Advanced Guide to Crowdfunding Payment Solutions or How to Analyse a Payment Gateway
Choosing a crowdfunding payment gateway is a complex business task even for an experienced decision-maker. Usually, it requires a business analyst or a dedicated research manager who will lead communication with a particular payment provider to determine its capabilities to satisfy your business needs.
In this article, we’ve highlighted the major points which will give you insights on how to check a crowdfunding payment provider.
What you will learn in this post:
Your country of operations is probably the first thing you look into when choosing a payment gateway.
Every business wants to grow big and serve internationally, thus your choice may fall on MangoPay which covers 126 countries worldwide. Despite the quality of services provided by MangoPay as well as the clarity of their API documentation, MangoPay is not for everybody.
MangoPay has a list of prohibited businesses which you may want to check to not find yourself in there. The list includes:
- Gold, precious stones, and gemstones (including investing in precious metals)
- Bitcoin and crypto investing, trading, etc.
- Forex trading
- Rotation savings, etc.
For a broader geographical coverage, you might look intro Stripe which covers 135 countries, however, your main bank account has to be registered in one of the “supported” countries.
Also, it’s vital to keep in mind that Stripe’s core features are available in all of the supported countries, but some of the “additional” features may not be available.
So, for example, if you’re in Mexico launching an equity crowdfunding platform, but want to target the US property developers and investors, you’ll have to dive into the payment processing providers to ensure the completeness of their services in your region.
API documentation clarity
The clarity and ease-of-access of API documentation is vital because it affects the time developers have to learn and analyse the solution’s capabilities to satisfy your business requirements.
While business analysts and researchers can figure out all of the potential integrations and workflows, it’s a developer’s job to actually implement them. To determine the documentation completeness, you may want your developer to go through it a few times.
If you happen to find the best solution on the market which offers you all sorts of crowdfunding payment processing features, don’t rush into signing contracts with them until it’s clear that the API documentation is good.
Depending on the type of your crowdfunding business either equity or debt, it’s crucial to have an opportunity to configure investment flows and collect fees.
Payment processing has certain characteristics which might become the “selling points” for you when you’re choosing a crowdfunding payment provider:
- KYC/AML verification
- Direct lending opportunities (for example, Goji has it because it’s an authorised ISA manager)
- Escrow or money holding (Uphold doesn’t have escrow which is an issue for a crowdfunding platform)
- Scheduled payments
- Wallet creation process
- Currency support
- Currency management (especially in case of cross-border transactions)
- Payment processing limits, etc.
The first company that comes to mind when choosing a payment gateway is PayPal. But does it really satisfy the needs of an equity or debt investment platform? Not really.
“…because PayPal is a payment intermediary and not otherwise regulated directly, TILA/Z and EFTA/E do not operate exactly as written once the credit/debit card transaction occurs via PayPal.”
Also, there is a known difficulty with money withdrawal due to occasional holds and freezes which makes it extremely risky especially for crowdfunding sites.
KYC in crowdfunding (know-your-customer) and AML (anti-money laundering) verification process are the must-have procedures on any crowdfunding website. They are a part of your crowdfunding regulation-compliance measures that protect you from fraud and other risks.
KYC/AML verification procedure will be different for each account type either investor or borrower, so it’s good to know exactly how it will be different and what is required.
In contrast, other payment providers like PayPal which are mostly targeting peer to peer transactions and eCommerce sites, so it doesn’t have country-specific Financial Conduct Authority regulated procedures.
A proper KYC is required for both individual and corporate investors. Gathering this data is subject to GDPR compliance procedures, so you should definitely make sure that your third-party service provider and you have all of the necessary compliances.
ISA/Roth IRA integration opportunities
Investors are interested in maximising their ROI, and hopefully, paying less taxes. So, having individual savings/retirement accounts like IFISA/ISA in the UK or Roth IRA in the US can become a selling point for your crowdfunding platform.
A standard payment processing provider is unable to fulfil that requirement, however, if you find an authorised manager like Goji, for example, you can provide better services to investors.
With Goji investments, investors are able to save up to £20,000 a year, free of taxes, earned from investments on their individual savings accounts.
Every payment processing solution has its own pricing structure. Fees are usually pretty straightforward even though some payment processing providers may not disclose all of the “hidden” fees for some reason. Other crowdfunding payment gateway will craft custom offerings for you depending on the type of your business.
With payment providers, it’s not as straightforward as pay high – get a higher level of service or pay low – get average service.
Usually, you’re able to negotiate the fees depending on the scale and scope of your transactions. Moreover, you can agree to impose the third-party fees on your users as, for example, Assembly Payments suggests.
Fees you can expect:
- Currency-specific fees (thus, MangoPay has different fees for the SEPA zone (EUR) compared to the US dollar)
- Pay-in and pay-out fees
- Fixed and flexible transaction fees
- KYC verification fees
- KYC refusal fees
- Minimum transaction fees
- Lost dispute fees, etc.
These are some of the things third-party service providers may charge you for. So, plan your strategy accordingly to balance your platform’s revenue.
Crowdfunding payment gateways in the USA and Europe
Let’s just recap and compile a quick list of payment gateways and ISA managers in this article to have a clear picture of what you can choose from.
US-based payment processing providers for crowdfunding:
- North Capital
EU-based payment processing providers for crowdfunding:
- Goji investments
There is no silver bullet as every crowdfunding payment processing provider is unique and may become the right option for you depending on your business type and operations.
To run a crowdfunding platform, you company has to be registered with the SEC, FINRA, FCA, ESMA or other local regulator in the US, UK or Europe. The platform has to be registered either as a funding portal or a broker-dealer and undergo corresponding compliance procedures.
And to process money, you either need to have your own license or work with an authorized third-party payment gateway for crowdfunding.
LenderKit is investment management and crowdfunding software that comes with out-of-box payment gateway integrations such as Lemonway and North Capital, but if you’d like to have your custom solutions we can easily integrate with the payment provider of your choice.