Styckyd Blog

How the Payment Processing Industry in Canada is Halting Innovation

Kerry Falk — Thu, 27 Oct 2011 17:14:50 GMT

I have taken some time to think about writing this post. The aim of this blog is to offer a peek into what we’re doing and our perspective on the industry, not about how to run a tech startup and the associated challenges. But today I’m going to shift more towards the latter because it directly affects the former.

For nearly two years we have been working on delivering a platform that handles the buying and selling process differently than other marketplaces. A year ago we had written all of the code and developed all of the technology to make this happen. Canadian payment processors, the folks responsible for enabling companies like us to accept credit card payments online, stopped us from launching that service.

The model is what is referred to as Third Party Payment Aggregation (TPPA). In essence a merchant (us) accepting payments online on behalf of another party (a seller of a part) skips a number of the checks and balances the processors have in place to estimate their risk in receiving chargebacks by accepting a particular merchant. A charge back is when a buyer calls their bank and disputes a charge that shows up on their credit card. In this case the banks immediately charge the merchant and their processor for the full amount of the charge, in effect issuing a refund without asking any questions. It’s up to the merchant and their processor to dispute the charge.

With TPPA they can be at higher risk for this happening as the individual or company that is selling the product in question is not the merchant that they had initially approved. Like any challenge and problem there are ways to solve the issue and maintain stability.

Where we went wrong was thinking that we could discuss those solutions and come to a reasonable solution that would work for all parties. We were unable to do so. At the time it didn’t make sense as there are several companies that use similar models. Among them are Square, AirBnB, and Yardsellr and many others.

So what’s going on here? How is it possible that several other companies can process payments in this way with more popping up daily yet we were unable to after speaking to dozens of processors?

What follows is our opinion and it is possible that it does not accurately reflect the reality of the situation. This is based on two years of acquiring data, speaking to processors and gateways, and trying to understand the industry so that we can achieve our goals.

We believe the issue for Canadian companies trying to step outside of the box with regards to processing payments online lay with one player within the processing chain. For those unfamiliar with the suppliers in the industry there are a few key players, there are others but these are the relevant ones to this discussion. They are:

The Merchant (Styckyd)

The Gateway – Companies like Braintree or Beanstream

The Processor - Global Payments, Chase Paymentech

And the Acquiring Bank

The Acquiring Bank is the bank that provides the Merchant with an account to accept payments through the Processor. In the US there are thousands of banks, I do not have info on how many of those banks act as an Acquiring Bank. In Canada however I believe I do have the answer, it is possible that my information is incorrect but I have not been able to find others.

Five.

Five Acquiring Banks in Canada. CIBC, RBC, Scotia Bank, Bank of Montreal and TD.

I believe it is because of this that Canadian companies are locked in a stalemate if they want to innovate with regards to how consumers can buy and sell online. This includes buying and selling through smart phones. In our experience these banks and their associated processors are unwilling to accept models that fit outside of the standard e-commerce flow.

Choosing which companies and models they are able to serve and support that also align with their goals is simply good business. It doesn't make sense to take on business that you cannot support. In this case models like TPPA that alter the landscape for assessing the risk to the bank and the processor do not fit with their business. I don’t think it can or will stay this way forever.

At some point the Canadian landscape will have to change to keep up with the ways in which consumers want to buy products and interact with companies, and how companies want to be able to do business with their customers through technology. Every time I'm in a Canadian Taxi I wish they had a Square, it seems absurd that in the same moment that I can connect to my bank to check the balance of my account and buy a ticket for the movie I'm about to see on my phone from the back seat of the Taxi, the driver has to pull out an old cast iron machine to make a paper carbon copy of my credit card so he can process it at a later time. We have the technology.

There are many interesting companies elsewhere in the world doing impressive and innovative things in the payments space. How can Canadian companies compete?

I’m not sure we have the answer to that but we do have a solution for our customers that we’re aiming to deliver soon. It’s two years late but I think the wait will be worth it in the end.

Selling Modified or Track/Competition Cars Doesn't Have to Suck

Kerry Falk — Sat, 27 Aug 2011 02:12:53 GMT

Selling modified cars in the open market is challenging because they're generally seen as less valuable than a completely stock car. You may also get tire kickers and test pilots that don't really appreciate cars but just want something different. So what most people end up doing is selling their car on a forum. The trouble there is that most of the people on the forum already have the kind of car you're selling, so unless they're collectors or just wrote off their own it might take a while to sell and requires you to maintain the post so that it stays relevant. *bump!*

If you try to list your car on a place like Cars.com or Autotrader.ca you're asked for things that just aren't as relevant to the enthusiast crowd, like keyless entry or command start. While those features are great enthusiasts already know if the car they're looking for has those features and listing them is redundant. We just want to know what else has been done to the car.

Track junkies can sell their cars on sites like race-cars.com or racingjunk.com but they can be expensive and the user interface is older than Caroll Shelby's original MG roadsters (and not nearly as pretty - sorry).

We're building something a little different. Like a fresh set of Hoosiers it'll get better after we've scrubbed it in a bit but we want to build a marketplace that really works for gearheads. To start off with listing cars is very simple; pick the car from the list, add as many pictures as you want (Pick good ones, cars are art), list the mods you've done (if any), and tell us what you love about the car. That's pretty much it. Listing your modified/track/race/weekend autocrosser is free so why not give it a shot and see what you think.

Commerce In Small Social Networks To Rival eBay's Gross Merchandise Value (GMV)?

Kerry Falk — Wed, 20 Jul 2011 01:23:38 GMT

I thought it might be interesting to share some of the data we have gathered while researching consumer-to-consumer marketplaces. You're probably familiar with the large marketplaces: eBay, Craigslist, Etsy, etc. There are also a number of smaller marketplaces aiming to be the eBay of X, but are you aware of how much is bought or sold through small social networks on forums like this or this?

The numbers might surprise you. We weren't sure exactly how much passed through the forums until we calculated it. Our process was in-depth and highly scientific. It mostly consisted of lots of pizza, BEvERages, and excel spreadsheets. BEvERage in hand we would load up a forum and begin to manually capture data from the classifieds sections. We would go through every listing that was posted within the weeks we had targeted (I believe we tracked six specific weeks spread over the year) and determine their asking price, if the seller had reduced the price before sale, how long it took to sell, and if it sold.

The results were somewhat surprising to us. These forums do not have structure in place to enable exchange of goods or funds and operate in a buyer beware atmosphere. They're frequently trolled by unsavoury characters and the admins of the communities have limited tools to stave them off. But they are a highly focused community of potential buyers.

The average community in our analysis had in the range of 66,000 members. The majority of which are not active and many frequent multiple forums. Actual active members are unknown to us for most forums but we'd estimate it in the range of 10-20%. We tracked slightly over 300 forums and estimate that there are close to 2,000 active automotive forums. The largest 20% easily control 90% of the overall traffic for the group. We estimate that the total traffic across all properties lay north of 50MM monthly unique visitors. Internet Brands, a forum aggregator, claims to drive 36MM monthly unique visitors across their properties.

The numbers are from 2009 and all indicated continued growth. The average listing value was just over $400 and of the 300 sites we tracked we had estimated a total of 842,000 listings per year. Which means a total of $340MM worth of listings (not sales) per year. The average Sell Through Rate (STR) averaged around 40% which is quite high, 40% of all listings posted on a forum sold.

Not impressive? Those numbers are for automotive parts only. They do not include vehicle sales. During the same timeframe these 300 forums drove three times the traffic as eBay Motors (11.7MM/month in 2009).

Do the forums rival eBay in total sales? No. In 2009 eBay's total Gross Merchandise Value (GMV) for automotive parts & accessories was roughly 20x the volume of the forums at $4.7B. The data then doesn't seem to support the title, eBay clearly dwarfs the other communities in total sales. However, it is not our belief that this will continue. We believe that eCommerce platforms will continue to move farther down the path from Business-to-Consumer (the majority of eBay today) to entirely consumer-to-consumer. I believe Etsy is closer to this ideal but there is a truly staggering unserved opportunity in this market.

The numbers for the 300 forums above count only sellers who decided to brave the waters and try to sell something and do not include any businesses. The number of potential sellers who haven't tried to sell parts they own is far greater, it's simply too painful to go through the entire process on any of these platforms at the moment. Don't take my word for it though, ask a friend who self-identifies as a car nut: "Do you have any car parts in your garage you think you could sell if you tried?"

When this nut gets cracked I believe these small communities will lead to sales volume far greater than that of eBay or other current marketplaces.

PS. The site received a bit of a refresh, I'd love to hear what you think.

Feelers Redux

Kerry Falk — Sun, 12 Jun 2011 23:24:45 GMT

Because we have noticed more and more people adding Feelers to see if there is any interest in some of the parts they have laying around before committing to selling them we have given them a bit of an overhaul. They will now show up in search results and have their own pages that will allow potential buyers to ask for more information and to express interest in buying.

Buyers will be able to ask you for: An asking price, pictures, the reason you're selling it, tire/wheel sizing, what vehicles it fits, and for you to convert it to a full listing so they can buy it.

Our aim is to make selling parts that you have laying around as easy as possible. Once buyers have expressed enough interest in whatever part it is you're trying to sell you can easily convert it to a full listing which allows them to purchase it from you or you can leave it as a Feeler until someone comes along and tells you they're interested.

Went Racing

Kerry Falk — Fri, 03 Jun 2011 02:23:41 GMT

I have to give credit to the SCCA for organizing another well-run event. The Lincoln 2011 ProSolo and National Tour AKA "Spring Nationals" was a great event and even though the weather was strange and chaotic we had a blast.

On another note, I have never seen that much concrete in one spot before. It's simply staggering. Standing where the courses were setup and looking towards the other end I could not see where the concrete stopped. It was simply: concrete > sky. Awesome.

As always the competition in BS is fierce. I need to practice more to keep up with those guys. They destroyed my times. Even making sure they were up later than me drinking beer so they'd be hung over the next day was not enough of a handicap to allow me to catch up - I'll have to be more clever next time. Jadrice set an amazing time on the final day of the Tour, I think I heard a BS-wide gasp as he crossed the timing lights. Hopes. Dreams. Crushed in 68.903 seconds.

We'll be sure to make it out to more events in the future and continue to build Styckyd to serve the Spec S2000 class (BS), everyone else in the SCCA and car lovers everywhere.

Parts Q&A

Kerry Falk — Thu, 26 May 2011 05:29:12 GMT

What we want to create with Styckyd: Part Forensics is a place for car nuts to come and find information about parts they're thinking about installing on their cars. But recently we have changed our approach somewhat. We used to allow you to add reviews to parts. In theory, this is a great idea. In practice however, not so much.

There's little incentive for someone to add a meaningful review and even if there were the content of reviews is generally pretty lacking. So we had an idea. It started with answering this question: Why do buyers want to read reviews of parts? One reason we came up with was to answer specific questions like: Is suspension kit X more stiff than kit Y?

So in the spirit of StackOverflow and Quora, we have changed Part Forensics into a Question and Answer site for automotive parts. Now when you go to a Forensics page you can ask a question about that part and if you're specific enough with your question you'll get an answer from the community. It's in the early development stages at the moment and we'll add more functionality as you begin to use it.

We hope that you'll find it useful.

Goin' Racing

Kerry Falk — Wed, 25 May 2011 23:03:35 GMT

Now that the site is making its way towards our vision and we've worked out a number of kinks we figured it would be a good time to get out there and start promoting the site a bit among the enthusiast community. Where better to do that than an SCCA Solo National Tour Event?

Jeff and I are registered for the ProSolo and the National Tour in Lincoln this weekend. We're campaigning an '02 S2000 in BS, the only mod is a Small Fortune Racing front sway bar and we're running a set of 245 A6s on all four corners. Is it the ideal setup? Nope. Is it going to stop us from trying to win? Nope.

If you see us out in the paddock sporting our new Styckyd tees come by and say hello. It's been a while since we've been to a National Tour event and we're looking forward to getting back on the track.

Feelers and Want to Buys

Kerry Falk — Sun, 17 Apr 2011 22:07:13 GMT

Buying and selling car parts is a pain. It’s for this reason that we’re working on Styckyd. We believe that we can make it easier to buy or sell car parts and do it better than anyone else. Styckyd Feelers and Want to Buys are the next step in making that future vision our present reality.

Sometimes trying to sell a part on the internet is a PITA. Going through all of the motions only to find out that there’s little or no interest in what you’re selling is frustrating. Even when you post it onto a forum filled with qualified buyers (Posting your Corvette parts on a Corvette forum) our research shows that the average time it takes to sell a part is more than 30 days. That’s if it sells at all. On highly active and successful forums the sell through rate only reaches about 50% - which is extremely high. Most communities average somewhere between 20-30%.

With that in mind we figured it would be useful to make the listing process as simple as possible. The idea we came up with is Feelers. All you need to do to post a feeler is name the part you have and which vehicles it fits. That’s it. If a buyer has any interest in it then you can add more info at that time.

Most people are pretty busy and finding parts for our cars is time consuming. Wading through forums and retailers websites day after day and coming up empty handed isn’t very efficient. Eventually if you keep looking you’re bound to find something, but why not let technology do the search for you? This is the 21st century, we have the technology! Styckyd Want to Buys make the technology work for you, all you’ll need to do is tell it which part or type of part you’re looking for and then wait to receive an e-mail summarizing the parts for sale that match your Want to Buy. If you’re looking for 17” 5x100 wheels, Styckyd will only e-mail you listings for 17” 5x100 wheels.

Why hasn’t anyone done this before?

We don’t know.

Trials and Racks

Kerry Falk — Thu, 07 Apr 2011 06:18:43 GMT

Today we’re adding two new features, a 30 day free trial period and integration with Tire Rack’s affiliate program.

30 Day Free Trial: Listing a part on Styckyd is always free, however we normally charge a fee to the seller when we successfully sell a part. Starting today when a new forum signs on a 30 day free trial period will begin. Any member who lists a part for sale during this period will not have to pay any fees when the part sells, even if it sells outside of the 30 day window.

Tire Rack Affiliate Program: The Tire Rack offers a great affiliate program (Inquire at TireRack.com) which many forums take part in and we wanted to enhance it a little further through our service. Now on all of our part detail pages there will be a link to Tire Rack’s corresponding product pages where you can find more information and/or buy it. Referral earnings go directly to the forum.

There is more on the way, stay tuned.

You asked, we listened.

Kerry Falk — Fri, 25 Mar 2011 03:16:28 GMT

Many forum admins are asking us for greater vBulletin integration. On the top of the list is integration with the vBulletin login system. So because you asked for it, we built it. Here’s how it works.

If the user is logged into the forum and has used Styckyd before, nothing more will be required. If the user isn’t currently logged into your forum and they attempt something that requires authentication a lightbox will open up that looks like this:

If they’re logged in but haven’t used Styckyd before we need to register them quickly before they can continue. Here’s the lightbox that pops up in that case:

Finally, if they’re logged in and have already used Styckyd on a different forum, then as a security measure to ensure we’re keeping accounts safe this lightbox will pop up asking them to confirm the auth code we sent to the e-mail address that they first registered with:

We have much more on the way. Let us know if there’s something you really need working on your forum. Every day we make this system a little better.