For many people, especially developers, Stripe is the go-to platform for accepting online payments. That's why a lot of people choose Stripe without looking at alternatives that might be a better fit. We did the same and regret not looking into different solutions earlier. Let's talk about the problems we had using Stripe.
- Taxes are not easy to implement, if you want to do it right
- Stripe Checkout is not complete yet
- Dynamic tax rates are missing
- The billing address collected in the Checkout were not attached to the customer, just to the payment method
- Customers can not enter a VAT number in the checkout
The incomplete checkout forced us to build quite a bit of custom logic and UI, that could have been done by Stripe. That sucks, but it wasn't the reason why we switched.
📝 Proper tax handling is hard
Taxes were the main reason why we migrated Splitbee. If you want to do them correctly it's a lot of work. Stripe is on the right track, but they are not quite there yet.
🔀 Switching to Paddle
1. VAT MOSS
The tax rate depends on your location, type of business (in our case SaaS) and ARR. If you're under 10,000 Euros, you can charge your country's VAT in all countries. If you're over that, you'll need charge country-specific rates. You also have to differentiate between private & business customers. Business customers that are within the EU and not in your country fall under the "Reverse Charge" rule. This means no VAT is collected and the words Reverse Charge needs to be on the invoice.
When a business customer is in the same country as you, you need to put your countries VAT tax rate on top. Read more about VAT MOSS.
With Stripe, you'll have one receipt per customer per month/year. There will be quite a bit of extra work if you have a lot of customers, even if you have a tax consultant. As an early stage startup you want to build a great product and not waster your time with collecting receipts. Stripe also doesn't let you download all receipts as PDF as once. We built a custom script that handled this for us. Still, this shouldn't be something you have to worry about.
Paddle is a merchant of record. This means they are collecting money on your behalf. Your customers will receive receipts from Paddle instead of your company. This moves the tax liabilities over Paddle, instead of taking care of it yourself. Their checkout is already optimised for all scenarios listed above: They collect the VAT number, billing address and apply the correct tax rate for business/private customers no matter what country they are in. At the end of the month you'll receive exactly one payment and one invoice from Paddle. Instead of handling hundreds of invoices each month, we now only have to take care of one. This is such a huge advantage it easily justifies the increased fees.
Bonus: Affiliates + Paypal
The cool thing is, that Paddle also allows you to split revenue from a subscription/purchase with other Paddle users. That means it is easy to build an affiliate system without worrying about taxes again.
Paddle also accepts payments from PayPal, which is cool.
💸 Fees & Pricing comparison
In short, Paddle is more expensive compared to Stripe.
Paddle's pricing page doesn't tell the exact pricing but you can find it on their legal page.
The current rates are
- Paddle Checkout: 5% of SRP plus $0.50;
- Paddle Invoicing (where payment is made by bank transfer): 3.5% of SRP.
Compare that to Stripe, which has a lot of smaller fees that apply to your payments.
The current rates are
- Payments: 1.4 - 2.9% + 0.25€ per transaction
- Subscriptions: +0.5% for recurring charges
Find out more about their pricing here
To put this in perspective, let's say you have a small SaaS startup with 100 customers paying $30 each per month.
- With Paddle you would earn $2,800. That's is $200 in fees per month (6.6% total)
- With Stripe you would earn $2,868. You'd pay about $132 in fees per month (4.4% total)
Would you take care of 100 invoices to earn an additional $68?
We wouldn't. That's why we are totally fine with paying a premium for Paddle. It's a huge time saver for us. It also gives us more security, since there is a less room to get the taxes wrong.
Should everyone be using Paddle? If you run an international online businesses and don't want to spend your days with accounting, then yes. If your business is limited to a handful of countries or the invoices you send are mostly large amounts you should consider if it's worth the additional fees.
Lastly, we are still huge fans of Stripe. The UX, the design and the developer experience are top notch. We still hope for a merchant of record solution for Stripe in the future. This would make the startup/bootstrap world much simpler. Until then Splitbee, and all other SaaS businesses we might build, will be powered by Paddle.