Bank Cracks Down on Wily Yarn Merchant

This story sounds too weird to be true, and yet I have a feeling it is true.

It concerns knitting. It seems that knitting has become an increasingly popular hobby among a large slice of middle- and upper-class American women. We here at Freakonomics are not unfamiliar with this phenomenon: Levitt’s sister runs Yarnzilla, an online and brick-and-mortar knitting emporium; and my wife has recently become a knitting zealot enthusiast. (I am always intrigued that so many people have embraced menial tasks — knitting, cooking, gardening, e.g. — as high-end hobbies, but that is a whole ‘nother story.)

So when the following e-mail arrived, I read it with interest. To summarize: a yarn company gets so successful so fast that its bank suspects it is a front for something illegal and shuts down its credit-card operation. As I said, sounds too weird to be true. Judge for yourself.

Dear S&S,

I’ve gathered from reading the Freakonomics blog that at least one of you lives in New York, so you are no doubt aware that in the last few years knitting has become pretty hip. The knitting community is large and rich (Stephanie Pearl-McPhee’s blog, yarnharlot.ca, raised over $120,000 for Tricoteuses Sans Frontiers in less than three days, this Christmas), so it’s surprising that we are still so socially invisible. Maybe $120K isn’t so much, on the scale of the entertainment industry. But here’s the interesting part:

This morning, one of the most popular producers of hand-dyed sock yarn, Blue Moon Fiber Arts, announced that they were making so much money on their sock yarn that their bank managers decided it must be a front for something illegal, and shut down Blue Moon’s credit card system, and refunded all of the money for the 2007 Sock Club!

Blue Moon has found another bank that is happy to take knitter’s money, no matter how much of it there is, so all is well again in the knitting world. It does seem, however, that this gobsmacking development deserves to be known outside the knitting community-and must be of some kind of interest to economists.

The incident has been blogged about by the Yarn Harlot. And also by one of Blue Moon’s biggest fan-blogs, January One.

Sincerely,

Katrina Triezenberg, Ph.D., sock knitter


snubgodtoh

I swear to goodness my mom started this trend. My wife and I were just last night trying to approximate how many afghans she has made over the years, we have maybe 20, she gives them to my friends (and undoubtedly everyone else she knows) when they get married or give birth, she's given them to homeless people or strangers who appear to need a pick-me-up. I know this is not technically knitting--it's crocheting--but it's two pointy things and a ball of yarn. She says it's very therapeutic, I worry about carpal tunnel.

Gail L

It is true - it's been a massive kerfluffle in the knitting world. This thread on knitters review has all sorts of speculation on why a bank would shut down a merchant account.

http://www.knittersreview.com/forum/topic.asp?TOPIC_ID=71154

I've been trying to say for awhile that knitting and knitting blogs are way, way under the radar, as far as popular culture goes. When people talk about the blogosphere being primarily male, its as if they can't even see the massive knitting blog community.

Fender

Credit card companies are paranoid, out of self preservation. My company releases computer software. We sell it directly. When we have a new software release, our sales go from $5000 a week to a $200,000 a week for just two weeks. Guess what the credit card processing company does? Yep, they freeze the deposits in order to check for fraud. A 3 month freeze. And this is for a company that we've been using 10+ years, and with surges that happen every year or two! And no, other credit card processors aren't any better, they're all this paranoid. The economics are easy to understand: Angry customer

bkw

I genially object to categorizing cooking as a menial task!

I would argue that the three examples you gave (knitting, cooking and gardening) are not menial at all, if you define menial as "unskilled work".

Doing laundry or housecleaning would be menial tasks.

Knitting, cooking and gardening -- there can be a bit of artistic endeavor there, so it's no surprise that they should be popular hobbies. Knitting today is yesterday's painting...

ajinkya

my 2 cents (actually its worth is in negative, but going with the phrase...)

about these acts being 'menial'..
i have observed, that any act that is repetetive to an extent, does tend to befriend us into liking it. it gives some kind of solace, on a different level. stars/atoms rotate n revolve, seasons, making love is a repetitive act.. maybe the act of repetition is somewhat linked with us on a basic level.
So, that probably explains why one may love raking leaves, knitting, playing ping pong with wall :D..
corrolary 2, to this freak theory..
observe urself.. whenever one is tense, to ease himself, he would do some activity that is repetetive in nature (walk to n fro, fiddle with pen, wheel gesture of hand.. .)

rubemode

bkw beat me too it ...

I object to those tasks being labeled menial as well. Cooking for me (and many others) is more like a labor of love than unskilled work.

timepiece

It seems that any task traditionally done by women was/is labeled as menial, in the same way that any female-dominated professions (nursing, teaching, etc.) are viewed as less prestigious. A shame, since many of them are not unskilled work, as already commented on.

Ken

I guess I tend to disbelieve it because the name of the bank that shut down the merchant card account isn't named, neither is the competitor the business switched to named.

If a bank really did close down that account for that reason, they should be proud to have that fact multiplied across the Internet, and perhaps would even pay those who promote such a fact-disseminator a fee for advertising. Same goes for if the bank closed the account for another reason, but stated that reason to the business as a mis-direction.

Therefore, to me this feels more like some kind of false activity or report, for whatever possible purpose, but ultimately only guesses can be made about the report's trustworthiness.

But it 'could' be true, and therein lies its power IF it's false.

pvarner

Entirely true, my wife was one of the yarn club subscribers who had her money refunded. The last commenter's skepticism because the bank wasn't name is judicious, but I've noticed that the average knit-blogger is much nicer about this sort of thing than average (certainly nicer than I am).

They also had a major problem because they attempted to cap the number of yarn club subscribers to the amount of yarn the could produce, since their production is quite inelastic. You had to subscribe by such-and-such a date to get into the club, and now that is irrelevant since everyone has to sign up again. The demand is huge for this type of product, and it is very under the radar.

I also wouldn't say Stephen is making a value judgment on knitting, cooking, or gardening given the definition of menial:

"Of, relating to, or appropriate for a servant."

In previous times, middle class individuals did have servants do these sorts of things. One the could also apply this to the overwhelmingly male hobby of homebrewing beer, which was done mostly by female servants.

Menial, yes. Trivial, by far no.

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pkimelma

What is surprising is that banks do not normally "shutdown and return money" unless the vendor refuses to comply with the investigation. The normal model is that they raise a flag and hold funds. They conduct an investigation and then get the vendor to show that what they are doing is valid (if they did not turn up anything through normal channels). So, I question how this case went off the rails. Did the vendor refuse to cooperate? One poster said they get their funds held for 3 months, but I assume this is an exaggeration, as it exceeds the contracted amount of hold (which is normally 45 days I think). Normally a bit more than 30 days are enough, since complaints come in on the next billing cycle.

zing

I recently got dramatic confirmation that "acquiring banks" act to minimize their revenue, out of a mathematically logical belief that this also minimizes their risk.

As a Web software company, we were selling a gift card for a major national reseller, online. This was an experiment that we started on December 11 with the hope of selling about $20K before Christmas, which is what we told our merchant bank. The sales the first day were $5K, and then they started to accelerate. On the Thursday before Christmas, we did more than $20K. The retailer had planned an email and flyer campaign for the weekend that we estimated would gross from $500K to $1M.

At this point, the merchant bank (a large international bank) stepped in to shut us down, preventing the $500K to $1M in weekend sales. Luckily they informed us before "reversing" the previous transactions - the terrible thing that happened to Blue Moon. However, we were forced to shut down at a small fraction of the potential sales.

The bank plus credit card network makes 3%, so they turned down $30K in fees. They were also very clear with us about the requirements for turning us back on. We would have to keep our transaction stream small and predictable. They don't want volume, and they don't want growth. Very strange.

Their position is that they are responsible for any and all refunds if we disappear. Their thin margin of around 1% wouldn't support that. They were especially paranoid about selling a gift cards with a one-year expiration, since their basic assumption is that we will disappear within 30 days. I suspect that was also a problem with Blue Moon, which was selling memberships which would be redeemed over a period longer than 30 days.

Interestingly, they didn't take the obvious suggestion - to hold cash proportional to their risk of making refunds. Even stranger.

As it turns out, the rate of refunds and chargebacks on these sales has been lower than average.

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zerosumblog

This may not be that absurd.
One of the most famous acts of terrorism in the 19th century was committed by knitters: the Luddites, who smashed the knitting frames that were making their work 'menial' at the beginning of the industrial revolution by mechanizing what had been a closely guarded and carefully cultivated process.
To call knitting menial today, because it can be done by machines, is equivalent to calling math menial, because it can be done by machines. However, like all human activities, knitting lives on a spectrum, and the most interesting work is still being done by visionaries and experimenters. Should we stop teaching it and practicing it because it can be done by machines? Maybe. But only after we stop teaching math.

pkimelma

I think there is too much reaction to the word "menial". Menial means something a servant does/did (how many people have servants anymore?). That does not have to mean it is degrading (whereas cleaning a toilet may be), simply that it relates to a kind of work that was traditionally hired or paid for. In fact, many wealthy women (and some men) knitted even back in the days of servants - it was considered relaxing and a way to calm the mind. But that kind of knitting was not considered servile, as it was usually of things not actually *needed* (not socks for example) and it was by choice (servants were not given a choice). Also note that menial is applied to much work that men do as well (fixing things, washing the car, mowing the lawn, as well as some hobbies).

AnnaEA

I am one of the many knit-bloggers who wrote about this story after hearing about it on Stephanie's blog.

I can clear the skepticism about the bank's name not being publicized --- Blue Moon is not sharing the name of the bank on the advice of their lawyers, because they are considering taking legal action against said bank.

Given that this action by the bank could have potentially driven Blue Moon out of business (what kind of situation would you be in financially if your bank decided your paychecks for three months should be refunded to your employer?), I think it is reasonable and prudent of them to investigate their legal options, and to avoid doing anything which would prejudice their case.

And, on a side note, it may interest you that the updated donation total to Doctors Without Borders now stands at 320,000 USD.

debra.roby

First, a short explanation of one point you made:

The movement to adopting "menial tasks" as high end hobbies was predicted ages ago my Toffler, I believe. It's the "high touch" factor of his "high tech/high touch" dichotomy.

About the bank. I was flabbergasted to read and write about this story, yet a fellow CE at BlogHer has found several cases where this is happening to small business owners, and promises a new story about this in the near future.

ibap

Once again, this whole thing is the result of a one-size-fits-all, poor-customer-service attitude on the part of a bank. My understanding is that last year, when Blue Moon did the sign-up for their sock club, it was handled via a different process.

This year, they had this influx of cash for the club, which will be fully subscribed, and their credit clearing bank is amazed that they could actually be selling that much of something legitimate. I don't know how long they had a relationship with the first credit card processor, but if someone at the bank had investigated by simply a Google web search, they would have seen all the talk about this club and would have realized it was legitimate.

As it is, their ignorance has cost them in lost fees and the processing of refunds. And I hope Blue Moon sues for what the whole mess has cost them as well. Perhaps the bank will get a grip. On the other hand, the bank will probably claim that the additional publicity resulted in them not losing anything - except for sleep and hair while the whole mess was going on.

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ginquiry

If I didn't know better I would say that your story was a real yarn. Amazing.

Hobbies? I predict penmanship and home cooking will someday soon be considered "crafts" or "hobbies" and no longer serve functional needs.

Silverbrow

Stephen
I'm not too worried about the semantics of how you describe cooking et al but am interested to hear your thoughts on it.

I've written a food blog for coming up to two years. I enjoy writing it, editing and giggling around with the blog tech. But fundamentally I am what many would consider a foodie. In addition to writing my own blog I read other food blogs and participate in online forums. The main reason for all of this is because it has increased my understanding of something I love.

I disagree with the people above who disregard cooking as a hobby or repetitive. Afterall, we all need to eat and it is a strange person that doesn't enjoy good food. The thing I find interesting is what compels people to invest so much time and emotion into detailing something so tangible, on the intangible internet.

Princess Leia

Absolutely no shock to the inner feminine that yarn merchants are doing well. Has that already been said?

Analysts at the bank are obviously super macho guys 'cause most women (a la "Legally Blond") know the number of natural-fiber skeins required cost just as much as any knit from Nordstrom.

Sexist commentary for the day complete... now back to my felted purse-making and other quaint domestic chores.

Merchant Maverick

It's been covered by more than one of commenter's above, but I seriously need to reiterate just how unprepared, unorganized and downright paranoid some of these merchant service provider's are. The world of online transactions is still a "mystery" to these guys. I'll be happy to see the day that when more of the company's profits are spent on fraud detection and protection as opposed to bonuses and salaries. That'll be the day.

I've personally dealt with a large number of MSP's and the frustration led me to creating this blog: http://www.merchantmaverick.com/. It gives me a place where I can review and rate these guys based on their real performance.

Thanks for digging this one up Stephen,
The Maverick. :-)