The Evolution of Transactions
Click button. Get thing. It’s a simple promise, right? Whether you need dinner, a car to the airport, or entertainment, modern conveniences let you click a button and get what you want without a second thought. But behind this simplicity lies a web of hidden complexities that make it all possible. Processes invisible to the buyer are critical for sellers to navigate, ensuring they avoid financial ruin and even legal trouble. So, how did we get here? What does it take to make these seamless transactions work?
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The Origins of Trade
Before there were even humans, organisms had to engage in give-and-take relationships just to survive. For humans, the earliest form of trade was bartering—exchanging one good for another. Imagine I have an apple orchard, and my neighbor wants to trade some eggs for my apples. But is it always that simple? What if my apples are rotten? What if my neighbor lied about his eggs being farm-fresh? Bartering lacked checks and balances, and a faulty trade could even be settled by force.
As society evolved, we introduced currency to assign value to goods and services, eliminating the need to haul around buckets of apples to trade. Now, my apple business—Ben’s Apples—runs on cold, hard cash, but even that comes with its own challenges, like taxes.
The Tax Trap
At the end of the month, I notice my profits are lower than expected. Sales tax. Like it or not, taxes exist to fund public programs and expenditures. Early civilizations recorded taxes on clay tablets, and today, taxes remain a major consideration for businesses. Paddle’s CFO, Philip Watson, knows this all too well:
"There's never a de-escalation or de-complicated taxes. There's always a new jurisdiction that pops up, a new tax that pops up, the rate changes. But that cost really ramps as a company gets bigger. When you're small, maybe the cost of non complying is low. It compounds because of fines, because of the penalties, because of the exit implications.”
It’s not just taxes that can cause problems—attempts to cheat the system result in harsh penalties. Businesses today still face fraud and tax issues that have existed for centuries. Missing a new tax law could ruin your entire business. And if I’m not careful, Ben’s Apples could be in big trouble.
Beyond the Local Market
Ben’s Apples is ready to expand, and the solution comes from an unlikely place—mail-order catalogs. In 1861, Welsh draper Pryce Pryce-Jones launched a catalog that allowed customers to order goods from the comfort of their homes. It was a revolutionary concept for its time. Today, mail-order businesses like mine can ship products all over the world, but with this expansion comes complexity.
A diverse set of customers means a diverse set of taxes. Different countries have different tax laws, currencies, and regulatory hurdles. For every sale over the border, there are new rules to follow, and not complying could mean disaster.
The Digital Age
Thanks to the internet and credit cards, buying is easier than ever. 20% of all retail sales are now carried out digitally. If you want apples from BenCo today, all you have to do is click a button. But for sellers, the financial headaches are growing. Different regions have different preferred payment methods—Germany loves PayPal, China loves Alipay, and the Netherlands uses iDEAL.
Lucas Lovell, Paddle’s Director of Product, explains:
“There are lots of different local payment methods that are popping up in different countries around the world. Some of the really exciting stuff is coming from developing countries. I was just in Kenya and everyone uses this payment method called M-PESA. M-PESA is designed to enable the transition of value between two parties who don't have bank accounts. It’s amazing technology.”
BenCo’s success could lead to subscriptions and recurring revenue, but this introduces even more complications. Sellers must manage data compliance, payment failure rates, and taxes across a global customer base.
A Merchant of Record
How does BenCo streamline its finances and remove these headaches? One solution is using a Merchant of Record, which handles the financial complexities so sellers can focus on their product. Philip Watson sums it up perfectly:
“We remove the burden of lot of that complexity. Let the experts in payments be experts in payments, right? You focus on your core competency, which is building your product or provisioning your service or good. We'll make sure that your payment stack is fully optimized."
The future is only getting more complicated with cryptocurrency and new payment methods. But by setting up a Merchant of Record, businesses like BenCo can offload the hard stuff and focus on what they do best—growing the best apples in the world.
Click Button, Get Thing
Click button, get thing. It’s the promise of modern commerce. You’ve now seen the complex system behind that simplicity. The buyer’s experience might be easy, but the seller faces a maze of financial and legal challenges. If you’re a seller navigating this complexity, consider using a Merchant of Record like Paddle to make the process simpler.
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00:00:00:00 - 00:00:23:07
Ben Hillman
Click button. Get thing. This is the promise of a product that just works. Do you need dinner? Just click a card of the airport tab to pick up. If you want entertainment, you don't even need to lift a finger. Wow. Click a button. Get thing simple, right? But behind this convenience lies a hidden maze of complexities that make it all possible.
00:00:23:09 - 00:00:45:22
Ben Hillman
Processes that are invisible to the buyer are crucial to the seller, especially to make sure that they avoid prison time and financial ruin. So how did we get here? What sophistication is occurring in the background to make all of this work? We're going to dive into all of that and by the end, make sure you understand the evolution of the transaction.
00:00:46:00 - 00:01:05:23
Ben Hillman
Before there were even humans, organisms have had to engage and give and take relationships just to survive. Humans have been exchanging resources for eons. The idea of bartering is simple. I mean, Sam out on my apple orchard. My neighbor peers over the fence and asks if he can trade for an apple in return for my apples. He'll give me a few.
00:01:06:01 - 00:01:27:01
Ben Hillman
But is it really that simple in practice? What if my apples are secretly rotten to the core and my neighbor feels that he didn't get a fair deal? What if my neighbor lied about being farm fresh? Or what if my neighbor demands more apples for fewer eggs? There aren't many checks and balances in a bartering society, and a faulty transaction might even be settled in blood.
00:01:27:02 - 00:01:52:12
Ben Hillman
And society has advanced. We've mitigated some of these issues. Currency has adapted and changed for thousands of years, from cattle or livestock to shells to paper, backed by the value of a shiny rock gold. So, in lieu of valuing my apples for my neighbor's eggs, the advent of currency means our goods are assigned a certain value. And I'm grateful for this so I don't have to carry around a bucket of apples wherever I need supplies.
00:01:52:13 - 00:02:19:07
Ben Hillman
Now I'm moving on from exchanging my apples for eggs and starting Ben's Apples, a full fledged apple business where people from all over town pay me in cold, hard cash in exchange for my delicious apples. But when I look at my end of month statement, my net profit is less than it should be. Sales tax. And look, I know some of you are already in the comments talking about why this tax is great and this tax is bad or no taxes should ever exist.
00:02:19:09 - 00:02:45:14
Ben Hillman
Look, taxes do exist as of the making of this video. So let's just talk about what they mean. The idea of taxation is to fund public spending programs or other government expenditures. It's not a new concept either. Some of the earliest recorded artifacts of civilization are tax receipts recorded on clay tablets dating back to 5000 years ago. Now I need to make sure I'm keeping Ben's Apples financials in order so that I don't end up in big trouble.
00:02:45:19 - 00:02:56:08
Ben Hillman
Whether you're watering your apple trees or building the latest software, it takes valuable time away from focusing on your product to get a complete picture of this. I spoke with Paddle CFO Philip Watson.
00:02:56:14 - 00:03:13:19
Philip Watson
There's always a new tax that pops up the rate changes that cause, as I say, like really ramps as a company gets bigger. So when you're small, maybe the cost, you know, I could buy it slow. I'd bet that I think that's that's reasonable. And there are other things you're focused on. You're building as you get bigger. It just compounds.
00:03:13:19 - 00:03:19:19
Philip Watson
It doesn't grow linearly. It compounds because of the fine, because of the penalties, because of the implications.
00:03:20:00 - 00:03:44:00
Ben Hillman
It isn't just taxes that can sink your business either. Any attempt at cheating the system means harsh penalties or jail time. In the early days of industry, payroll schemes, charity schemes and identity theft cropped up more and more as the economy grew and slowly became reformed. So I'm hard at work building Ben's apples, and I haven't heard the news that there's a new town wide tax on apples.
00:03:44:02 - 00:03:56:08
Ben Hillman
I haven't been accounting for it. Now I have to deal with the legal troubles and tax compliance issues that could ruin my entire company. I mean, I guess it beats a door in the streets like the bartering days, but it's a devastating blow nonetheless.
00:03:56:08 - 00:04:07:05
Philip Watson
If I am a merchant, I only have so much money to spend on things like think I want to go spend it on making the best product I can make. Not like sales tax returns around the world.
00:04:07:08 - 00:04:30:13
Ben Hillman
Fortunately, I was able to pay the tax and my business can continue, but I want to figure out how I can expand beyond my town. A solution for this was born in 1861, when a Welsh rapper named Pryce Price Jones launched his own catalog that offered a variety of wares. Amazingly enough, in a pre-internet world, price was able to offer next day delivery with a warehouse right next to the train station.
00:04:30:15 - 00:04:53:06
Ben Hillman
With the railroad in full swing and a reformed post office, his mail order catalog was a great success. The details on how payments were received are a bit murky, but according to a different catalog from the 1890s, the ordering process looked pretty straightforward. Simply fill out the form and put in an envelope with your payment. Cost could be covered in cash, money, order postage, or even collect it through a local bank.
00:04:53:08 - 00:05:11:07
Ben Hillman
The mail order business was very diverse in the early 1900s. You can even buy an entire house from Sears. Thanks to price, you no longer need to go to the store to buy Ben's apples. Now you can get them from all over the country. Just get a copy of the new Ben Co delivery catalog and order a granny Smith her Red delicious right to your door.
00:05:11:13 - 00:05:35:22
Ben Hillman
It's a huge win for everyone involved right. Well, on the seller's side it once again becomes increasingly complicated. A diverse set of customers from a diverse set of places means a diverse set of taxes. Sales taxes aren't uniform anymore, like they were when I was just selling to my small community. Also, I need to make sure that I have merchant bank account set up wherever I have a substantial customer base, including international.
00:05:35:23 - 00:05:59:09
Philip Watson
The state is very complicated in sales tax wise because you have while you don't have a federal sales tax, you have state sales taxes, local sales taxes, smaller than, you know, smaller than local jurisdiction taxes and things like that, and all of those various jurisdictions. I think there, you know, there are there are literally thousands of them. And remember, like, you have to do it right in each one for your money.
00:05:59:11 - 00:06:18:16
Ben Hillman
It doesn't stop with state to state tax either. For that sale over the border into Canada, you need to consider the tax laws that vary from country to country as well. On top of that, they use completely different currency. So that also needs to be converted. Complications around refunds and chargebacks also have to be dealt with from a distance.
00:06:18:16 - 00:06:31:04
Ben Hillman
Essentially, opening up. Selling to customers around the globe means opening yourself up to unique regulatory challenges that each country offers. Hurdling those challenges means great success, but tripping up could mean disaster.
00:06:31:06 - 00:06:45:07
Philip Watson
Taxes do matter globally. Apple is just that fine by the tax case here in the EU, €13 billion I read about of literally like any executives from companies who have come in who were like violating tax rules, for example, on like withholding their passport.
00:06:45:08 - 00:07:10:18
Ben Hillman
Now, although Benko has a ton of new customers from all over the globe, we have our accountants working overtime to keep the books in check. Despite the success of mail order catalogs and a boom in selling, there's always going to be a capitalistic opportunity to iterate on the convenience of the transaction. Thankfully, the internet and computer technology came along to make that desire a reality and to create unprecedented, frictionless experience for buyers.
00:07:10:20 - 00:07:29:15
Ben Hillman
The internet's great. I'm sure you've heard of it with new forms of payments like credit cards and online stores drastically increasing in popularity, buying is now accomplished with the swipe of a credit card or the click of a mouse. Gone are the days of sending money by mail, or taking a trip out to the apple orchard, or trading my apples for your eggs.
00:07:29:17 - 00:07:53:10
Ben Hillman
If you want an apple from Benko now, all you have to do is go to Ben Com and click a button or two apples right to your doorstep. 20% of all retail sales are now carried out digitally, and that number is growing by the year. But this technology boom only means more financial headaches from the seller side. On top of the taxes, fraud and currency conversions that have existed for hundreds of years came new problems.
00:07:53:12 - 00:08:16:13
Ben Hillman
For example, when selling globally online, you need to consider the hundreds of popular payment methods in various regions. Although a seller in the US might expect customers from all over the world to pay the same way that they do, it's just not the case. Germany loves PayPal, China loves Alipay, and the Netherlands love ideal. These various payment methods make selling complex take Paddle’s
00:08:16:13 - 00:08:24:13
Ben Hillman
Director of product Lucas Lovell. He knows a thing or two about selling internationally. He's done it himself and he's seen every payment method under the sun.
00:08:24:15 - 00:08:47:02
Lucas Lovell
There are lots of different local payment methods that are popping up in different countries around the world. QR codes are being used very heavily in lots of Asian countries to power certain types of payments. I was just in Kenya and everyone uses this payment method called M-Pesa, and Endesa is designed to enable the transition of value between two parties who don't have bank accounts.
00:08:47:04 - 00:09:08:15
Ben Hillman
BenCo success with selling online could also lead us down the popular path of starting a subscription, with recurring revenue coming in month over month. Various contract lengths and packaging offers. Selling apples is more moving parts than ever before. Data compliance and payment failure rates need to be checked alongside compliance with recurring sales taxes from customers all over the world.
00:09:08:17 - 00:09:13:00
Ben Hillman
It's a workload that, quite honestly, can become overwhelming to sellers like BenCo.
00:09:13:03 - 00:09:35:22
Philip Watson
How do you move money from somebody sitting in computer wanting to buy your thing in France? How do you get that money almost instantaneously over to BenCo? You know, in the state, you know, testing a card multiple times or routing, routing the payment through different rails to make sure it gets accepted around the payment of different rails to make sure it comes through as quickly as possible, things like that.
00:09:35:23 - 00:09:48:04
Ben Hillman
So how do we at BenCo help streamline our finances and remove the headaches and focus on growing the best apples in the world? Well, I'm biased, but I would suggest the BenCo uses a merchant of record.
00:09:48:06 - 00:09:58:14
Philip Watson
We would take that burden from people. You guys go focus on developing your product. You focus on your marketing strategy and we got this for you. And then let's team up and you can go.
00:09:58:18 - 00:10:17:06
Ben Hillman
You don't have to use paddle services. This is all possible doing so piecemeal. But by setting up a merchant of record, a third party is going to handle all the hard stuff so that you don't have to worry about it. It's not getting easier anytime soon either. With cryptocurrency and new payment technology sprouting up, the future is looking more complicated than ever before.
00:10:17:09 - 00:10:32:03
Lucas Lovell
The big thing that we'll start to see more of is how customer experiences get built on top of the underlying payments technology, and we start to see really unique and creative ways. Moving value between different parties through really traded methods.
00:10:32:06 - 00:10:52:04
Ben Hillman
Click button get thing. That's the promise of a product that just works. If you need apples, a car to the airport, entertainment, the solve should be easy. On the seller side, you've now seen what sort of complexity has to go into the structure behind this simplicity, but that doesn't mean that it should be difficult for the merchant as well.
00:10:52:06 - 00:11:04:08
Ben Hillman
You've seen how we got here. You know what goes into a transaction. You've seen them evolve. Now you can go learn more by checking out Padel for more information. My name is Ben Hillman and I'll see you next time.
