Kagi: a recommendation for developers

I offer two payment options for customers: Kagi and PayPal. I think it’s important to offer multiple alternatives because people generally have strong preferences when it comes to making online payments.

In this article I want to talk about my recommendations to customers looking to buy a product and to developers looking to sell. The service that is best for you may vary according to which position you occupy.

Customer recommendations

If a customer asks me which service I recommend I point out that PayPal can generally offer more competitive prices because their fees are lower and because they don’t charge VAT to European customers. So for customers, in many cases PayPal works out better; nevertheless some don’t like it and chose to go with Kagi.

In the distant past Kagi accepted payments from many more countries and it also accepted many more forms of payment, but as time goes by PayPal becomes available in more countries (over 100 at the time of writing) and they accept more types of payment. Kagi is on the move too, offering more currency options and updating their store infrastructure (to which I’ve just moved).

PayPal originally had an advantage because of its IPN (Instant Payment Notifications) service which allowed me to implement an automated system that instantly generated license codes for customers and sent them via email without any human intervention. Kagi had something called ACG (Activation Code Generator, I believe) which allowed you to do the same, but it required you to write the license code generator in a format specified by Kagi and then request them to install and run it on their own servers. They later caught up with PayPal and added KRPS (Kagi Remote Post System, I think) which is roughly equivalent to PayPal IPNs. In either case this means that from the customer perspective there’s no difference in terms of how fast they get their license codes. Both processors seem to offer quite high reliability and availability. Scheduled maintenance stops people from using PayPal from time to time, and unscheduled maintenance is extremely rare with both companies.

To summarize, the current state of play is that for customers, availability in different countries, currency options, payment types, instant delivery of license codes, reliability, are roughly equivalent with both services. Thanks to the new Kagi store infrastructure I’m able to set prices in the same currency with both payment processors, so pricing is consistent as well (with the exception noted here that Synergy single-user licenses are cheaper via PayPal). That price discrepancy for Synergy single-user licenses and the fact that Kagi charges VAT to European customers are the only real reasons why I recommend that customers go with PayPal. One area in which Kagi makes up some ground is in customer service: if a customer wishes to speak to a human being at Kagi they’ll find it fairly easy; contacting a human being at PayPal may be another matter entirely…

Developer recommendations

Kagi’s fees are probably the real killer here and the single biggest disincentive to using Kagi. If your product costs more than 10 or 15€ then you can probably absorb those higher fees and shield your customers from the damage. But in my case my most popular product is only 5€ and Kagi’s fees make it impossible to sell a product for so little; the same license purchased via Kagi costs 10€.

For each 5€ license I sell via PayPal, they take about 55 cents in fees. I can withdraw the money to my bank account for free. I don’t have to pay currency conversion fees because the price of the software is set in euros, payments are made in euros, and the money is deposited into my account in euros. Funds are available instantly. This works out to just over 10% in fees.

Kagi’s fees, on the other hand, work out to between 15% and 16%. Although prices are now set in euros, payments are sent from Kagi in US dollars and I am then at the mercy of my bank that sets its currency exchange rates as it pleases and where I also have to pay additional conversion fees at my end. Kagi levies a $15 "Wire Transfer" fee in order to obtain the money that they have collected on your behalf, and transfers are significantly delayed: in any given month you are not paid for the purchases made in that month until the 20th day of the following month, and your bank may impose a 28 day clearance delay on the incoming funds because they are in a foreign currency. If you’re unlucky enough that the transfers coincide with weekends when banks are close then you could end up waiting as long as 83 days before receiving the money for a sale. When you take this delay into account and factor in the interest cost, this can easily drive up the Kagi fees to 20% or more, depending on your sales volume.

It’s even worse than that though; the percentages above are calculated on the basis of the already-adjusted prices: that is, Kagi’s fees are 15% to 16% when you sell your software for 10€. If you want to make the comparison totally fair then would have to calculate the percentage that you would pay if you kept the software at the lower price of 5€; in that case the fees go up to 32%. Add the wire transfer fees, currency conversion fees, and the interest cost of the delayed payment to you and your real fees can easily break the 35% or 40% barrier.

So as I said, using Kagi is simply not realistic for extremely inexpensive software. Using it in other cases, however, may be attractive for one reason: Kagi’s service to "suppliers" (that’s Kagi lingo) is simply excellent.

I’ve never had any contact with a real human at PayPal. On the few occasions where I’ve had contact it’s been with an email auto-responder. With Kagi it’s been a different story. Here’s a quote from a Kagi representative in response to a comment about their fees:

In the past we have had supplier’s [sic] who chose to leave Kagi because the fees at other companies looked more appealing. After a short time they returned to Kagi, as they realized the level of service and options available to them were no where near that of Kagi’s. Although the fees may seem higher, if you actually were to sit down and look at the services available to you here versus another company I believe that you would be surprised at the service that Kagi offers.

I’m afraid I have to begrudgingly agree: Kagi’s service is second to none. Kagi isn’t perfect and they do make some technical mistakes, but when those mistakes are made there’s always a human being at the other end of the line to investigate and solve the problem. In setting up the new store I ran into various technical problems that seemed to be Kagi’s fault — factual errors in the help documentation and sample code; out-of-date templates; bugs and inadequacies in the custom order template system, and so forth — but in all cases I was able to report the problem and receive a reply from someone at Kagi who took note of the issue for correction at some point in the future, and in the meantime worked to provide me with a different solution or workaround. The end result is that all of these technical issues have been solved and I have no complaints. The service has been simply excellent.

So if you are a developer and your product’s price point is high enough that you can withstand Kagi’s fees, I recommend that you consider signing up with them. They offer quite a lot of services, they are flexible, and the service is excellent. They can compete with other payment processors such as PayPal in terms of reliability, payment, currency and language options. They do charge a lot, but when you interact with them it’s easy to understand why: those fees cover the wages of the Kagi support staff. In short, Kagi is a lot more "human" and personalized than PayPal. More about "people", less of a corporation.