly overpay employees way beyond the normal wage here. And ignore the replacing every 6 months, it's just to show how low the wage is and how they'd be happy to keep a job with PA for more than 6 months.

Pretty sure they introduced BTC to increase sales and profit. That's what every company wants after all. If you think about it, and every PP user switches to BTC, they would end up losing money if they reduced the fees. Unless I'm underestimating the chargebacks they still get these days. I cant really blame them for wanting more profit. It's riskier if they saw it as something like less fees means more spending = more profit.