Sending money to users


I'm considering building a system that allows our users to purchase points, trade them between themselves, then cash them in for real currency.

The system will work like this:

  • User A buys points - say 100 for £10
  • User A buys something from User B for 50 points
  • When UserB accumulates >= 100 points, they can sell them back at a rate of £9 / 100

For now, I'm thinking of using PayPal to facilitate the process, but I'm unsure as to the accounting and legal issues I need to take care of. Does anyone have any specific advice or pointers to the areas I need to cover?

We're based in the UK.


Payments Legal Accounting

asked Mar 27 '10 at 02:24
148 points
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  • Just curious - What advantage would your system have over the users simply doing the exchange themselves for currency (aka eBay)? In any event, I wouldn't think that you would have any specific issues to address regarding payment that wouldn't apply to other businesses as well. – Ev Conrad 14 years ago
  • The point system would reduce the number of transactions, and allow our users to charge lower prices for their items - prices that would otherwise be significantly inflated by the transaction charge. It also simplifies the system by which we can take our cut - rather than charge a separate subscription fee, we just take a percentage of the point value when our site buys back the points - sell at £10 / 100, buy back at £9 / 100 - our cut being £1 / 100 points. – Codebeef 14 years ago
  • Ahh - makes sense. Thanks for the clarification. -e- – Ev Conrad 14 years ago
  • keep in mind that you are charged a fee for the money being transferred to you as well, ranging from 2.5%-4% depending on your merchant. Additionally your users will have to give up 1.9%-2.9% of there payout to paypal plus a small fee. If they expect a 90% payout that leaves you with around 2%-3% after fees. – Bob Ross 14 years ago

2 Answers


I toyed with an idea for an IOU management system a while back, that allowed you to pay friends with a credit card later. Here are a few of the ways we brainstormed getting money back to users:

  • PayPal. Expensive charges, they take a lot off the top but they're easy and familiar.
  • Gift cards. Seems like you should be able to buy Amazon gift cards and email them to your users. Instant and there may not be any transaction fees, but not as flexible as cash money.
  • Mailing checks to users. Send them a check in the mail. It's not fast or super-easy, but OK for some users and the only transaction fee is the postage and someone's time.
  • Mailing checks to the user's bank. Some banks allow money transfers this way. It's non-instant and requires you knowing the bank address (and maybe account number?) but cheap and simple.
answered Mar 28 '10 at 01:28
Greg Belote
798 points


On the points -> money side, credit card companies offer something called a stored value card. It's sort of like a debit card backed by a small account. At a previous company, we used these to pay customers an incentive bonus.

Worked great; we used a fulfillment company, who took care of everything. Just upload an order file to them periodically and they would send the cards, handle returns, etc.

On average, people don't use the full value of the card. So they end up costing you somewhat less than face value. For people who do use the card, it's very convenient -- accepted anyplace that accepts Visa/Mastercard.

answered Mar 29 '10 at 08:01
831 points

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