Verotel Clamps Down on Small Merchants. Are Other IPSPs Next?

Stephen Yagielowicz

For the smallest players in the industry as well as the largest, access to cost-effective online billing technology is vital for running a smooth and profitable site. Like any of a website’s mission-critical infrastructure, costs play a role in selection and redundancy; with many smaller merchants forced to “put all of their eggs in one basket,” as it were — a practice that commonsense has long warned against — but sometimes, you just do not have a choice in the matter, especially if you can’t afford a second basket.

According to the company, Verotel was founded in 1998, and is a leading Internet Payment Service Provider (IPSP) specializing in online credit card payment processing for high risk businesses, providing more than 50,000 sites with online payment solutions. Verotel processes all major credit cards through a fully PCI compliant solution, without setup fees — and boasts high conversions in comparison to some of its competitors.

As the online adult entertainment industry continues its evolution into an increasingly mature market segment, where consolidation and corporate behemoths reign, the stakes are becoming higher for the little guy.

The company has long been a refuge for amateur site operators, smaller programs and affiliate webmasters looking to break into the paysite game without the expense of VISA fees or merchant accounts and is also a popular tool in many larger sites’ billing cascade.

Unfortunately for affected merchants, however, it seems that the company has closed an undisclosed number of low volume or underperforming accounts, without prior notice.

Within moments of Verotel’s notice, XBIZ began receiving reports from affected site owners expressing their dismay over the trusted billing company’s surprise termination of their accounts; claiming that adult merchants earning less than $100 per week were being dropped — with their only option to continue processing with the company, the payment of a $500 fee, via an immediate wire transfer.

“The small indie porn site I built and run with my partner is now suddenly incapable of accepting payments only days before the Feminist Porn Awards, for which we are nominated in several categories,” Ned Mayhem of told XBIZ. “Even if we pay the new fee immediately, it is unlikely that we will be able to accept payments again before the weekend.”

Mayhem hopes that his sites’ fans become aware of Verotel’s changes and will thus appreciate the challenges faced by small businesses in the adult industry, instead of only seeing a broken website.

“I see this as a major blow to the growing movement of independent, self-run porn sites,” Mayhem added. “Verotel was (to my knowledge) the only major credit card processor to accept major credit cards with no substantial signup fee, and it allowed a lot of small studios and independent performers (myself included) to get started monetizing their own content.

“The barrier to entry has just been raised significantly due to pressure from Visa and Master-Card,” Mayhem concluded.

This barrier to entry has been faced by U.S. based adult website owners for a number of years now, as they are required to pay a $750 VISA registration fee. Verotel is now also passing this VISA fee on to its clients, assessing the charge per registered merchant.

According to Verotel founder and CEO Joost Zuurbier, the company is cleaning up the very small, often unused accounts within its system — accounts typically doing less than $50 per week or so — some terminated because of complete inactivity.

“Since we have to pay VISA and MasterCard registration fees these unused accounts are a simple cost and with terminating them we are looking to reduce these costs,” Zuurbier stated. “We are trying to limit any costs as much as possible — and most of the time we don’t pass on the actual VISA/MC fees 1-to-1, but take this from our general gross margin.”

Zuurbier warns that the company’s fee structure may change in the future since the new MasterCard fees may be higher than normal when they are expected to go into effect later this year, reportedly changing the game for all billing companies, not just Verotel.

As the online adult entertainment industry continues its evolution into an increasingly mature market segment, where consolidation and corporate behemoths reign, the stakes are becoming higher for the little guy.

Just as the imposed U.S. VISA fees passed on by CCBill, Epoch and others may have put marginal players out of business once upon a time, this latest move (and the ones to come) might once again thin out the herd, leaving a stronger crop of competitors in its wake.