E-Billing 2016: Trends in Payment Processing
As the junction between consumers’ cash and merchants’ motivations, billing is a vibrant arena where laws and technologies play significant roles in shaping the limits of payment processing in the digital age — and as such, billing in a major area of concern, source of expense, and profit channel for merchants.
From CCBill to Epoch, GH Bill, GTBill, Verotel, Webbilling, Zombaio and more, a veritable alphabet soup of adult payment processors provides an expansive array of transactional technologies for merchants.
Need an adult merchant account? Talk to Axcess Merchant Services, Humboldt Merchant Services, iProcessing, L3 Payments, Mobius Payments, NETbilling, OrbitalPay, Paysitecash, Payze, Processing Partners, SegPay, and more.
Need to make payments to affiliates, or to transfer funds to service providers? Action Payout Services, ePayService, Paxum, Payoneer and SecurionPay have you covered.
Need tools for chargeback management? Then ChargebackHelp is for you.
Or how about a gateway for processing cryptocurrency transactions? Then talk to Coinsnap and Titcoin.
Whatever your billing and payment processing needs, there is a program and service provider for you — and if alternative and mobile solutions are what you desire, then check out our special focus pieces also in this issue of XBIZ World.
To help clarify the current options and opportunities, XBIZ World recently asked some of the industry’s top experts what they see as the current market trends impacting traditional adult billing today.
Mobius Payments CEO Mia Hyun told XBIZ that technological innovation on the billing front is making it easier for merchants to accept payments simply and effortlessly, and this evolution is driving demand for new services.
According to NETbilling President Mitch Farber, databased, personalized shopping experiences are one of 2016’s top billing trends — but it’s best not to overdo it.
“While many shoppers appreciate customized product suggestions, others are annoyed when a product they viewed just once on Amazon continues to follow them around for weeks or even months on sites such as Facebook, regardless of their actual interest level,” Farber explains. “A balance must be found to keep shoppers interested.”Farber told XBIZ that once the prospect decides to make a purchase, the experience must be quick and painless, whether on a mobile device or desktop.
“The idea behind this is if a customer becomes a member of an e-commerce site, it will remember their preferences. These same personalized experiences are now being offered even to those who aren’t even registered or logged in,” Farber added. “This creates less friction to the customer during their journey.”
Farber also notes that by presenting the right content at the right time, merchants can efficiently lead shoppers on to making a positive buying decision.
“For example, different sales copy could be displayed depending on the preferences of the customer accessing your site, including specials and discounts based on their previous buying habits,” Farber says. “Using these methods, personalization is being replaced by contextual shopping, and customers will be seeing more relevant content coming their way.”
Epoch Vice President Harmik Gharapetian says that the biggest news for traditional billing is that after Visa, Inc. agreed to buy Visa Europe, Visa announced that the chargeback thresholds for European merchants will change to be in line with those for merchants in the U.S.
“Beginning on July 1, 2016, Visa’s chargeback threshold for European merchants will move from two percent to one percent,” Gharapetian told XBIZ. “There are a few more details that go along with this, but the big takeaway for European merchants is that they should act now to ensure that their performance meets the new thresholds by July.”
OrbitalPay Vice President Karen Campbell agrees, and notes that this change may lead to merchants making a change of address.
“This one change is now impacting IPSPs as a whole,” Campbell says. “Those companies that moved offshore just to take advantage of the higher thresholds may likely now resume operation in the U.S., as the rates are lower, and they get their funding sooner.”
Gharapetian told XBIZ that these changes show why it pays to work with payment industry experts.
“Frankly, we have not seen very much discussion about the new thresholds in the industry,” Gharapetian says. “Epoch tracks such changes closely, then informs our merchants about them, and have already started the process to keep our merchants compliant under the new thresholds.”
Showing that the U.K. adult industry is carrying on despite regulatory changes, Leeds, England-based Axcess Adult Merchant Services leverages its connections to more than 300 banks to provide merchants with payment solutions that suit the unique needs of their adult business, including adult shops, dating, services and video sites.
In addition to offering adult merchant accounts as well as registration with Visa and MasterCard, the company also focuses its efforts on fraud protection, customer verification services, card tokenization, dynamic billing descriptors and mail-order/telephone order processing.
Other forward looking companies are eyeing the value of the information they are obtaining as billers — a bonus well beyond the fees and percentages they accumulate through providing processing services.
“Traditional billing is being revolutionized by big data,” says Vendo managing director Thierry Arrondo, who notes that billing has always been a data-focused business.
“As Dee Hock, the founder of Visa realized, the numbers on a card are just data,” Arrondo explains, lamenting how billing companies do so little with this data. “As an industry we just pass it along without adding a lot of value. What we need to do is amass and analyze all data from the consumer [because it] tells us how to make more money with him or her.”
One way that Vendo does this is by enabling dynamic pricing through artificial intelligence.
“We don’t just give each unique shopper the same price,” Arrondo says. “We give each shopper the right price for her — the price that will convert better and have a better lifetime value.”
Arrondo told XBIZ that there is also a lot of interest in financial technology on the part of investors, because they realize the true value of this data.
“They won’t come into adult because of limitations on industries in which funds can operate,” Arrondo says, “but the trend towards billing becoming data companies is clear, and is the most important force in the industry.”
SegPay CEO Cathy Beardsley told XBIZ that diversification is 2016’s top trend; and as consumer demand for content continues to grow, merchants are fine tuning their billing options for the best conversions.
With so many payment options, and no single-source provider of them all, the question comes up of whether or not the adult billing arena will remain fragmented; with companies specializing in traditional, alternative or mobile processing methods, but rarely offering all three — or will consolidation and other factors lead to larger billers simply offering more diverse payment options?
Kring says that behind the scenes, the billing arena is not as fragmented as it may appear.
“Our alternative billing options have been integrated into CCBill’s system for the past eight years,” Kring notes. “CCBill merchants can turn on international alternative processing in their CCBill account admin.”
She notes that fragmentation in the industry could also be thought of as specialization, since the field of expertise is more complex than traditional credit card processing.
“Navigating multi-currency, banking nexus, cross-border settlements, is enough to keep international alternative payments a stand alone player in the billing arena,” Kring told XBIZ. “Establishing a team who is able to educate a merchant on the various payment methods and country specific options is not an easy undertaking for a traditional processor, and I’m sure the same could be said of mobile billing.”
Kring also believes that while credit cards, international alternatives, and mobile, can be lumped into a category labeled “billing” or “payments,” their differences will keep them separated — and merchants should be benefiting from this.
“Covering your international billing with a credit card first processor is certainly costing higher rates than were you to utilize trusted individual solutions,” Kring explains. “I make this point as I know that most merchants are paying a higher rate for alternatives via credit card processors than they do by working with us for their international processing.”
Hyun told XBIZ that the services provided by Mobius Payments are primarily focused on the traditional merchant account, ACH and SEPA offers, but the company is always monitoring changes in the industry, and responding with new services.
According to Campbell, the software, hardware, internal systems and the actual process for each type of billing method is so unique that it is tough to see any one company being able to consolidate them all to provide one concise option.
“There may be some companies promoting that they are able to process any type of transaction, however it is likely they are white labeling another companies’ product,” Campbell says. “OrbitalPay is often approached by alternative billing companies to be a reseller, but we choose to focus on what we specialize in. This allows us to provide premiere processing services at an extremely high level as well as unsurpassed support to our merchants.”
Gharapetian believes that consolidation among payment providers seems very unlikely, and discounts possible new entrants to the arena, but notes “it’s good for the industry that there is competition and choice.”
“The adult billing arena has enormous barriers to entry now. The card association rules and PCI compliance as well as international laws are more complex than ever so it’s unlikely that you’ll see many, if any, more solutions enter the PSP arena,” Gharapetian explains. “An experienced PSP that grew with those changes and has established a reputation in the banking industry, maintains the best long term view for webmasters in this field.”
Gharapetian says that Epoch’s long term view is evidenced in its continuous evolution; including the addition of new features and payment types as the company refines its methods and adapts to new trends, working to ensure the best service it can provide to its clients and their customers.
On a related note, adult merchants think of traditional adult billing services as coming in two flavors: IPSP and merchant accounts — but is there room for a third option (perhaps a hybrid of the two) or will this status quo remain the same?
Farber told XBIZ that while merchant accounts have become more of the norm in the adult industry over the past several years, IPSPs are still popular, especially among startups and smaller merchants.
“There is a huge difference between the control, and flexibility that a merchant gets when using merchant accounts vs. third party billing. There is no ‘hybrid’ in the method, but there are companies offering both scenarios,” Farber explains. “The chargeback thresholds are the same for those with or without merchant accounts, so why not make more money, have more control over your processing, and have peace of mind knowing that your customer service can be custom tailored to your needs, utilizing NETbillling and our suite of tools and services?”
Campbell told XBIZ there is no half-stepping between a direct merchant account solution and an IPSP.
“I personally don’t see how they could be combined to form a hybrid, there are a vast amount of differences in the two billing modes,” Campbell says. “You also can’t forget about the card brands, Visa and MasterCard, etc. and the banks, they also play a major part in determining what can and cannot be facilitated by each type of biller.”
“IPSPs offer protections and special services that would be difficult or nearly impossible for an individual merchant to achieve on their own,” Gharapetian says. “After 20 years, the PSP model has proven to be a valuable asset to online businesses that sell digital content internationally.”
2000Charge EVP Ines Kring notes that the previous two years have seen an explosion in FinTech.
“The number of new platforms attempting to attract mainstream merchants’ attention is huge, however there simply has not been a new payment method or hybrid that has taken market share,” Kring says. “There are a ton of companies attracting funding so there is clearly the will, but the shift is centered on the mainstream market, so it’s doubtful a true game changer is on tap for adult.”
Kring told XBIZ that the adult industry could see a third party step into the space as more of a gateway abstraction layer, while providing an additional solution in the process.
“There is some checkout functionality in mainstream ecommerce that could serve well in adult or other high risk markets,” Kring says. “I won’t go into much detail because it’s an area with many possibilities and 2000Charge is working on bringing additional functionality to our clients in the coming months.”
Hyun notes that the margin of cost between an IPSP versus a merchant account is so wide that a hybrid of the two is unlikely, so the status quo will likely remain the same for adult merchants.
“A third option does exist today for mainstream merchants, but due to regulatory and banking hurdles, adult operators do not qualify,” Hyun told XBIZ. “However, adult merchants are the most technologically savvy group in business, and I have no doubt that innovation is on the forefront.”
That innovation may be close at hand, with Beardsley telling XBIZ that there is actually a hybrid of the IPSP and Merchant Account Gateway model being used today.
“The MasterCard Payment Facilitator regulations that were rolled out in 2012 require all IPSPs/Payment Facilitators to move any merchant processing more than $1 million per year in MasterCard volume to a direct MID in their portfolio,” Beardsley explains. “SegPay does this today, and continues to bundle all of its services with a direct MID, so it looks and feels much like the merchant’s existing IPSP/PF account.”
Arrondo told XBIZ that as a full service IPSP, Vendo is exploring hybrid processing models to keep pace as the business evolves, simply because the economics work.
“Merchant accounts usually involve the use of third parties such as gateways or merchant account providers to meet PCI rules and facilitate the connection to many acquirers with limited development resources,” Arrondo explains. “However, gateways in adult are small shops; mom and pops that can’t afford to invest or improve.”
Arrondo believes that smaller billers (and those billers’ clients) are at risk because they have “no depth.”
“If one of the founders gets hit by a bus, the whole company goes down. That’s because, in part, they don’t make any money,” Arrondo says. “They make a few cents on a transaction, [so] they can’t afford to have strong tech, to innovate, or to provide stability.”
“What if these companies go down? Well, they take their clients down with them,” Arrondo adds. “It’s a huge concern for the big players.”
Not all visions of billing’s future are quite so apocalyptic, however, with many operators seeing a stable playing field over the near-term, despite some profound challenges and changes.
Hyun points to one of the most significant changes in bank/merchant relationships, when in Oct., 2015, the EMV liability shift went into effect; bringing unwanted problems for porn purveyors and other firms.
“E-commerce merchants may have started to notice a significant uptick in chargebacks, with the reason codes falling under the various fraud categories,” Hyun told XBIZ. “It has been historically proven that when the EMV liability shift is implemented, e-commerce merchants are the ones who experience the increase in fraud, so it is highly recommended that merchants employ both AVS and CVV, and only allow transactions with positive responses on both services to be allowed to continue with the purchase.”
Hyun also recommends third-party fraud prevention services, but says that simply requiring positive matches on both the AVS and CVV during the checkout process can stop the majority of fraud problems.
Beardsley believes that there is a good chance that the EU Regulatory Commission is going to require double authentication on all Internet purchases this year, and is poising SegPay to be prepared for it.
“Something such as 3D Secure or an approved alternative is being considered for implementation by the summer of 2016,” Beardsley says. “This would be a big required change that could affect conversion rates, and while I am not sure if it is revolutionary, it will be a big change for the industry that we will all need to adapt to, if this regulation gets passed.”
While the challenges are real enough, the opportunities in 2016’s adult billing scene are strong enough that many processing companies are planning to roll out new products and services this year.
Farber told XBIZ that as NETbilling continues to grow, the company will increase its offerings with new merchant account banks, additional gateway features, new reporting functions and more; noting that a focus on the basics — such as providing great customer service — is essential for merchants these days.
“Our in-house call center is growing as merchants are understanding the importance of offering their customers 24/7 live support via, phone, email and now live chat,” Farber says. “Many of our merchants are already taking customer service to the next level by offering live chat support during the shopping experience, and post purchase customer support.”
Farber notes that NETbilling’s new customer chat service creates an easy, immediate connection point between merchants and customers, and is being very well received.
“If you can reliably and consistently offer [prospects] good advice and support via their devices, they’re far more likely to become loyal customers over the long term,” Farber explains. “This has some massive implications for brick-and-mortar stores that also have an e-commerce component, as well as merchants that are predominantly online.”
The new rollouts will continue through 2016, as NETbilling integrates with more shopping cart systems and affiliate platforms, providing merchants with more choices to suit their specific needs.
Merchants will have a range of other choices as well.
“OrbitalPay’s visionary team is staying abreast of processing regulations and our sectors’ needs, and are heavily involved in laying the groundwork to be at the forefront of our industry’s evolving technology,” Campbell confides. “We are in the process of building several exclusive systems that will expand on the vast amount of services we already offer.”
And the company is not the only one in the process of expanding its offerings. Beardsley told XBIZ that this year SegPay plans to roll out a series of new features to make it more competitive with other IPSPs.
“These include additional payment options, retention offers an card updater services,” Beardsley says. “We also plan to completely update our entire backend system to provide better reporting and account setup flexibility for our clients.”
Other companies are improving their internal processes and using technology to stay in contact with clients, while focusing on core competencies, rather than pursuing new features for the sake of having new features.
Hyun says that although Mobius already offers a comprehensive suite of billing products, services and consulting, as it continues to grow, it will have more to offer — with the company revealing its latest additions via social media — such as through its Twitter account at @mobiuspayments.
For some, the technology focus is as sharp as a razor, and the key to success in the billing space today.
For example, Arrondo says that Vendo is totally focused on artificial intelligence and its value for online billing, calling it “the only way to deal with the massive amount of data available to a biller.”
“We use it to offer dynamic pricing, determining the best price for each combination of product and shopper,” Arrondo told XBIZ. “The revenue lift we create can eliminate the cost of billing.”
One major expense for merchants that continues today is chargebacks, which are especially problematic for companies that sell digital downloads (which are consumed immediately). Without DRM measures in place, these goods are essentially lost to a non-paying customer — the digital equivalent of a shoplifter stealing a dirty magazine from your newsstand.
Fortunately solutions are available to help mitigate the problem, such as ChargebackHelp, a merchant-founded chargeback and fraud reduction service taking aim at the more than $11 billion lost annually in chargebacks to U.S. merchants alone.
The company claims to help reduce chargeback ratios by up to 30 percent and provides its clients with the resources to collect on chargebacks in more than 100 countries across Africa, Asia, the Americas, Europe and Oceania. Extending its expertise, ChargebackHelp also offers decline salvaging and digital device fingerprinting — providing client with more ways to protect their business.
There are other opportunities for third-party providers to help merchants make more money, but there seems to be as much a reluctance on the part of adult merchants to embrace such services as there is on the part of providers to innovate and offer new services.
“It’s like billers are sitting on a gold mine and not digging. Well, we’re digging, and our clients are loving the results [because] we’re effectively eliminating our clients’ second biggest variable cost after traffic,” Arrondo concludes. “The future of billing is data, and the small guys will be left out [because] they don’t have the culture to be able to deal with something new. They’re barely surviving today, offering services that became obsolete years ago.”
It is a statement that drives deeper into the heart of online adult entertainment today than merely addressing its payment processing choices.