Tweaking fees on Open Collective
We are making a small but important change to record Paypal transaction fees on Open Collective and removing monthly host fees.
To date, Open Collective has been eating Paypal transaction fees — typically 2.9% + $0.30 per expense. When an expense of $100 is reimbursed on our platform, Paypal pays $100 to the user and charges the host $103.20. Some time later, we calculate the fees and reimburse the host. The host in turn pays us a fixed $10/month/collective.
Lots of money moving back and forth and it’s creating an accounting headache for everyone.
Going forward, we will include these fees as part of a collective’s cost. So, if you approve an expense for $100, you’ll see an entry in your collective’s ledger for $103.20 ($100 + 2.9% + $0.30). And with that, we’ll no longer charge $10/month/collective to hosts.
Open Collective uses PayPal to pay out expenses. Like every other payment processor, Paypal charges a fee per transaction — typically 2.9% + $0.30. So, if a user submits an expense for $100, when a host reimburses that expense, PayPal pays that user $100 but charges the host of the collective $103.20.
Typically, a host pays this fee to PayPal when they reimburse an expense and we reimburse the host later (and the host in turn pays us $10/month/collective). This was fine when we started, when our volume was low but lately calculating these fees, crediting it back to the hosts and counting against their $10/month/collective cost was becoming an accounting mess for us and for them. It adds unpredictability to a host’s cash flow and sometimes creates a perverse incentive for them to discourage their collectives from filing expenses altogether.
Building a platform often requires tweaking knobs to create a virtuous cycle that serves everyone. We think complicated fee structure is holding back our hosts from fully adopting and benefiting from the platform.
So, going forward, we’ll be adding these fees to the expenses that are paid out and charging the collective directly. In the example above, when that $100 expense is approved, the collective will be charged $103.20 and it’ll be reflected in its public ledger.
With this simplification, we no longer need to charge hosts the monthly $10 for each collective. Our fee structure is purely based on amount you raise. Create as many collectives as you like and we succeed only if our collectives and hosts raise money.
We know that this will slightly reduce the amount of money available to a collective. It isn’t ideal. We are exploring other alternatives like ACH payments (that have much lower fees). Stay tuned for updates.