Pros, Cons of Payment Solutions
The adult entertainment industry has evolved considerably in the digital age, and the acquisition of erotica has changed not only in terms of distribution methods, but also, in terms of payment methods. Back in the 1980s, paying for adult entertainment was usually a matter of walking into the local sex shop, handing the clerk either cash or a credit card and walking out with adult VHS tapes, printed adult magazines and perhaps some sex toys as well.
But now that digital distribution is the dominant distribution method for erotica, online adult sales rather than in-person adult sales are the exception, not the rule — and today, the list of payment methods is much more diverse than it was 20 or 25 years ago, when erotica customers were asked the simple question, “Cash or credit?” Today, payment options include not only credit cards, but also, range from debiting (including the ACH and SEPA methods) to e-wallets to bank transfers.
In the U.S., credit cards remain the dominant payment method for adult entertainment—and in the digital age, most of these transactions are card-not-present (CNP) transactions. The rules of Visa and other credit card companies have become increasingly strict when it comes to chargeback ratios, and companies that don’t keep their chargebacks to a bare minimum are at risk of having their merchant accounts terminated. In order to avoid problems with credit card companies and minimize chargebacks, many adult Internet companies use the services of third-party payment processors, also known as Internet payment service providers or IPSPs. There are numerous IPSPs that handle the credit card billing needs of adult Internet companies, ranging from American companies like Epoch to European companies such as CommerceGate in Barcelona and Payment Network AG in Gauting, Germany.
IPSPs, of course, charge for their services, and some online erotica providers have opted to acquire merchant accounts without the help of IPSPs. But IPSP representatives have often said that doing so is quite risky given the low tolerance that credit card companies have for chargebacks. Some IPSP reps have said that were it not for IPSPs and their rigorous scrubbing and antifraud methods, Visa and others would have long since refused to work with any companies that are selling erotic entertainment online.
For American consumers of Internet erotica, the popularity of credit cards has a lot to do with their convenience; Americans like the “charge it now, pay later” policy that credit cards offer. But not all Internet erotica is purchased in the U.S.. Europe, Australia, New Zealand and Japan are also major markets for Internet erotica, and online payment preferences can vary considerably from one country to another.
Europe, in fact, has a reputation for generally being a lot less credit card-obsessed than the U.S., where credit history is often used to measure one’s financial stability. Los Angeles based Raphael A. Berkien, business development manager for 2000Charge (a billing company that specializes in alternatives to credit cards), has often pointed out that Holland (where he grew up) doesn’t have a credit scoring system per se—and many well-to-do Europeans who get mortgages and own their own businesses don’t even have any credit cards.
Obviously, Europeans are making a lot of online purchases, although they aren’t necessarily doing it with credit cards. Many Europeans are paying for their Internet erotica through direct debiting or bank transfers, which are quite popular in Europe (where consumers have, in some cases, said that they prefer non-credit card billing methods because they see them as one way to stay out of debt). And webmasters like debiting because of the lack of chargebacks.
2000Charge CEO Wolfgang Kring noted that in countries where credit card payments are the exception instead of the rule, erotica providers are going to be cutting themselves off from a lot of potential online customers if they offer credit card billing exclusively. “Adult billing needs are becoming more global,” Kring asserted. “You miss too much potential revenue by only targeting a handful of countries. The future is in ever-growing online marketplaces all over the world. Merchants need to tap into the markets where spending is not on a budget, especially with certain economies struggling. New markets are always on the horizon, and spending patterns are constantly shifting. Merchants should be capitalizing on it before their competitors do.”
The fact that debiting and bank transfers are such common billing solutions in Europe doesn’t mean that adult webmasters should rule out Europe where credit card options are concerned. Jason Clements, president and cofounder of EMC2 Billing, noted that credit card use is on the rise in parts of Europe; he pointed out that Visa recently announced that in 2010, “the total spend on Visa cards in Europe grew by over 16 percent.” Bearing that in mind, Clements said, EMC2 is optimistic about the use of credit cards for European adult online payments in the future.
Given the variety of online payment preferences that exists, it makes sense for adult companies to offer different options for different customers in different parts of the world. Adult webmasters have been turning to CommerceGate, for example, for both credit card needs and debiting needs. 2000Charge, meanwhile, has been offering credit card alternatives that include charge cards, debiting and bank transfers. “Charge cards offer the speed and flexibility of credit card solutions separately and not related to the Visa/MC network,” Kring explained.