For some background, when Screen Mimic 1.0 came out in 2005, we started using Kagi. This made it really easy to get our app out the door quickly, and removed two levels of complexity from our business, namely serial number generation and payment processing. Kagi has been good to us, any problems that we have ever had have been resolved very quickly and professionally, however when you start doing high volume sales, KAGI starts to eat significantly into your profits.

Show me the money

So we started looking at the fees associated with several payment processors. From a financial standpoint, the results were a no brainer. Let’s say we sell 100 copies of Screen Mimic 2.0 at $64.95 in a single month. Here are the associated fees from each option that we considered (note that some of these values could vary slightly depending on the particular credit card that people use):

1. KAGI with serial number generation: approx. $1218
2. KAGI without serial number generation: approx. $1054
3. Paypal IPN: approx. $738
4. Card Services International: approx. $710
5. Our Bank (SunTrust): approx. $680

Money isn’t everything, but it sure buys a lot of stuff.

Wow, over $500 difference every single month at that rate. That’s enough money to buy a mac mini every single month. However cost alone should never be the sole influence on any business decision, (if it were we’d all be writing open source software for Linux, right?), so here are the other factors associated with each option as they applied to us:

• 1 and 2. As I mentioned, using KAGI with serial number generation saves a lot of hassle up front. Some people complain about using stock serial number generators however we have never had a problem with piracy. Does that mean that no one has ever pirated our software? No, it just means that WE don’t have a problem with it, as in we don’t worry about it. As Brent Simmons said at the O’Reilly Mac Dev Conference,
  

  “There are people that pay for software and there are people that don’t pay for sofware, and never the twain shall meet.”

  The downside to using Kagi or any other 3rd party processor for payment processing is that people had to leave our site to buy our software. From a marketing standpoint, this makes tracking conversions nearly impossible.

  While Kagi does now offer custom store design so that your Kagi store can at least look like your site, it is a manual process and involves you sending someone your changes so that they can set them up on Kagi’s server. This is less than ideal.

  Kagi also offers a not-so-talked about discount for merchants doing high volume sales, however it is really not that significant.

  Another downside to Kagi is that they only pay you once a month. This isn’t really that bad, however it is nice to just have the money instantly. They do it because they have a 30 day refund commitment, so they don’t want to send you the money until there is no longer a possibility of a refund request. We would prefer to have our own refund policy, so we don’t need this “protection”.

  Finally, my least favorite part about using Kagi is the way they handle VAT. We are US based, and I don’t want to collect VAT. You can see a lively debate about whether small software businesses in the US should collect VAT on Joel Spolsky forums, but you should check with your accountant before making a decision.

  If I were a European company I’d be happy to charge VAT, well maybe happy isn’t the right word, but I would be willing to charge VAT anyway. However we are not a European company, and so for us VAT unnecessarily raises the cost of our software for our European customers. Since a lot of our customers are European, this is a big deal for us. Not to mention that in some countries, VAT is ridiculously high.

• Setting up PayPal with instant payment notification is extremely complex compared to getting up and running with Kagi. However they also offer a lot tighter integration, and have a really nice API for instant payment notifications, which makes server-side serial number generation a bit easier.
• CardServices International is a major player in credit card processing, and have a fairly streamlined setup process. And we very nearly used them.
• SunTrust Bank is our business bank. We love the people at our local branch, and for us this was a big factor in our decision. There is something magical about dealing with real people that you know when you are trying to work out business issues. It adds a big level of comfort.

  Not only did they have the cheapest rates, but they have remarkable customer service at the local level. Especially for their business accounts. Combine that with no VAT requirements, and the fact that your money is deposited directly into your business account the next day rather than a month later, and SunTrust was the clear choice for us.

Now comes the hard part

Handling your own payment processing of course requires some work. First of all you need to decide how you’re going to handle licensing. Since we’re changing processing methods mid-cycle, any solution that we go with will have to be backwards compatible with our customers’ existing serial numbers.

You also of course need your own SSL Certificate. This wasn’t a big deal for us, since our web hosting package came with one.

Finally you need to integrate with the payment processing service. In our case, SunTrust uses YourPay.

Conclusion

Setting up a merchant account at our local business bank was the best choice for us, however as I mentioned at the beginning, your best solution may be different.