trends

The Future of Adult Billing

Alex Henderson
There was a time when sales methods were relatively uncomplicated for adult entertainment providers. Back in the pre-Internet era, consumers typically acquired their adult magazines and adult VHS releases in local brick-and-mortar porn shops — and clerks were always happy to accept cash.

In 2008, however, a great deal of erotica is being distributed digitally via the Internet. In-person erotica sales have decreased considerably, and for adult companies, the burning question is: What will be our billing methods in the future? This is a complex question, and there are many things to think about — including the increasingly tough rules of credit card companies, scrubbing, credit card fraud, foreign markets and cross-sales.

One of the adult Internet's top billing experts is Christopher Mallick, CE0 of 24-7 Commercial Marketing Inc. and owner-founder of ePassporte.com. Mallick, formerly of Epoch, observed that in recent months, he has seen an abundance of adult Internet companies opening their own merchant accounts instead of working with third-party processors (also known as Internet payment service providers or IPSPs).

Mallick predicted,hoewer, that in the next few years, there will be a lot of movement back in the IPSP direction when credit card companies inevitably change their rules once again. Mallick said, "It seems to me that we are seeing a return to sponsor-operated merchant accounts and a move away from traditional IPSP billing models. We'll have to wait and see how this trend plays out, but in my opinion, programs are better served by using IPSPs.

"An end-to-end solution, including customer service, fraud prevention, affiliate monitoring and real-time stats, is well worth the percentages that IPSPs charge. I don't own any interest in any IPSP, so I am not making a statement based upon my economic interests; I feel strongly that the IPSPs, which were created when I ran Epoch, are the most viable solution for long-term success. When — not if, but when — the card associations change the rules and ratios, I fear that programs will not be able to react quickly enough to survive. If I had to guess, I would say that in 12 to 18 months, IPSPs will regain the customers that have moved to their own self-operated billing solutions."

Some of the people interviewed for this article weren't optimistic about the future of aggressive cross-sales on the adult Internet. Mallick said: "I think aggressive cross-sells are going away. They certainly increased gross sales, but they did nothing but hurt retention. Nonaggressive, opt-in cross-sales are a great marketing tool. I believed, when we started allowing them, that they would be effective if controlled; they simply got out of hand."

Meantime, Holly Moss, sales agent for Electracash and president of HMoss Consulting, said, "I was never a fan of cross-sales. I felt it was a lazy marketer's way of increasing revenue for the pay sites' owners. Cross-sales are nothing more than a giant headache for customers, billing companies and customer service agents. These misleading cross-sales — for example: prechecked marked boxes — cause so much frustration and dismay for customers trying to join or cancel a pay site and take out all the pleasure of signing up to an adult site."

Moss added: "Since most of my experience has been providing ACH processing for adult merchants over the years, I can say that with the new NACHA regulations of keeping 'unauthorized returns' below one percent over a 60-day period, the days of misleading cross-sales are numbered."

Credit card fraud remains an ongoing challenge for the adult Internet and scrubbing will no doubt continue to be a major battle in the future.

Reflecting on the present and future of scrubbing methods, D. Lee Falls (CEO of Electracash) said, "There are biometric innovations such as signatures, fingerprints and typing patterns for name and password, but consumer acceptance is extremely low. There are also automated call-back systems that require the consumer to 'punch in' the code that is on the screen …

"Electracash is working with database providers that can match the IP address back to the consumer, but this is more an after-the-fact approach to prove the transaction is valid, similar to the recording industry approach in trying to prevent file-sharing."

In a global economy, adult webmasters need to think globally — and Raphael A. Berkien, business development manager for 2000Charge Inc., pointed out that billing methods for the U.S. aren't necessarily the dominant billing methods in other countries. Berkien predicted, however, that in the future, Europe will become less fragmented when it comes to adult billing.

"In the U.S.," Berkien said, "the primary method of payment is credit and debit cards, contrary to many other parts of the world that do not have a credit-based system in their society … Furthermore, different laws, currencies and languages in many countries have also spurred local payment schemes that access native clearing networks to address the needs of the local population.

"North America as a market is very well set in its methods of billing options for online merchants. Europe still faces fragmentation challenges in payment networks; therefore, most changes will occur in the European market as payment systems become more standardized and acceptable over time."

Berkien continued: "Infrastructure upgrades in the communication sector and falling access prices in many countries will not only boost the growth in audience, but also, the number of competitors. Many U.S.-based Internet companies will face stiff competition from local providers that will cater to markets that are fragmented due to language and local traditions.

"To address these challenges and to remain competitive, Internet companies have to understand how to overcome legal, language and billing barriers. Billing companies play an important role, as they provide merchants with the latest available billing technologies — such as GEO-IP, automatic join-page translations and currency exchange — that make targeting these markets less of a challenge."

Silvercash Albert, vice president of business development for Silvercash and Silver Sinema, said that with the U.S. dollar in decline, adult webmasters in the U.S. will need to know more about billing in foreign markets in the future.

"The North American market remains the most-significant billing market for most companies operating in North America," Albert said. "However, this industry is global in nature, and local affiliate programs are aware of the growth in international markets... As many international markets do not use credit cards as the main local billing method, optimizing payment methods per region cannot go unnoticed.

"In my own experiences with Silvercash.com, we have found a significant increase in our international traffic over the last two years," Albert added. "In addition, as mergers and acquisitions consolidate the market, companies operating in different countries can be very attractive as a new means to enter international markets and webmaster databases."

Mallick also stressed that in the future, adult Internet companies will need to think globally when it comes to billing. "This is the world-wide web," Mallick said. "Billing in foreign currencies and using any payment method acceptable in any country is the key to being effective outside the U.S.A. If those methods and options are available, using an IPSP gives you a one-stop solution. If there are methods out there to be utilized, use them."

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