Why Substack Won't Build Tips

Writing on Substack about Substack not listening to other people writing on Substack about Substack.

Disclaimer: I am an employee of Global Payments. The posts (or views) on this site are my own and do not reflect the positions, strategies or opinions of Global Payments Inc.

I recently saw this note come across my substack feed along with a (valid) complaint I’ve seen raised in multiple ways: how can we support our favorite writers beyond just subscriptions? The general idea is for Substack to enable a “tip” or “pay per post” option rather than a monthly subscription. However, Substack will never do this — at least not in the way people are asking for.

It has nothing to do with not caring about user requests, but instead is driven by underlying payment economics. Once you understand these, you’ll understand why Substack, writers, and you may not actually want this feature.

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Quick Primer: How Online Subscriptions Work

Subscriptions are automatic, recurring charges. Credit cards are the primary payment method for most online subscriptions (in the U.S. at least). This is because cards are generally more secure and easier to process than bank transfers — plus you get benefits like rewards, fraud protection, and float.¹

When you sign up for a writer subscription here on Substack, you enter your card details and give Substack (the “merchant”) permission to bill your card each month at the agreed upon rate. When Substack or any other merchant charges your card, they rely on a third party that is connected to the banks and card networks. In the case of Substack, that’s Stripe.

Each time a transaction is processed, Stripe charges a fee to Substack (“merchant discount rate” or “MDR”). The MDR is based on the size of a transaction plus a fixed fee. MDR ranges vary, but a good rule of thumb for eCommerce is 3.5% of the transaction + $0.35.²

These fees influence product design and business choices, which I’ve illustrated in the next section.

Substack’s Subscription Minimum

For a $5 transaction, Substack will pay ~$0.36 ($0.01 + $0.35) to Stripe³ and receive $4.64. According to Substack’s “getting paid” page, the creator would receive $4.06 with Substack using the remaining $0.58 for hosting costs and profits. So of the original $5, 81.2% of it is going to the writer — which is pretty good, all things considered.

The current minimum subscription amount is $5, but what does it look like for a smaller transaction? In this case, Stripe still gets $0.35 but the writer only gets $0.57.

Going from 81% to 57% payouts is a tough hit for writers that might change the dynamics of the site — encouraging high-frequency, low-value content instead of the long-form that the site has staked a reputation on.

Setting aside the philosophical arguments. If Substack wanted to integrate a feature like this while maximizing creator payouts and limiting transaction costs, how could they do it? The most likely approaches are to mirror Buy Me A Coffee or go full embedded payments and launch a wallet.

Copycat — Buy Me A Coffee

Buy Me A Coffee (BMAC) is a creator-focused platform with minimal setup steps and easy to understand fees. From their FAQs: “We charge a 5% transaction fee, and creators keep 95% of the earnings.” Their payout on a $1 transaction looks like this:

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The idea is relatively simple for Substack to implement, but Substack and BMAC (along with Patreon and Ko-fi) have different business models and different cost structures. While both rely primarily on transactions for revenue, BMAC is a creator sponsorship platform rather than a social media/content hosting platform like Substack. As a result, BMAC (likely) has lower overhead and data storage costs.

Of course, Substack could get around this by either passing the fees onto the Writers — but who would willingly go from 81% to 57% — or to the Readers — but would you still make a $1 tip payment if you had to pay an additional $0.25? The answers to these two questions are “almost no one” and “probably not”.⁴ However, there is another way for Substack to make tipping work: wallets.

Embedded Payments — The Substack Wallet

Alternatively, Substack could copy Starbucks and Roblox and launch a “Substack Wallet.” The Substack Wallet would allow people to load funds (with minimums) onto their account which could then be spent on tips, subscriptions, or other in-app purchases (like a writer’s book, course, or merch). The best part, is they can do this with Stripe’s existing Customer Balance API.⁵

The Substack Wallet is known in the payments industry as a “closed-loop wallet.” It’s the same system that Starbucks, Venmo, and Roblox use — funds go into the system and can only be used inside the system. This makes it so that transaction fees are only taken on the initial reader pay-in and the writer pay-out.

This model allows Substack to make more money — they’d likely still take a 10% cut of creator payments just without the card fees — and for users to schedule subscriptions, payout tips, or support their favorite writers in different ways. It could also keep funds in the network as writers could spend their reader subscriptions to read other writers.

The caveat for Substack is that by making payments easy, they also remove frictions. This could inadvertently driven audience churn which could push away writers and ultimately create a death-spiral for the platform. With all of this in mind, what is Substack likely to do?

Will They Actually Do It?

Probably not. Neither option seems particularly likely at the moment. The economics make tipping harder than it looks. Wallets are a better solution—but hard to implement without behavior change.

The first option — microtransactions — would severely cut writer payouts and potentially undermine the value of the platform. Given that there aren’t (yet) advertising options on Substack, the platform is dependent on people paying money for quality content vs. quick hits. The latter — a Substack wallet — could work, but would require a fundamental shift in user behavior, something that is much harder to execute.

There’s a larger debate about the Substack platform philosophy and strategy. From a payments perspective, Substack could enable tipping, wallets, or even bundling. This could net more revenue rather than losing out to BMAC and protect them from challenges from Patreon or X. Substack is not yet the place for long-form content, so they must carefully consider long-term viability without alienating their core users.

The real questions to ask ourselves as readers:

• Would you actually tip $1 if it cost you $1.25?

• Would you load $10 into a Substack wallet — or is that one more app to manage?

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I wrote this to give payments people a real-world use case of payments realities driving business decisions and non-payments people a peek "behind the scenes”. But I may be wrong, maybe Substack will plow ahead with another idea entirely — until then, you can buy me a coffee.

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Also, if anyone on the Substack payments team is reading this: consider unifying the subscription charge for a reader. That alone could save you thousands each month in processing costs. Sure, there are challenges around things like billing cycle variability, but that could be simplified by only allowing billing to run once per week after the initial charge. You’d have to walk a delicate line with large, high-value Writers, but the smaller ones will likely take what’s given with maybe a grumble.

Another thought is to offer “Writer Bundles” where you find authors with strong overlap and offer their subscriptions as a bundle to users, passing on a portion of the transaction processing savings to the user. Bundles like the “AI Tech”, “Fintech”, “Short Story”, etc. take advantage of the ranking pages that you already have in place. However, if you make it too easy to switch, you may unknowingly increase both writer and audience churn.

1. Points aren’t free — they’re built into the transaction costs. If you want to learn more about the points ecosystem and who’s making money along the way, check out my post “Financing Loyalty”.

2. MDR is influenced by the industry of the merchant (low-risk utilities vs. high-risk eCommerce, captured in the Merchant Category Code, “MCC”), what type of charges (one-time vs. recurring), fraud/chargeback rates (more fraud = higher fees), and the size of the merchant (big merchants get better rates).

3. Stripe also charges ~0.5% for payouts, but I’m just focused on the pay-in right now.

4. One survey on non-profit donations found that +60% of donors would cover the costs, however, another found that 14% were less likely to donate when prompted. It’s likely that for-profit writer donations would see less participation and even lower repeat donors.

5. It’s important to note, that Substack would not be holding the funds and wouldn’t earn interest. Stripe would earn and keep the interest on the funds in the network — which is why using this feature is free. Stripe wins across the board here: earning money on the pay-in, the holding period, and the payout.