The subscription model penalises us

Peter Tippett
12 min readSep 3, 2022

We are paying more than we should as the old school banking system is broken and to hide this, the subscription model was created to spread the costs so some of us pay for others to benefit. We can now fix this and should as this is a global drain of 6% that we all pay for and that is just the tip of the iceberg of the costs.

lucas Favre — us giving away our hard earned cash

We are building a web3 digital wallet that fixes these compromises, allowing approved providers access to the wallet to request payment for services as they happen, online or offline. They can have these funds auto split as needed when they receive to different parties for a total cost of 1%. We now have a fairer system of paying for what we use in real-time and have complete control over our outgoings.

The world of business needs to change.

(some background on how we got here)

The last two years have been challenging and a great time of change. During this time, many of us had our assumptions turned upside down and came out with a new way of looking at things and we were willing to accept that things were changing.

We also went on a journey of change and ran experiments as we saw this as a time to work on a vision of empowering teachers to follow their passion and be well rewarded. We built an online platform to do this, and it meets the first part of our vision where they could follow their passions at https://www.bodymindlife.online.

We ran into a bottleneck for the reward part as the habits we all accept of subscriptions made this very hard to do and give everyone a fair return. We then dived deep into this until we discovered why this happened and saw that the banking system’s inefficient models were causing this. We then started a new journey to solve this, which I have covered below.

But before we get started, some more background material to set the scene.

The last two years have significantly impacted our acceptance of technology. Video conferencing had been around for 20+ years, but we didn’t use it until Covid forced us, and now we find this a regular part of our lives to the extent we have changed how we work and use it without thinking anymore to the point it is just part of our language now.

During this time, crypto also had a massive jump in growth and acceptance. It had been around for ten years already, but we had hit a critical junction that Covid has helped to spur it along. We now see the ads for this everywhere as the players in the market spend extensively to educate us on this change. At the current moment, in many places, it is still very raw and unformed and getting the usual scammers and detractors talking about it, but this has all happened before. When we look at history, everyone laughed at the Internet in 1995. This was repeated in 2006 with cloud computing and even happened when the first personal computer was released. The same is happening now in this new space, but the fundamentals have been laid to build off. This has been building for the last ten years, just like all those other times that were built of solid foundations that had come before.

But the way we do business and account for money hasn’t changed and is based upon old ideas built 1,000’s of years ago on a model of distrust and while we now have tools to change the whole trust model, this is hard due to this ingrained thinking that we need to break.

Everyone needs an accountant, or so the saying goes. But why would that be? Accounting’s history can be traced back thousands of years to the cradle of civilisation in Mesopotamia and is said to have developed alongside writing, counting and money. The early Egyptians and Babylonians created auditing systems, while the Romans collated detailed financial information. More…

Now, why does this matter?

(Long read, which you can skip if you want)

This section digs into why we have this problem and the impact that this causes.

As we dug deep into the whole system, we found that the way business and the banking system worked forced us to operate in a very controlled manner. The inefficient system has come about due to the slow way we communicate and the need to have people in the process who can be untrustworthy. This isn’t a recent problem, just today we have made it go faster in all ways, but still carry the same problems. This way has developed many obvious bottlenecks with regulations, checks and balances and hidden costs like the auditing and secondary communication channels we use to get it through. This all adds to the cost of just doing business, which everyone pays for at the end of the day. We have all accepted this as no other way, and in many cases may have saved us.

Banks have existed since at least the 14th century. They provide a safe place for consumers and business owners to stow their cash and a source of loans for personal purchases and business ventures. In turn, the banks use the cash that is deposited to make loans and collect interest on them.

The basic business plan hasn’t changed much since the Medici family started dabbling in banking during the Renaissance. (investopedia)

The growth in the underlying technology behind crypto and blockchain now allows this to be changed and not dealing with slow communication where you need you money stowed while this happening or untrustworthy people with sticky fingers.

Now to fill in the costs the current system puts on us. Just the act of paying for something with a credit card has a cost that can range from 1% to 30% of the transaction, which a business will hide in most cases and in some cases, they can’t even tell you what is happening like with the Apple and Google AppStore and their 15–30% fee.

When dealing with a bank for online sales, there is a % plus a fee, so on a $1 transaction, this can add up to 50% of the cost and, in many cases, they have a minimum limit you can charge. There is also another hidden cost, which is when the company tries to charge you, and you don’t have the funds or have lost your card; some services charge a fee for this, and that has to be costed in.

And to add one more layer to this, we assume every one has a bank that they trust or even have access to one which increases the costs. Many get around this with those in store gift cards or asking others to do it for them which adds even more costs and risks.

Reference : https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3711777

DeFi and the Future of Finance 1st Edition by Campbell R. Harvey (Author), Ashwin Ramachandran (Author), Joey Santoro (Author)

This is where subscriptions kicked in to parially mitigate this banking problem, but now creates a new problem that you pay for. The subscription model is us paying a fixed amount every so many days, weeks, or months for a service we consume either via our credit card or a gift card which we need to keep buying if we don’t have a credit card. The price is set based upon an average usage model, so if you don’t fit in this space, you are either paying more and paying for those getting a great deal in using it lots of times or on a good return at the expense of others. This really showed up in the physical business where the model is based upon the average of 2.5 classes per week, but we had some doing a class every day and others doing only a few classes in a week and some weeks none due to other factors and when that happened, asking to pause their membership if they remembered. Some were paying $50 for a class and others were paying $9 for the same class.

The other hidden part of the subscription model is the amount of processing and risk a business has to deal with. For our online business, we have to take the money in, hold it and then pay the teachers at the end of the week as they get paid between $0.50 and $2 for each class depending upon length. Paying them in real-time can’t be done as the bank can’t do this as below their minimum charge and to make it worse, we have teachers all over the world. The Studio side in the physical space is doing the same as well. So we need to have people to manage this, covering support for changes, non-attendance, accounting, auditing, insurance, office space and technology to address this as we are now really a bank as well, not what the business really signed up for.

This means that the providers are beholding the the business’s to be trust worthy with their money and we are seeing currently with many business’s going out of business how this imapcts these providers in losing all their money.

When you add this all up and then add the profit margin a company wants to make, you are paying 10% or more just for using your bank, showing how much impact the banking system has on all of us. This is backed by studies worldwide showing the banking systems costs 6% on average per transaction before you add any busineses costs and profit margin requirements. And when you put this across many services, it becomes a big number.

Now what makes this worse is us; we have been educated to use this model of convenience, thinking it is beneficial for us where it works well for the banks and big businesses who can get scale on the processing and get discounts. For the smaller business, or solo owner, the costs make it so much harder to win; we aren’t playing on a level playfield.

So how will we fix this?

So we have started on a journey to solve this problem, and the underlying infrastructure behind crypto allows us to do this.

When we are finished, we can see the cost will be 1% or less instead of the current 6%+, and you are in control of your money at all times as you are now the bank. And for the company, can now auto pass funds through as needed, so they are no longer a bank. And the real value is now you can be rewarded in actual dollars and not points for being part of the business ecosystem and potentially even share in its success based upon your actions. You are no longer a “consumer” who gives away everything but now a “participant” who is rewarded for being part of the ecosystem.

This is using the power of blockchain that powers the crypto world, allows us to do trust less transfer of funds for a minimal fee between two parties and know it has happened in a swift time frame, not the normal bank one day on a weekday. On top of this is a function called a smart contract which allows a set of clear rules to be run on the transfer to make sure it can go through or even split the payment to several other parties.

We do this in giving you a crypto wallet to which you have given us access under set rules, what we will call the vault. The wallet stores the funds on the blockchain in a stable coin (like cUSD which is backed by hard currency) which fixes the volatility we have seen which makes this a great addition to the crypto model. You can put funds in via credit card, direct debit or send from your crypto-wallet as needed. You can take this money back out at any time, put some into a daily investment model, see all activity and where it all went, something the banking system doesn’t allow you to see easily and one of the core tenants of blockchain in everything is public. You then give us the right to take funds from the wallet as needed based on the rules you control, and we can now do this as you consume a service. When those funds come out, we can then configure this to split the funds as required and sent them to the parties to be paid swiftly instead of going into a company account, managing this and then paying some time in the future (hopefully). The other feature, is you can stop the activity at anytime or add new rules to control your spending and not needing to contact a provider.

Now the business isn’t acting as a bank anymore and not passing on those costs.

For our online system, the teacher can get paid as you watch the class, and they could have set this up to pay others who were part of creating this class (Defi in actions). For the studio, they can now pay the teacher as soon as you do the class, and the teacher could share in the long-term profit of the studio through these new smart contracts.

But the real kicker is you can also be part of this growth of the teacher, studio or even our vault business through a token model and get a return just for being part of the program. Something current company structures don’t allow unless you go through extensive, expensive paperwork and meet set rules.

For the business to change to this model, they lose some of their top line revenue, but they will save on costs, the complexity of business, risk and long term will be a better outcome for all and for some, this has what has held back them going into business.

But there is another effect happening as they can now move to a new model, which is much fairer and fits a recent change to a community model. A class can drop in price, and membership can become all about other offerings from the business that focuses on you being part of the community and being rewarded.

And the one thing we forget, most business owners didn’t get into business to be bookkeepers ot tax collectors, but to deliver what they live doing.

So why does this matter?

If you think about everything we do with a subscription in how much we are overpaying which can range from 15–20% and that is not going to the small business, but to the big players who have scale and are in the middle of the process.

And for a small business, the complexity can be decreased, but the actual game is they can build a relationship with their membership through other options, and the product is just part of the process. No more walking in, using and leaving, just like buying milk. You can now build a relationship that we see as the next stage in business growth and has much more value for all, especially as our habits have changed and we now understand the value of a community and people.

And one big thing we are seeing, is this is now a true customer/provider relationship in the true nature of a Gig business and not the employee/ contractor question that keeps happening which affects how a business operates.

Now why will this work?

The whole premise behind the blockchain is to remove the intermediary in all transactions, have transparency for all transactions, and work in a trustless environment. Bitcoin took the first step on this, but still required the middleman to split the funds and then smart contracts added the next level of the fit.

And as we work on this, a whole new set of ideas are coming to the fore with NFTs, DeFi and DAO, a whole new world of words, meanings, concepts, challenges and opportunities.

This will become more applicable as the cost of living rises with inflation, and we want to control our costs and when they impact us. Still, we also want access to real rewards for doing something, and as the world moves more into the so-called metaverse, new ways to earn and interact will open up, and the old business models and its costs will slow this down or even stop it happening helping to drive this change.

With this new model, you can deal directly, remove those gatekeepers and the costs they add, and speed up the whole global economic economy, which is a mission worth following.

The risk is regulation and the current crypto drop potentially slowing things down, but as per the report below, this is just a blip and now is the time to build and be bold while others will hold back to see how the dust settles and history shows the ones who are bold, are likely to be the winners.

A16Z have a recent write up from a global level of what is happening https://a16zcrypto.com/state-of-crypto-report-a16z-2022/

We are starting with the two businesses we have now to prove this all out and are already running a Proof of Concept to learn and refine. Will then bring it to the world so anyone can use it. We will keep everyone up to date on this journey as we work to change the business world to a model where small business has power as they have the magic of personal connection and being advantaged due to their small scale over the faceless large scale businesses.

To learn more reach out to us :- peter@vault3.net

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Peter Tippett

On a mission to fix the invisible bank of business and open new models of doing business that is based upon a win/win/win model.