Online Billing and America's Ongoing Credit Crunch
In the United States, credit cards remain the dominant payment method for adult websites whether they are membership sites or sites specializing in tangible goods (such as sex toys and BDSM equipment). But unfortunately for adult ecommerce — and mainstream ecommerce as well — American banks are much tighter with credit than they were before the economic crash of September, 2008. More credit applications are being declined, existing credit lines are being reduced, and banks have been eliminating credit cards they consider "dormant" even if the person has a stellar credit history.
For adult ecommerce, America's credit crunch raises a number of questions. Will credit cards remain the dominant online payment method for adult transactions in the U.S.? And will more American adult webmasters be turning to billing methods other than credit cards in the future?
"I think the credit crunch is primarily affecting the extension of new credit to consumers, and its greatest impact is in sectors that rely on a high risk tolerance on the part of lenders — like real estate, small business loans and other areas in which banks have been hesitant to extend large lines of credit," explained Q. Boyer, director of public relations for TopBucks/PinkVisual. "Certainly, it has also affected the ability of some first-time applicants to obtain credit cards, but the impact of that on our sales and revenue is difficult to gauge. As a company, our sales have actually been on the increase over the last year, due in large part to the growth of our mobile sector."
Raphael A. Berkien, business development manager for the alternative payment solutions provider 2000Charge, pointed out that in Europe, credit is less of an issue for adult webmasters because in many European countries, credit cards are the exception instead of the rule for online adult billing. Berkien, who grew up in Holland but now lives in Los Angeles, noted that in Europe, credit cards take a back seat to bank account debiting and SMS/phone billing for adult Internet transactions, saying that alternative payments have been increasing for adult ecommerce in the United States and will continue to do so, although credit cards remain the country's primary adult online payment method.
"The U.S. is so credit-driven, whereas most of the European countries — including Holland, where I'm from — are not credit-driven," Berkien said. "In Holland, they don't have a credit score per se like they do here in the United States. If you apply for a car here, they check your credit. Credit cards are never going to disappear in the United States, but will the credit crunch inspire more Americans to look to alternative billing methods? Absolutely. American consumers have less credit than did four or five years ago, and bank-driven payment solutions — as opposed to Visa or MasterCard — have made progress in the U.S. because of the tightening of credit."
Another thing that will likely inspire more Americans to look into alternative payment methods for online adult transactions, Berkien added, is the Credit Card Accountability, Responsibility and Disclosure Act of 2009, which went into effect on February 22, 2010 and mandates, among other things, a minimum payment explanation on credit card statements.
Now, credit card statements must tell consumers how long it will take to pay off an existing debt and how much that debt will increase if only the minimum monthly payments are made and no additional debts are added. When American consumers see that information on a statement, Berkien said, more of them will consider alternative billing methods for adult Internet transactions.
Combine that minimum payment explanation with an overall climate of reduced credit, Berkien said, and you have a recipe for more Americans turning to alternative billing.
"The credit crunch has been good for us because alternative payment methods have grown. Tighter credit doesn't mean that credit cards will go away, but it means that there won't be as many credit card sales in this country," Berkien explained. "I think that more Americans will switch to alternative payment methods because (1) the amount of credit is being limited, and (2) your statement now has evidence that shows you how expensive it can be to use a credit card. When Americans get their credit card statements in the mail and see how long it will take them to pay off their balances if they make the minimum payment, they are going to think twice about the purchases they make with their credit cards."
"People will realize that even a recurring $24.95 charge for an adult membership site can become expensive if you are only paying the minimum on your credit card bill," Berkien concluded.
Boyer said that he would like to see SMS billing become an online payment option for erotica in the U.S, but he noted that consumers won't have that option as long as American telecoms continue to distance themselves from adult entertainment.
"I highly doubt that the American billing landscape will become significantly more like that of Europe in the future," Boyer said. "There are such fundamental differences in law, attitude, and corporate risk tolerance with respect to pornographic materials that I just can't see the U.S. moving in a 'European direction,' so to speak. For example, as it stands now in Europe, SMS billing for erotic materials is commonplace, whereas in America, it is entirely nonexistent."
"This is something that will change only if American carriers/telecoms change their policies with respect to adult materials and SMS," Boyer added. "As it stands now, no American carriers permit or support billing for adult content via SMS, and I strongly doubt any of them are going to change their tune any time soon. I would very much like to be proved wrong in that last assertion, however."
Despite the economic downturn, business has been good for Lisa Lawless, founder of the Colorado-based Holistic Wisdom Corporation. Lawless, whose company specializes in online sex toy sales, said that "Our credit card sales are still going strong and are over 95 percent of our sales."
Lawless noted that because credit has become tighter and consumers have grown savvier about how and where they spend their money, she has been making a point of offering bargains for her customers such as coupons and gift certificates.
How long American banks will remain tight-fisted with credit remains to be seen. But however long the credit crunch continues, Boyer said, credit cards are ingrained in the consciousness of so many American consumers — including those who use the adult Internet.
"I believe that credit cards will continue to be the dominant billing method in the U.S. for the foreseeable future," Boyer concluded. "Among other reasons, there are relatively few alternatives to credit card billing for the American consumer, and I think there's something to the notion that we are a 'credit card culture' in this country. Americans are accustomed to pulling out their credit cards to pay for just about everything, and I think it is going to be pretty difficult for another form of payment to gain penetration and user adoption that would significantly erode the stranglehold credit cards have on American consumer purchase habits."