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The State of Merchant Banking

The State of Merchant Banking

November 16, 2008
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" Today there are more ways than ever for merchants to reliably accept payment and convert their traffic into revenue. "

Rest assured: Now more than ever, we believe there are excellent choices for merchants to obtain quality merchant account and payment processing solutions. One fact that can describe these times is that the payment industry is more regulated than ever, which may seem problematic to some, but in truth, creates more stability.

The payment industry has matured in the way it is able to service the adult industry, and today there are more ways than ever for merchants to reliably accept payment and convert their traffic into revenue. There may be hiccups that occur from time to time, like in any industry, potentially affecting adult merchants in some way. Any industry is subject to being affected by outside circumstances, such as effects from the mortgage industry meltdown.

For example, word of the FDIC’s role as the new majority owner of Humboldt Merchant Services emerged in August just as we were asked to comment in this article on the current state of banking and payments for adult merchants. HMS’s president, Ken Musante, assured all in a brief online announcement and on a personal call to Steve Bryson as well, that HMS’s customers will continue to receive uninterrupted payment processing.

Musante and the other professionals running HMS know their business, and we are confident that they will continue to be a reliable long-term provider of merchant account services to the adult industry. Whether it is here in the states — through a Merrick ISO, HMS, or another bank that might be taking adult business, or offshore in Europe or another region, be assured of this — there are very good solutions for “high-risk adult” merchant accounts. There are also excellent solutions out there for mobile billing, for ACH and Check21, for country specific bank debit, and for other alternative forms of billing.

Webmasters today want to be able to convert their U.S. traffic and their non-U.S. traffic at the best possible rates. Experienced payment industry professionals can help merchants wade through the choices and avoid mistakes when considering these payment options.

Along these lines, on July 24 the Merchant Card Information Reporting Requirement was signed into law and made part of the Housing Rescue and Foreclosure Prevention Act also known as H.R. 3221. This Act stipulates that all acquirers will be responsible in the coming year for reporting merchants that process more than 200 transactions and/or $20,000 annually to the Internal Revenue Service. The intent of this part of the bill is a further attempt in our opinion, to capture revenue to offset the enormous deficit.

The requirement for reporting under this legislature falls solely onto the acquirer. One byproduct of this is that the time for companies engaged in the merchant processing business by operating unregistered aggregation accounts, has come and passed. We can expect to see acquirers being even more careful now when underwriting new merchant accounts.

The Office of the Comptroller of the Currency implores acquiring banks to perform extensive due diligence in an attempt to reduce fraud risk. This mere fact combined with the fast-approaching reporting requirements by acquirers is sure to shine the spotlight on many companies that were operating under the radar. They have also suggested further restrictions on all new and existing entities wishing to become Independent Sales Organizations (ISOs). It is our belief that the recent climate within financial institutions may put smaller ISOs that lack reporting capabilities as well as certain banks, out of business.

As we all know, there has been a proliferation of offshore companies operating in just the manner described above (unregistered aggregation). If they are not shut down by their acquirers, many of these will begin to experience difficulties due to decreased sales thereby inflating chargeback ratios. Merchants need to be careful of this, ask questions of their processors if they are uncertain how the processor is operating, and reach out to professional ISO organizations servicing the adult industry for assistance, if they have any doubts.

Be assured, the current state of the banking industry is not doom and gloom. There are highly qualified, registered ISOs and third-party billing companies geared to provide quality merchant account solutions here in the U.S. or offshore, for either individual accounts or IPSP accounts. They are registered with the card associations and have the sense of mind to balance their highrisk volume vs. retail merchant volume. These are the companies that merchants need to be working with to insure stability and continued growth opportunity with their businesses.

As we stated initially, there are still very good choices for individual merchant accounts and processing solutions both in the U.S. and abroad. In today’s banking environment, more so than in recent years, merchants are opting for their own merchant accounts, while many continue to opt for accounts at an IPSP.

That dynamic will probably never change. Is it the “best of times” or “the worst of times” in banking for adult? While more regulated than ever, we feel that these are very good times in terms of the quality of merchant account and payment processing opportunities available.

Steve Bryson and Dan Steinberg are veterans of internet payment processing. Bryson is CEO of Global Electronic Technology Inc., a leading ISO in the U.S. credit card services industry and has long serviced the adult merchant community. Steinberg has worked with many of the top programs in the industry on their payment solutions for more than a decade. At the Phoenix Forum this year, longtime friends Bryson and Steinberg co-launched a new company, Orbitalpay LLC, a hybrid PSP designed for the adult industry.


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