[patio11]

I would strongly advise rethinking starting a payment processor as a student. It is relationship-, credibility-, and capital-intensive. It also requires truly massive scale before being worth any money. (Incredibly massive scale in micropayments. If you make $0.01 off each transaction you have to facilitate hundreds of thousands a month just to pay for the founding team's ramen. If you somehow possess the magic that you need to find 100,000 paying customers you shouldn't end up eating ramen!)

There are basically two ways to do five cent transactions. The first way is to buy a virtual currency for a non-micropayment amount (e.g. $5 or $25) and then subdivide that virtual currency into infinitely divisible bits which you can spend seemlessly within the application. This is the successful, Zynga-esque way to do micropayments, and it sits nicely atop the legacy payment infrastructure, which is entirely suited to doing $5 or $25 transactions.

The other way, where you attempt to make an actual transaction for $0.05, is an operations nightmare. The legacy payment system is fundamentally not equipped to handle it. The conversion rates to purchases will be terrible, because of the "penny gap" (asking people to spend money, and in particular asking them to make a new relationship to spend money, always causes a huge dropoff) and the conversion rate will not be meaningfully higher than if you had charged $5. Customers hate the experience of authentication for $0.05 transactions even more than they hate actually paying money, and common schemes for doing the auth once and then bundling transactions across merchants like e.g. Flattr are basically a non-starter for most users.

(I'm largely speaking about making services for the global rich here. It is possible that the situation in Uruguay is different, although I'd still suggest not getting into this field as a student.)

[GFischer]

Thank you for your advice Patrick, I should have added I'm a Masters of Management of Technology student with 8 years of experience in the field, my cofounder is a manager at a payments processor :) , and I've worked in the local financial sector as well (Equifax and currently at an insurance company).

We're specifically NOT targeting the global rich, 2/3rds of the population here in Uruguay don't have a credit card and are left out of internet payments, and the same or worse happens across Latin America (the so-called "Base of the Pyramid" approach http://en.wikipedia.org/wiki/Bottom_of_the_pyramid ).

I do worry about legal implications, the virtual currency approach is probably what we'll end up implementing not only because of the payment infrastructure, but because of legal reasons as well.

We've met with the legacy payments structure (to get money into the system) and the response has been largely positive, but we're facing some serious challenges in not having more overhead than that.

By the way, if we found 100.000 paying customers and made 0.01 off each transaction that would be a 50% raise for both of us :) , that's how low we're being paid at the moment. And we hope to make money off the financial market as well (off the time between the money entering the system and the money leaving the system), which is how my current company makes money.

Does it sound reasonable or is it still a pipe dream? We still need 100.000 more customers, but we teamed up with a nonprofit to get the first 2000.

[rmc]

if we found 100.000 paying customers and made 0.01 off each transaction that would be a 50% raise for both of us

Are you both working 'normal' salaried jobs? If you were and you were to do contracting, the usual guide of how much to charge is to double your normal rates, i.e. 100% raise.¹

So getting 100k customers/transactions per month should be seen as a big success, and hence you should be getting much more than a 50% raise.

¹: This is to cover sick days, holiday, dry spells, etc.

[GFischer]

Very true that, I hope we'll make more than that ! Thanks for the tip. Yes, we're working normal "salaried" jobs.

I expect the time investment to be less than a full time job (though at first it will probably be a lot more!) and flexibility and independence is very valuable for me.

[swah]

Are the folks without credit cards on the internet?

[GFischer]

At least here in Uruguay, the answer is yes.

Don't only think of the classic "poor", think of: - people earning 500 dollars/month (lower middle class here) which Visa and Mastercard don't accept as customers;

- young people (under 18 or 20) and women (that's A LOT of people);

- people in informal work agreements (that's 1/3rd of the population here), black and gray market, which cannot demonstrate their income and avoid taxes.

[rmc]

Isn't that paypal's business model? They're doing OK.