Kitely Mentors Group Meeting, 3 July 2013: summary

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Dot Mac
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Kitely Mentors Group Meeting, 3 July 2013: summary

Post by Dot Mac » Fri Jul 05, 2013 4:44 pm

Ilan introduced the meeting by saying: “Today I want to discuss an important issue that will affect how the marketplace behaves, how much fraud risk merchants will have to deal with and the fees they will need to pay PayPal and/or Kitely.

“We have to decide between two options which I'll describe during this meeting. My goal tonight is to see which of these options is preferred by you so we'll have a good basis to decide what type of system to implement.”

The overall consensus of the meeting was for Option 2. However, some wanted to work through the implications and numbers in detail to properly understand them. The detailed discussions also brought up suggested tweaks to the options as first presented.

Option 1: Seller handles risk
In this option when people buy things from Kitely Market the transactions that are created will be directly between the buyer and the seller.

This has the following effects:
  • Both the buyer and the seller will get each other's PayPal address and the name associated with their PayPal account.
  • If the seller disputes a payment with PayPal, or files a chargeback with his/her credit card company, the seller will have to deal with the issue. This can cost money out of pocket and hurt the seller's reputation with PayPal which can result in PayPal freezing the seller's account.
  • If the seller wishes to give a refund the seller will need to do so from within PayPal.
  • PayPal will charge the seller its fees for each buyer checkout, which for small payments can be very substantial unless the seller's account is set up for micropayments.
  • As the brunt of the risk and the work associated with risk mitigation is on the seller, Kitely will be able to charge the previously announced 10% commission rate for USD sales.
Option 2: Kitely handles risk
In this option when people buy things from Kitely Market the transactions that are created will be between the buyer and Kitely and between Kitely and the seller.
  • Both buyers and sellers will only see Kitely's PayPal address and the name associated with Kitely’s PayPal account.
  • If the seller disputes a payment with PayPal, or files a chargeback with his/her credit card company, Kitely will have to deal with the issue.
  • Kitely will establish methods to reduce the frequency of payment fraud and shield merchants from direct effect of disputes and chargebacks from affecting their own PayPal accounts.
  • Kitely will provide tools for refunding without going to the seller's PayPal account. Items bought for the refunded funds will be removed from Kitely so the buyer won't get what he didn't pay for (even if the items were given to other people, duplicated, rezzed, etc.). In other words as long as it wasn't taken out of Kitely the buyer won't get to keep it if he or she gets back what they paid for it.
  • Kitely will deduct lost money resulting from those actions form future deposits to the relevant sellers.
  • Instead of the seller being sent many small transactions which can be heavily diluted by PayPal fees, Kitely will automatically transfer money to buyers twice per month on predetermined dates.
  • There will be a minimum deposit amount of $10.
  • This will ensure that the PayPal fees become a lot smaller in relation to the total seller sales revenue.
  • As Kitely will be taking on the majority of fraud risk and need to pay PayPal fees for the entire amount before transferring it to sellers (as opposed to just on their commission), there will need to be a 20% commission on USD sales (the commission on Kitely Market sales in KC will remain at 10%).
  • Kitely can hold money for sellers if they have a temporary PayPal problem (in the other option the transactions would be canceled because PayPal can't complete them)
General points (apply to both options)
These options apply only to transactions in USD. Transactions in KC are unaffected, and will continue to attract a 10% commission whichever option is adopted.

The pricing options on the Marketplace are USD only, or both USD and KC (where the purchaser can choose which to use), or KC only. USD sales will always be via PayPal.

Merchants without a Paypal account can still sell items on the Marketplace, for KC only.

Merchants from non-US countries mentioned that they are charged an additional fee by PayPal when they convert USD to their local currency. This affects Kitely too, as Ilan pointed out: “PayPal takes a huge portion of our revenue because we aren't US-based and accept international buyers.”

KC are non-exchangeable, and this will not change. The option to monetize in real money is by selling items for USD in Kitely Market. To quote Ilan paraphrasing Kitely’s lawyers: “KC are a game currency which we are willing to accept in our game company for playing our game. KC being converted/sold/given for USD would create a lot of liability for us.”

The Marketplace should be publicly up and running by September 1; how much sooner still depends on what Kitely pushes into v1 of the marketplace.

Discussion of option 1
The general reaction to this option was mostly negative. The following points were clarified in the discussion.

In option 1, Kitely would use a PayPal API that automatically splits the 100% transaction value between different parties. So, when someone buys something from the market using dollars, the merchant would receive 90% of the value minus PayPal’s fees, and Kitely would receive 10% minus PayPal’s fees. Since PayPal’s fees include a fixed amount per transaction as well as a percentage of the transaction, that would in effect mean that PayPal receives twice the fixed amount for each sale (once from the merchant, once from Kitely), plus the usual percentage fees.

Some were concerned that this meant that (in effect) the merchants would be paying PayPal twice over, since Kitely’s commission would need to cover these costs as well as result in profit for the business. Ilan commented: “10% doesn't leave us much after PayPal fees and our associated expenses.”

Discussion of option 2

20% commission
The initial reaction to option 2 was mostly positive, albeit the increased 20% commission did provoke concern. As Ada said: “Option B is much slicker, but is likely to kill bringing merchants in from SL. If I'm having a problem tracing your costs vs your charges (and I'm a retired CPA) the average SL seller will see the 20% and say NO WAY.” She went on to ask if there was a way to describe the fees so that the 20% looks a bargain.

Buni commented that option 2 sounds like how her book printer works. “Where I sell through has an Option 2esque style and the way *I* see it is ... I get 80% royalties ... which is KILLER in my business.” Dot agreed, mentioning that most bookshops give the publisher only 40% of what the buyer pays (which makes Kitely’s 80% look very good in comparison). For reference, as Ilan pointed out, TurboSquid and other 3D resource marketplaces charge between 20% and 60% commission.

Shelenn pointed out that effectively, for either option to be viable, sellers needed to account for costs within their prices. Option 2 would require a higher price UNLESS the additional 10% is passed on to the buyer instead of to the seller. But this is viable because the buyer is getting the service from the grid instead of having to upload it themselves and deal with backups. She suggested changing option 2 to a 10% fee to the buyer and 10% to the seller. Cider disagreed with this: “Rule #1 in charging fees -- never charge the buyer! [It] will absolutely kill the business and cause resentment etc. You can however add the fees into the selling price.”

Ilan suggested looking at https://marketplace.secondlife.com/list ... ommissions when it comes to buyers paying in USD -- i.e. SL charges about the same.

Shelenn said that her case for option 2 would be: Kitely assumes risks, performs all investigations, handles all transactions, keeps seller PII (Personally identifiable information) and buyer PII from being exposed...

Ada commented: “iRL, the brick and mortar galleries charge 50%, and yes 20% is on the low end, and I'm OK with a stiff % that goes toward fraud prevention and dealing with.”

Finally, as Ilan reminded the meeting: “You don’t pay for our fees, you pay for our service. You get the best Marketplace out there and you get to sell to all of OpenSim from a single location.”

USD payouts: Once or twice a month? What should be the minimum?
Ilan explained that $10 is the minimum amount Kitely will transfer to a seller's PayPal account. “If you don't have $10 at one deposit date you'll need to wait till the next one.” These payouts are always in USD.
He also explained that part of the reason for the delay before merchants are paid is that Kitely needs to vest money for at least 30 days before they can send it to a seller, otherwise they face the risk of fraudulent sellers using stolen credit cards to sting Kitely for money. The delay is to give them some protection from chargebacks -- at least the easily avoidable kind.

Dundridge thought that two weeks was very quick, and others generally agreed that a monthly payment would be acceptable. Monthly payments match what happens in other businesses; it would also reduce the fees paid to PayPal.

Dundridge also voiced a preference to “cash out” from his “available balance” rather than have anything automated: “so someone could say "ok, pay me when it hits $10 twice a month, whatever" or "wait till $50, the darn fees are too high".

Sarge expressed the hope that it might be possible for merchants to have, at a later stage, the option to change whether they were paid once or twice a month, and maybe an option to set the minimum payout. However, Shelenn thought that having this option would increase Kitely’s costs of processing transactions.

There was no obvious consensus on the minimum payout: $10, $25, $35 and $50 were all suggested (different merchants have different priorities). $25 was suggested by more than one as a possible compromise.

Anti-fraud policies
Ilan had a few questions about some of the anti-fraud policies Kitely will need to put in place for option 2. In order to mitigate fraud there will be a few restrictions on purchases made in USD:
  • limit deposits to new merchants for at least a month
  • limit purchases from Kitely Market (not counting Kitely services, etc.) made in USD to $100 per PayPal account per month for the first month, $500/month afterwards.
There is no limit for sellers. They can earn as much as they can -- but transactions will be reviewed for possible fraud. Sellers selling in USD will need to have a Verified PayPal account.

There is no limit to using KC for buying or selling. So new users will be able to buy as much as they want if merchants sell in KC. Kitely can do that because they never hold and transfer real money when handling KC. Merchants can then use the KC for Kitely-related expenses.

Some worried that the 500 USD per month limit for purchases might be too low, particularly for businesses or government organisations. It was suggested that these might contact Kitely directly if the limit was a problem.

Ilan commented: “If that is a legit business we may allow the transaction if contacted, and maybe increase the hold. We have the admin tools. It all depends on risk analysis. We may increase limits for people with a Verified PayPal Business account. We may create special rules for merchants who vouch for certain clients. Need to evaluate -- there may be an added cost to that. It takes it from a consumer play to a more B2B play.”

Ada commented that even at $100 and $500 a money launderer with multiple accounts could make a play. “But I'm assuming you'll have safeguards in place for that. The money laundering scheme I accidentally bumped into iSL c.2009 was using tip jars and transacting something like 500 USD at a time, but with hundreds of alts.”

What if a merchant is banned from Kitely?
Minethere asked: “OK ... so hypothetically I have money in Kitely’s market and you ban me. What happens then?”

Ilan said: “Money you've earned and we have no reason to think was generated from fraud will be transferred to you as usual. KC will be frozen. Real USD are handled differently unless we have some reason to suspect we'll need them to offset some fraud you're involved with.”

Agreement between merchants/vendors and Kitely
Shelenn said that an agreement needed to be in place for merchants/vendors and Kitely to spell it all out after it’s been decided. This is separate from the ToS.

Ilan agreed that they’ll need to clarify it in small details.

Pricing things in KC or USD
If you want to be paid in USD, price the items in USD; see: https://kitely.atlassian.net/wiki/displ ... ely+Market

You can select an item’s price to be in USD or in KC.

When you set a price in USD you can select a checkbox to allow it to be paid in KC as well, in which case the rate is 300 KC per USD. You don't need to list things twice to sell in both USD and KC unless you want to sell them in a different price. You can have two variations in the same product.

If you set a price in USD and accept KC then you'll get paid with whatever the buyer has -- KC if she has them or USD if she doesn't.

The minimum prices for items in the Marketplace are 10 KC or 1 USD. It was suggested that low-cost KC items might be bundled to make a package worth 1 USD in order to meet the minimum USD price.

The maximum price for an item in the Marketplace is 1000 USD.

Several gave examples of what they were doing. For example, Ada said: “I'm selling freebies for 10KC at marketplace, and 0 KC inworld. Everything else is the same inworld as at the marketplace. I have costs inworld that I don't have at marketplace, even though no commission inworld.”

Ilan advised merchants to see how much things are priced for in SL marketplace as a guide to setting their own prices.

Exporting to other grids
Buni asked how one buys from Kitely MP and imports to Metropolis or Craft grids.

Ilan explained: “We'll have tools for delivery to Hypergrid connected grids, and possibly to non-HG connected ones if we reach a deal with them.”

Dundridge was curious how a script retrieves a sound or texture when it's on another grid. Cider was not sure you could depend on uuids in scripts once they're moved off grid, suggesting that the sound/texture could be included in the item contents and called by name. This might mean that some items (those using many sounds/textures) would not be exportable.
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Re: Kitely Mentors Group Meeting, 3 July 2013: summary

Post by Ilan Tochner » Fri Jul 05, 2013 5:23 pm

Thank you Dot for writing this important meeting summary.
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Re: Kitely Mentors Group Meeting, 3 July 2013: summary

Post by Sarge Misfit » Fri Jul 05, 2013 7:36 pm

Thanks, Dot

I'm going to add a thought I have regarding where/how to sell things. I'm thinking sell on the marketplace for US$ and on my world for KC. That could work to increase traffic, and the opportunities for RP and socialization that go with that.
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Re: Kitely Mentors Group Meeting, 3 July 2013: summary

Post by Marstol Nitely » Fri Jul 05, 2013 8:40 pm

I'm going to do what I would have done if I'd gone to the meeting - listen to the people who know a lot more about this than I do. I believe that means I like option 2. Thanks Ilan for (once again) giving us options. Thank you Dot for doing the summary! How is it you get all the hard ones?
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