A word on payments…
…and how we underestimated the power of FIAT payment providers
Around 3 months ago NKNx made a big step — we took a leap of faith and decided to change our “free-time-project” that is backed by donations and evolved it to a small startup which offers customers a simple but powerful SaaS solution to monitor their nodes in the NKN network. That gave us the security and support to continue our service as well as to earn some dime for the work we did over the years. It was stressful at first but finally we managed to release NKNx 3.0 in time and since then we are happy to have a satisfied and steadily growing member base.
We learned a lot in the last months and we also did some mistakes which ultimately lead to the first “crisis” in our business. In this article I want to talk about the biggest two of them:
Mistake 1: FIAT payments are reversible, crypto payments aren’t
When you think about the concept of our node ID generation service it is pretty easy: Pay the current USD/NKN price * 10 including some taxes/fees and don’t care about complicated swaps to mainnet tokens. That way you get your new node running faster than you can say “Bruce Zheng Li”.
In the background NKNx servers will automatically send 10 NKN to the according node and inform you when your node starts mining. And these 10 NKN were exactly where problems arise. Because NKNx does not do a KYC people quickly tried to pay for our service with stolen credit cards. Luckily our payment provider Stripe got us covered and automatically blocked fraudulent payments before they happened. Only in one case nobody can help you: when a credit card is not reported as stolen it is not considered as a fraudulent payment.
Entering the (from my perspective) ugliest fake-“customer friendly” services to date: Disputes. For those who don’t know: in our current FIAT payment system banks can retroactively decide that they want the money back multiple months after the payment is settled when the customer has enough evidence — for example when their credit card is stolen or the payment is not recognised for whatever reason. This process is something that involves the card holder, the bank itself, the payment provider as well as us as a company.
Because of the complexity Stripe by default takes a 15$ “processing fee” for such a dispute to compensate for their “expenses”.
Tl;dr: That way users were able to steal around 400$ in NKN and as a bonus we paid around 300$ in “processing fees” — a pretty good deal for all fractions involved, isn’t it?
Luckily we were able to apply some security logics to NKNx preventing users to only have 3 “fraudulent” tries before locking up their account. Combined with other actions we were able to lower the risk to a minimum.
Just when we thought everything is shiny and hunkydory our second mistake kicked in:
Mistake 2: Payment providers work with you as long as you are not a “risk” (definition pending)
Some days ago we received an email from our payment provider Stripe — stating 3 things:
- The Stripe team has checked our company (after 3 months of working with us/doing KYC on day 1) and decided that our “payment needs” carry “too much risk for Stripe to handle”
- We have 2 weeks to move to another payment provider (they also offered one — how nice). All payments will be blocked after that.
- Stripe will lock all our not paid-out income until mid of December for possible disputes and settlements — luckily there is a law in place that forces them to do it.
…wow — still nearly a week after that email I have no words to describe the feelings I had that day. Of course we tried to contact Stripe describing how our business works, where the risk lies in and even offering to ditch the node ID generation entirely. It took them exactly 4 minutes to respond with a wall of text basically saying to f me.
All in all we still got no honest answer from Stripe WHY our account was closed. Was it because in their opinion crypto is always shady and therefore has to be closed? Was it because our “income to dispute”-ratio was not acceptable although they made some bucks out of it? We don’t know and we are sure we won’t.
Entering a new era of payment
After the dust settled it was quickly clear for us that we don’t want to shut down our whole business just because some (private and institutional) pickpockets. We needed a solution that is reliable and suitable for us and our customers. And of course this solution lies in crypto itself.
Because of this we’re proud to announce that NKNx will switch payments to 100% crypto only in the next weeks. Allowing our users to pay with BTC, LTC and XMR for all of our services.
For this we will launch a self-hosted service called “NKNx pay” that will allow us to provide a non-third-party involved payment solution for all of our customers. Active subscriptions will be migrated so there will be as less work as possible for you. More information will be sent out to all users in the coming days.
The lesson of this article is up to the reader but we hope that you learned something for yourself today — at least we did.
Happy NKNx-ing,
Chris
