I've looked at doing this in Europe before, interest-bearing completely changes the classification of the prepayment. I didn't dig too deeply, but the general gist was that regulation-wise it really wasn't worth doing for a relatively gimmick-level feature
I've heard about similar regulatory barriers especially in finance so this does not surprise me.
A long time ago I remember reading about banks that want to provide incentives for saving that amount to basically lottery tickets. The idea is that people aren't thrilled about a savings account that pays 2%, but if instead they offered a monthly 1 in 50 chance to get 100% return (same expected value, ignore compounding), people would like that a lot more. But this amounted to essentially a lottery and that's a state monopoly.
Ireland, like the UK, has a system of Prize Bonds that work exactly like this, administered by the state. The expected return on them is actually quite competitive, depending on your tax situation.
Everyone here seems to have got a present of €20 Prize Bonds for a 10th birthday from an aunt or grandmother, yet people from outside are always surprised that such a product can exist.
I think that is why Carolina Cloud pays the interest in credits (redeemable for their services), as opposed to cash. It is not much different how some business give you a discount if you pay the amount upfront or in a more convenient form of payment.
At scale, a decent number of commercial/business agreements have Net Discount provisions (or provisions to that effect); basically get a % discount if you pay within X days; or pay the full amount with no discount in Y days, so the general arrangement is far from unorthodox.
In some regulations you can also be expected to declare and pay tax on the money you earned from the interest, which can be annoying to do for such small values.
Definitely annoying, and YMMV, but a lot of jurisdictions don't treat credits (that cannot be redeemed back to cash) as income.
In the same way signing up for $App and getting $100 in API credits isn't income; paying a bill early for a 3% discount isn't income; and frequent flyer points or cash back you get on our credit card isn't income.
This is interest on credits, not on cash. Once you start paying interest on cash you need a banking license. I think you'd be fine even in Europe paying interest on credits.
Why would you think credits and cash would be treated differently? I am not a EU tax expert but it would be shocking if that’s the case because you could create some pretty interesting schemes if by turning cash into a “credit” meant it was treated entirely different.
Maybe that’s the case for the EU but it would be surprising.
The root of this thread was surprise over rules around interest. I am saying it’s not surprising because companies could then easily create weird schemes.
It's the case because once you buy cloud credits you are in an entirely unregulated space. At Carolina Cloud, that means your cloud credits are nothing more than an audited and backed up DB entry. Therefore, we can do whatever we want with them. We could double them every 6mo if we wanted. We settled on something more reasonable (SOFR).
Not unlike the hyperscalers giving $100k+ to startups and it not counting as income for C-corp tax purposes. Totally unregulated space!
What is surprising? Paying interest on cash is effectively a financial instrument. Not sure what gold has to do with it. If you pay a business cash and they turn it into credits that pay interest that would not pass a smell test.
No customer would truly care about this and in most jurisdictions you would probably go through a lot more paperwork because of the interest payments.
I wonder if they see any material differences in their customers’ usage or spending habits on the platform, receiving this interest? My perception of most businesses is that prepaid plans are typically disincentivized compared to subscriptions that auto-renew.
I think this is pretty great, though I’m sure hyperscalers will find a way to make sure such a scheme becomes as shitty for customers as frequent flier programs are today.
Think of it from a small hobbyist perspective: I want to host a few small workloads, but I don’t want to deal with reoccurring billing. Maybe I have money now, but can’t guarantee it later. With this scheme, I frontload with a substantial amount of prepaid credits - say, $150 - while only using $5 or $10 a month. In theory, if the interest rate is correct, I could earn more on interest faster than the prepaid credits get drawn down - thus having a perpetual instance for a one-time charge.
Personally? I think that’s a fair and reasonable arbitrage opportunity, because it also means the vendor can take that excess Capital and invest it themselves to create a return greater than the credits paid out. In practice, some greedy jerk C-Suite inevitably places caps on payouts or time limits on credits to ensure they capture more for themselves and leave less for their customers.
I guess what I’m saying is that I dig the idea, I’d love to see it implemented by more vendors, but I also know it’ll get rules-lawyered to death in nanoseconds under the current market incentives.
"I think this is pretty great, though I’m sure hyperscalers will find a way to make sure such a scheme becomes as shitty for customers as frequent flier programs are today."
Oh, that's not even a challenge. The reason to offer a scheme like this is basically to abuse the fact that a human customer will value this disproportionally to the cost of providing it. But if the customer perceives that value, that means you can take that surplus, which isn't real, and then extract that surplus from almost anything else that comes in the form of real money, and create something that humans value as much as the original service, but now with more money to the service provider. Converting the customer irrationality into money means you don't even need anything as obvious as a cap, which sounds scary. You just raise your other prices.
How many small hobbyists really want to front load $150, instead of paying $5 a month, and would only be swayed if they got interest/credits?
At 5% simple interest, your $150 would give you 62.5c per month. So you'd need closer to ~~$1200 to have a perpetual hosting machine; for a $5/month VPS or whatever.
You also now have an additional problem: $1200 of committed spend on a cloud provider; which could go out of business one day; for a $5/month workload.
I think for most people, the second problem is much bigger than "I don't wanna set up recurring billing".
I do appreciate you doing this btw, I find it nice and clever. I like how it democratizes a mechanism that enterprises have (net discounts, similar effective mechanisms) and makes it accessible to everyone.
I was replying to the parent comment, I'm just saying "prepay and commit thousands of credits so you get to run $5/month" isn't a good idea to me, but I do like your mechanism.
I've looked at doing this in Europe before, interest-bearing completely changes the classification of the prepayment. I didn't dig too deeply, but the general gist was that regulation-wise it really wasn't worth doing for a relatively gimmick-level feature
I've heard about similar regulatory barriers especially in finance so this does not surprise me.
A long time ago I remember reading about banks that want to provide incentives for saving that amount to basically lottery tickets. The idea is that people aren't thrilled about a savings account that pays 2%, but if instead they offered a monthly 1 in 50 chance to get 100% return (same expected value, ignore compounding), people would like that a lot more. But this amounted to essentially a lottery and that's a state monopoly.
Ireland, like the UK, has a system of Prize Bonds that work exactly like this, administered by the state. The expected return on them is actually quite competitive, depending on your tax situation.
Everyone here seems to have got a present of €20 Prize Bonds for a 10th birthday from an aunt or grandmother, yet people from outside are always surprised that such a product can exist.
I think that is why Carolina Cloud pays the interest in credits (redeemable for their services), as opposed to cash. It is not much different how some business give you a discount if you pay the amount upfront or in a more convenient form of payment.
At scale, a decent number of commercial/business agreements have Net Discount provisions (or provisions to that effect); basically get a % discount if you pay within X days; or pay the full amount with no discount in Y days, so the general arrangement is far from unorthodox.
Opening it up to everyone is nice.
In some regulations you can also be expected to declare and pay tax on the money you earned from the interest, which can be annoying to do for such small values.
Definitely annoying, and YMMV, but a lot of jurisdictions don't treat credits (that cannot be redeemed back to cash) as income.
In the same way signing up for $App and getting $100 in API credits isn't income; paying a bill early for a 3% discount isn't income; and frequent flyer points or cash back you get on our credit card isn't income.
This is interest on credits, not on cash. Once you start paying interest on cash you need a banking license. I think you'd be fine even in Europe paying interest on credits.
Why would you think credits and cash would be treated differently? I am not a EU tax expert but it would be shocking if that’s the case because you could create some pretty interesting schemes if by turning cash into a “credit” meant it was treated entirely different.
Maybe that’s the case for the EU but it would be surprising.
Probably because you can't turn credits back into cash.
Is that a law?
I'd guess that's a part of the TOS.
TOS is not the point.
The root of this thread was surprise over rules around interest. I am saying it’s not surprising because companies could then easily create weird schemes.
Very interesting I am curious how this is the case, could you share some more details/information about it?
Also, how does it compare to say, accepting gold or treating a gold based ledger instead treating gold as a currency and similar ideas?
Also could this re-classification be ever useful too? For examples bonds being treated in such way?
It's the case because once you buy cloud credits you are in an entirely unregulated space. At Carolina Cloud, that means your cloud credits are nothing more than an audited and backed up DB entry. Therefore, we can do whatever we want with them. We could double them every 6mo if we wanted. We settled on something more reasonable (SOFR).
Not unlike the hyperscalers giving $100k+ to startups and it not counting as income for C-corp tax purposes. Totally unregulated space!
What is surprising? Paying interest on cash is effectively a financial instrument. Not sure what gold has to do with it. If you pay a business cash and they turn it into credits that pay interest that would not pass a smell test.
No customer would truly care about this and in most jurisdictions you would probably go through a lot more paperwork because of the interest payments.
I wonder if they see any material differences in their customers’ usage or spending habits on the platform, receiving this interest? My perception of most businesses is that prepaid plans are typically disincentivized compared to subscriptions that auto-renew.
Carolina wins a Stanley Cup, now we have hyperscalers? Moving up in the world!
That’s pretty slick. These folks need to come to the Carolina Code Conference in a couple of weeks…
Region North or South?
I think this is pretty great, though I’m sure hyperscalers will find a way to make sure such a scheme becomes as shitty for customers as frequent flier programs are today.
Think of it from a small hobbyist perspective: I want to host a few small workloads, but I don’t want to deal with reoccurring billing. Maybe I have money now, but can’t guarantee it later. With this scheme, I frontload with a substantial amount of prepaid credits - say, $150 - while only using $5 or $10 a month. In theory, if the interest rate is correct, I could earn more on interest faster than the prepaid credits get drawn down - thus having a perpetual instance for a one-time charge.
Personally? I think that’s a fair and reasonable arbitrage opportunity, because it also means the vendor can take that excess Capital and invest it themselves to create a return greater than the credits paid out. In practice, some greedy jerk C-Suite inevitably places caps on payouts or time limits on credits to ensure they capture more for themselves and leave less for their customers.
I guess what I’m saying is that I dig the idea, I’d love to see it implemented by more vendors, but I also know it’ll get rules-lawyered to death in nanoseconds under the current market incentives.
Yes - presuming the funds can’t earn SOFR+. The opportunity cost is the interest being earned elsewhere (minus interest earned taxes)
"I think this is pretty great, though I’m sure hyperscalers will find a way to make sure such a scheme becomes as shitty for customers as frequent flier programs are today."
Oh, that's not even a challenge. The reason to offer a scheme like this is basically to abuse the fact that a human customer will value this disproportionally to the cost of providing it. But if the customer perceives that value, that means you can take that surplus, which isn't real, and then extract that surplus from almost anything else that comes in the form of real money, and create something that humans value as much as the original service, but now with more money to the service provider. Converting the customer irrationality into money means you don't even need anything as obvious as a cap, which sounds scary. You just raise your other prices.
You can do all these things. If you are a small player trying to stick out, you can make a point of not playing these particular games.
How many small hobbyists really want to front load $150, instead of paying $5 a month, and would only be swayed if they got interest/credits?
At 5% simple interest, your $150 would give you 62.5c per month. So you'd need closer to ~~$1200 to have a perpetual hosting machine; for a $5/month VPS or whatever.
You also now have an additional problem: $1200 of committed spend on a cloud provider; which could go out of business one day; for a $5/month workload.
I think for most people, the second problem is much bigger than "I don't wanna set up recurring billing".
This is aimed at CFOs, not hobbyists
I do appreciate you doing this btw, I find it nice and clever. I like how it democratizes a mechanism that enterprises have (net discounts, similar effective mechanisms) and makes it accessible to everyone.
I was replying to the parent comment, I'm just saying "prepay and commit thousands of credits so you get to run $5/month" isn't a good idea to me, but I do like your mechanism.
This is correct, if you put in $1000 you could basically run a small dedicated VM in perpetuity.
Just so long as the price of the small dedicated VM doesn't also increase with inflation