VISA's New "1%" Rule
On Wednesday October 1, 2003, another nail will be hammered into the coffin of disreputable – or simply unprofessional – adult site operators, as VISA’s new “1%” rule takes effect...
VISA and MasterCard are two names making a lot of news in the world of online adult entertainment, and in a few short days their latest round of regulations are set to go into effect. For US merchants, the charge back limit will become 1% of transactions, irregardless of dollar amount. Measured monthly, this limit applies to all pay sites and affects all domestic payment processing service providers and their associated merchants.
While the new limit currently applies only to US based online merchants, these limits are expected to also be adopted by Visa International, making every merchant who wishes to enjoy the privileges of accepting VISA bound to these limits, as well as to all current and future regulatory changes.
Major Internet Payment Service Providers (IPSPs) such as Epoch, CC Bill, iBill and PSW Billing are working with their clients to reduce charge backs, bring their sites into compliance, and to maintain them there. While most affected businesses are currently in compliance, many are not.
According to Rand Pate, Director of Corporate Communications for Internet transaction processing powerhouse Epoch, “Your program, your very business, depends upon your ability to remain compliant with card association rules.” He added that while “The majority of programs operating in this industry are well within the ratio’s required by VISA and MasterCard, others are either dangerously close to exceeding the established ratios, or have yet to meet them.”
For those merchants who fail to comply, severe economic penalties await, such as significant fines and the termination of their ability to accept VISA – and not simply at that particular IPSP, but VISA. Period. Your site’s URLs, your corporate name, and the personal name of the ‘responsible party’ as was listed on your Visa Registration, will be immediately added to VISA’s Terminated Merchant File (TMF).
If, even due to ‘circumstances beyond your control,’ you find yourself on the Terminated Merchant File, you will never get off of it: Remember your “permanent record?” The one that parents and teachers told you would hold your every misdeed through eternity; barring you from higher education, gainful employment, and a happy life? Well, this is it…
Even if you dream of a life ‘after’ or ‘beyond’ porn, what happens to you in this industry regarding your TMF status will affect your ability to accept VISA and MasterCard payments either online or out there in the ‘real world’ forever after – a serious concern for serious marketers... But for Webmaster’s having trouble maintaining an acceptable charge back ratio, or seeking to avoid the ongoing VISA/MC issue entirely, several options do exist, including alternative payment methods such as electronic checks, and non VISA / MasterCard based credit card systems.
But Is There No Hope?
For those who are rightfully worried about the very real prospect of being added to the TMF, perhaps doing without the services of VISA or MasterCard would be a wise move to consider; although a move which will almost certainly form a less profitable business model than the compliant usage of VISA and MasterCard, which account for the vast majority of online transactions.
But for Webmaster’s having trouble maintaining an acceptable charge back ratio, or seeking to avoid the ongoing VISA/MC issue entirely, several options do exist, including alternative payment methods such as electronic checks, and non VISA / MasterCard based credit card systems.
For instance, ElectraCash, an industry leader in the ACH processing arena, offers pay site owners an attractive payment option with a far broader consumer base than VISA / MC. According to Sales Director Holly Moss, “Online checks have become an attractive payment method for the US market. Webmasters who have implemented a solid check processing solution like Electracash can reap the rewards of a recurring database that is independent of the rules and regulations imposed by VISA and Master Card.”
While VISA has flatly stated that their cards cannot be used as a form of age verification, another credit card company has taken an innovative, ‘adult friendly’ approach.
CNWB, the first company to offer a credit card that could be used for age verification, offers a novel pin-based transaction model which reduces charge backs, especially those due to so-called “friendly fraud.” According to CNWB’s Marketing Manager, Benet Gracia “Friendly Fraud is simply a customer saying... ‘Hey I did not make this purchase.’ But with a PIN based system that excuse is no longer valid. You can not go to your bank and say... ‘Someone else, not me, just took money out of my ATM account without me knowing it.’ The bank will ask, ‘How did they know your PIN?’ Now merchants have a card association that is protecting them specifically, and consumers have a card that cannot be used without their direct knowledge.” Gracia added “Integrating CNWB into existing systems is really very simple. At this time CNWB is not a replacement for VISA / MC but as it gains in acceptance and as the other card associations pull away from what they call high risk businesses, CNWB will certainly be poised to completely replace VISA / MC – and probably will.”
While peacefully coexisting with VISA and MasterCard should be our industry’s bottom line on the matter, life for our industry without them would go on – just as it did after Amex departed, just as it did after PayPal left too. There will always be a payment mechanism in place to monetize erotica; and even if somebody had to put a pile of pennies in a box and mail it to you, you would still make occasional sales. Fortunately, better options like electronic checks, and non VISA / MasterCard based credit card systems currently exist, and can always provide the income diversity needed to weather these changing times. Stay flexible, and be compliant! ~ Stephen