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A Processing Alternative?

A Processing Alternative?

March 31, 2003
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" In addition, it might be best to have two merchant accounts - one for non-tangible subscription sites and another for tangibles like videotape sales - as the banks regard those types of transactions differently, risk-wise. "

There seems to be a disturbing trend lately of payment processors dropping adult processing. With the loss of PayPal, it's now getting even tougher for small shops to find a way to sell adult merchandise without getting their own merchant account, with all of the trappings that implies…

While VISA/MC aren't saying NO adult sites (unlike AMEX), it's becoming apparent that having a merchant account and self-processing transactions is very likely the only viable way for webmasters to process credit cards for future tangible sales.

For small operations - which used to be called "mom and pop", but which are much more likely these days to be a couple and their camera - the challenges can be large. For those with credit problems, they may be insurmountable.

Some folks on the XBiz boards have discussed the concept of creating something "by webmasters for webmasters." Let me suggest one possibility:

A New Idea
A small group of webmasters/mistresses could create a corporation, and then that corporation could obtain a merchant account and handle processing for the group. Like creating your very own "PayPal!"

The books would have to open to all members at all times (probably in a secure online area) so that members of the corporation could ensure they were being properly paid. The officers should be elected annually by popular vote, and all members should be able to vote on all issues that would impact their businesses personally.

There would be a possibility of double taxation, as the corporation would be taxed on the monies it received (as per its incorporating country's rules) and then the individual members would owe tax (as per their individual country's rules) on the distributions that they receive. However, this is just a fact of life for corporations, and it's better than nothing, and the impact can be varied upon the countries involved.

However, this could be mitigated by creating a Delaware or Nevada corporation, which would be subject to less taxation. I personally prefer Nevada (no income tax) corporations, because they also have great additional privacy protections for members. A "physical presence" in Nevada can be arranged relatively easily, as there are attorneys and other companies that will act as an agent for service of process and an official "headquarters", no matter where the individual members might reside.

There should be stringent rules for members to run their sites so as to avoid chargebacks. In addition, it might be best to have two merchant accounts - one for non-tangible subscription sites and another for tangibles like videotape sales - as the banks regard those types of transactions differently, risk-wise.

Some Challenges Ahead
As other people have noted, challenges include:

• Scammers seeking to use the group's account because they've burned out their own

• Program development

• Accounting to the group for each penny in and each penny out

• Customer Services including help desk and problem resolution

• Preferably a per-webmaster fee of $100 or less

On the other hand, benefits would include:

• Legal protection for the individual webmaster

• "Member" sites could allow sites from countries with little or no credit processing options

• Pooled resources allowing access to processing services and more that individuals would have difficulty reaching

• Pooled resources could get better deals on content purchases, hosting, advertising purchases, specialized scripting purchases, sponsor deals, you name it!

• Pooled resources allowing access to legal services (on a per country basis) at a reduced rate

• The corporation could obtain health benefit insurances or other insurances for the members (on a per country basis)

There are ways to meet the challenges noted above, such as strict requirements regarding chargeback rates, hiring outside services to perform the accounting and payment services, etc. If you can think of other challenges or options, please post them using the link below so that we can discuss them.

If you're a small operation, or part of one, and you think that maybe such a joining of webmasters under one umbrella might be useful to you, then consider this type of set-up and let me know your concerns. This is just an idea, but I think it might have some real merit. Let's dissect it carefully and determine the real potentials possible. Your input will be appreciated.


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