Carolina Cloud pays SOFR on unused prepaid credits

Posted by bojangleslover 4 days ago

Comments

Comment by badatnames 4 days ago

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

Comment by bko 4 days ago

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.

Comment by dmurray 4 days ago

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.

Comment by mnahkies 4 days ago

My return on premium bonds this year (so far) is roughly 3.2% annualised - it's not bad considering that it's tax free, and secured by the government

Comment by lurkshark 3 days ago

In the US they call those Prize-Linked Savings Accounts. They’re actually legalized in a majority of states but aren’t marketed particularly heavily (especially when compared to lotteries, sportsbooks, prediction markets, …)

https://en.wikipedia.org/wiki/Prize-linked_savings_account

Comment by jancsika 3 days ago

What's the difference between a regulatory barrier and a Chesterton's fence?

Comment by mynegation 4 days ago

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.

Comment by dannyw 4 days ago

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.

Comment by jwrallie 4 days ago

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.

Comment by dannyw 4 days ago

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.

Comment by Imustaskforhelp 4 days ago

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?

Comment by bojangleslover 4 days ago

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!

Comment by infecto 4 days ago

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.

Comment by bojangleslover 4 days ago

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.

Comment by infecto 4 days ago

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.

Comment by linohh 3 days ago

Even with credits or tokens or whatever, it's not completely trivial to find the spot where you can accept customers payments in advance and not be subject to financial regulatory frameworks.

Comment by infecto 3 days ago

Absolutely agree. I imagine it almost all scenarios it gets tricky and at the very least puts a good bit of burden on the company to define that with regulatory frameworks.

Comment by addandsubtract 4 days ago

Probably because you can't turn credits back into cash.

Comment by infecto 4 days ago

Is that a law?

Comment by kachnuv_ocasek 4 days ago

I'd guess that's a part of the TOS.

Comment by infecto 4 days ago

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.

Comment by alias_neo 4 days ago

I think you're overcomplicating it.

It's "ok" _because_ the credits can't be turned back into cash (thanks to their TOS).

If some business tried some clever scheme where they offer this "interest" on credits that _can_ be turned back into cash, they'd be breaking the law and would need a banking license, it's already covered.

Comment by infecto 4 days ago

I think you’re oversimplifying it. “They can’t be redeemed for cash” isn’t a universal legal test. Financial regulation generally looks at the substance of the product. Otherwise every company could sidestep banking and payments rules by calling customer balances “credits.”

Now let’s go full circle back to the original point. I don’t think it’s surprising that a company paying interest on credits may face more paperwork and rules for what is truly a gimmick that most large customers will never even care about. Which was my only point and I think the plot has gotten lost as this keeps going deeper.

Comment by alias_neo 4 days ago

I think there was an original "given" which was that in the US, (where I assume this is), these "credits" don't complicate anything nor create any regulatory burden.

That's not to say in the EU, or the UK (where I am) the case isn't different; but if it _were_ the same as the US, I can totally see why that's fine.

We have loyalty programs, a coffee shop gives you "credit" when you get stamps for your 6th coffee free etc, none of that seems to complicate matters... all because of the key point "it can't be turned back into cash".

EDIT: I would add, in the hope of further supporting my argument, that many places that offer loyalty and discount schemes, their ToS explicitly states that it's "not exchangeable" and "has no cash value", which would support my point (at least in the UK).

Comment by infecto 4 days ago

You started by telling me I was overcomplicating it, but I think you also missed the context of the thread. The original post was specifically about why they decided not to do this in the EU because it created additional regulatory overhead.

My only point from the beginning has been that this isn’t surprising. If paying interest on prepaid customer balances were legally trivial just because they’re called “credits” or have “no cash value,” companies could structure around those rules very easily. That’s why I questioned whether “can’t be redeemed for cash” was actually the legal test.

The loyalty points example is a different product entirely. Even for the linked company I imagine the only reason they do this is a fun marketing angle for winning a finance customer.

Comment by alias_neo 3 days ago

> The original post was specifically about why they decided not to do this in the EU because it created additional regulatory overhead

Yes, but I'm not convinced they mean what they're saying, I took that to mean they were trying to do this as _real_ interest.

> If paying interest on prepaid customer balances were legally trivial just because they’re called “credits” or have “no cash value,” companies could structure around those rules very easily

I still stand by my argument, I think it's only "interest" in name; from a banking or financial perspective it isn't. I don't see why it's any different to a company just setting a number in your account. Say I run a SaaS and give you £1000 credit, is that bound by the financial regulations? I don't think so.

If you put a single £10 credit on your balance and I offer to give you "10,000%" "interest" to top it up in credit for my service, I don't think that does either; the wording doesn't suddenly make it covered by financial regulation, it's whether it's _real_ money or not.

Credits on a service, whatever it is, isn't real money, and as long as the ToS doesn't let you turn it into real money, there's nothing complicated to worry about, but if the org _does_ let you turn it into real money, it suddenly becomes covered by financial regulation.

I'm just debating here, I'm not saying I know this to be true, I just think it make sense (to me).

Comment by infecto 3 days ago

I think we’re actually debating a narrower point than you think.

I agree that simply calling something “interest” doesn’t magically make it a regulated financial product. My disagreement is with the idea that “can’t be redeemed for cash” is the dispositive test. Regulators generally look at the substance of the arrangement, not just the label.

Also, your £1,000 credit example isn’t really analogous to the original post. If you simply gift me £1,000 of service credits, that’s very different from me prepaying £1,000 of my own money and you then paying me a return based on how long that prepaid balance sits with you.

The original discussion wasn’t “are loyalty points regulated?” It was “why would paying a return on prepaid customer balances create more regulatory work in the EU?” To me, the answer “because regulators care about products that start looking financially deposit-like” seems entirely plausible.

Comment by alias_neo 3 days ago

> because regulators care about products that start looking financially deposit-like

I totally agree with this point, but I don't see how the topic we're discussing would be seen that way.

From a "common sense" point of view (which I know, financial regulation is absolutely not), no matter what you call this act of giving someone extra credit (let's call it "interest") for your service based on the amount they've previously paid for your service (let's call it "deposited"), you're still just giving them monopoly money that serves a single purpose and that is to use more of your service.

If they can't turn it into cash, why should any financial authority care? It's got nothing to do with them.

That said, to take your side for a moment, what's to stop me depositing boat loads of cash up front to pay for your service using the "interest" you'll give me, rather than paying it regularly out of company earnings? Now it starts to sound like something a financial authority might take interest in (pun intended).

Comment by infecto 3 days ago

I think your last paragraph is the answer.

My only point from the start was that I’m not surprised the EU imposes extra compliance here. Once you’re incentivizing customers to leave prepaid funds with you in exchange for a return, it’s reasonable that regulators would take a closer look.

Whether they ultimately regulate it as deposits, e-money, or something else is for the lawyers. I was never arguing that “credits paying interest” automatically makes you a bank. Simply put it’s not surprising you would have to go through extra hurdles for this kind of gimmick.

I think you are taking this a bit too far. I don’t think it’s shocking that even credits which have a dollar value would need to pass a smell test.

Comment by alias_neo 3 days ago

> I think you are taking this a bit too far

I just find it an interesting thought experiment.

I wonder if this has anything to do with why a lot of companies convert your money into a variety of virtual currencies, "bells", "gold, "gems" etc.

I'll leave it there but nice chatting with you about it!

Comment by bux93 4 days ago

A "banking license" is typically for "taking deposits or other repayable funds". (There's other kinds of banking licenses, too.) That can be for 0% interest too, or even negative interest (e.g. taking fees into account).

Comment by linohh 3 days ago

Which is a good thing. While it may seem strange to regulate these things for good faith actors, it's obvious why it's a great when thinking about bad faith actors.

Comment by arcfour 3 days ago

Yes, I love maximally restricting rights of others for unclear reasons.

Comment by stego-tech 4 days ago

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.

Comment by jerf 4 days ago

"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.

Comment by actionfromafar 4 days ago

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.

Comment by dannyw 4 days ago

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".

Comment by bojangleslover 4 days ago

This is aimed at CFOs, not hobbyists

Comment by dannyw 4 days ago

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.

Comment by bojangleslover 4 days ago

This is correct, if you put in $1000 you could basically run a small dedicated VM in perpetuity.

Comment by swiftcoder 4 days ago

Just so long as the price of the small dedicated VM doesn't also increase with inflation

Comment by zygentoma 3 days ago

Shouldn't a fixed additional amount also care for inflation based price increases indefinitely?

(Maybe not if the inflation greater or equal the interest rate … though I did not do my math here.)

Comment by dcchuck 4 days ago

Yes - presuming the funds can’t earn SOFR+. The opportunity cost is the interest being earned elsewhere (minus interest earned taxes)

Comment by RNanoware 4 days ago

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.

Comment by weakfish 4 days ago

Carolina wins a Stanley Cup, now we have hyperscalers? Moving up in the world!

Comment by canucktrash669 3 days ago

They claim to be 1/3 the price of AWS, so I calculated for fun and it's 8x more expensive than my server auction machine I just got from Hetzner. Which itself is 6x cheaper than on-demand pricing at AWS, but only 3x cheaper than spot. Of course I get free egress. And my RAID1 perf can't be matched by the baseline EBS storage I've used in the comparison.

In any case, they don't seem to really have an edge on AWS unless you have huge egress. What did I miss?

Comment by bojangleslover 3 days ago

That's not a like-for-like comparison. You need to compare CC to the c8a range of AWS, on-demand only. That's where the 1/3 comes from. For example:

c8a.medium (1vCPU/2GiB RAM/no SSD) on-demand on AWS: 5.39 cents per hour plus egress Carolina Cloud equivalent: 2 cents per hour with zero egress

If you don't have egress then the price is closer to 40% that of AWS. If you do have egress, the price could be far, far below 1/3.

Hetzner server auction is great for many use-cases, but it's not a fair comparison with EPYC Turins.

(1) https://cloudprice.net/aws/ec2?filter=c8a

Comment by manzt 4 days ago

Cool! Dumb question, but do prepaid credits ever expire? Feels like the interest only matters if they don't.

Comment by bojangleslover 3 days ago

The only way CC credits will expire is if I (the founder) die and my beneficiaries liquidate the business

Comment by teiferer 4 days ago

Mentioning what SOFR is would be incredibly useful.

Gemini: The Secured Overnight Financing Rate (SOFR) is a broad measure and benchmark interest rate for U.S. dollar-denominated loans and derivatives, reflecting the cost of borrowing cash overnight backed by Treasury securities.

Comment by ihumanable 4 days ago

The first sentence of the first section entitled "The Rate" reads as follows

> The rate tracks SOFR (the Secured Overnight Financing Rate), the benchmark overnight interest rate published every business day by the Federal Reserve Bank of New York.

See https://docs.carolinacloud.io/organizations/prepaid-interest...

Comment by teiferer 4 days ago

> The first sentence of the first section entitled "The Rate" reads as follows

That's nice. Though I won't read that far if I have no idea what this is going to be about. 1 paragraph is how much you get my attention for and if that's not enough then my attention goes elsewhere.

Comment by mhh__ 3 days ago

When LIBOR was killed, financial derivatives were forced to reference (compounded) SOFR, it's a trimmed average of all the overnight lending agreements.

Comment by brightball 4 days ago

That’s pretty slick. These folks need to come to the Carolina Code Conference in a couple of weeks…

Comment by effnorwood 4 days ago

Region North or South?

Comment by fenestella 4 days ago

[flagged]