Staying on Top With Credit Card Billing

Alex Henderson

As the adult entertainment industry continues to evolve, so do online billing solutions — and for adult webmasters, traditional online credit card billing continues to be vitally important in the North American market. Credit card payments take a back seat to other payment methods in many European countries, but for adult webmasters serving the North American market, access to credit card billing is crucial. The vast majority of people who pay for online adult entertainment in the U.S. and Canada are still doing so with credit cards, and any adult webmasters who are seeking North American customers need to have an extensive knowledge of innovations, trends, solutions and developments in credit card billing.

Harmik Gharapetian, vice president of sales and marketing for Epoch, observed that more and more credit card payments for online adult entertainment are being made using mobile/wireless technology. “The most notable area of innovation is in mobile payment,” Gharapetian explained. “In fact, each of the card associations is developing their own applications, which are being released per region. It is becoming increasingly important to offer a mobile-friendly site. Sales from mobile devices are on the rise and will continue to trend upward. So it’s important that your sites provide a streamlined payment process that accommodates multiple mobile devices.”

The changes at MasterCard dramatically affect adult webmasters, but in a positive way. Now, they have some extra cushion. -Adam McDonald, Humboldt Merchant Services

Adam McDonald, director of business development for Humboldt Merchant Services (which provides merchant accounts for the U.S. and Canada), asserted that MasterCard’s willingness to implement more forgiving rules for North America has been a blessing for adult webmasters (during the Summer of 2012, MasterCard increased the chargeback ratio from 1 percent to 1.5 percent in North America). Visa still has a 1 percent chargeback ratio for North America, but if that is increased to 1.5 percent in the near future, McDonald said, it will be a major development for the online adult space.

“The changes at MasterCard dramatically affect adult webmasters, but in a positive way,” McDonald explained. “Now, they have some extra cushion. And it’s going to be very interesting to see if Visa increases their chargeback ratio to 1.5 percent in the U.S. to be on par with MasterCard. There are a lot of individuals who think that is going to be coming in 2013 or 2014, which would be a huge change and would be a motivating factor for a lot of adult webmasters to bring their processing back to North America.”

Visa and MasterCard, McDonald noted, both have a 2 percent chargeback ratio in Europe — and for that reason, many American webmasters are still acquiring their merchant accounts overseas. The problem with doing that, McDonald said, is lower conversion for the North American market.

“If you’re using a European merchant account or a merchant account in the Caribbean—say, through a bank in St. Kitts — you’re not going to have as high a conversion ratio in North America,” McDonald said. “With a merchant account in Europe or the Caribbean, you’re not going to have as high a conversion ratio targeting U.S. customers as you would have with a U.S.-based merchant account. So you’ve really got to look at it and say, ‘OK, I have a lower chargeback threshold to work with, but I’m actually going to be making more money because my sales are going to be higher. The percentage of approved cards for the U.S. is going to be higher than if I’m taking a merchant account out of Germany and targeting U.S. cardholders.’”

One option for adult webmasters trying to increase their profits in the U.S. and Canada is working with a company like Humboldt and obtaining a North American merchant account for the North American market. But McDonald is quick to describe the IPSPs (Internet payment service providers) that Humboldt has been working with as technological innovators who continue to come up with innovative credit card solutions for adult webmasters. “NetBilling, CommerceGate and RocketGate are three companies that we do a lot of business with,” McDonald noted. “They have fantastic resources.

Those are the gateway companies. Those are what we like to call the technology providers that essentially take the banking information we issue and make some interesting things happen—whether it’s increasing conversion ratios, having phenomenal customer service or having very clean-looking checkout pages. Those guys are providing the technological solutions, but Humboldt is really the front line when it comes to dealing with the card associations.”

A major IPSP like the Barcelona-based CommerceGate isn’t strictly offering credit card billing solutions but rather, offers both credit card billing and alternative billing solutions. And adult webmasters who go to CommerceGate and other IPSPs may do so as part of an overall multicountry, multi-payment option strategy.

Gharapetian stressed that webmasters who want to increase their profits as much as possible need to think as internationally as possible. Gharapetian explained: “Customers feel much better about seeing payment options they recognize from their region of the world, translated in their language and presented in their currency .... While the vast majority of your business will likely always be English-speaking customers who carry a major brand debit or credit card, there is also a significant and largely untapped and growing market in other countries and regions. Successfully reaching those markets may be more challenging, but the potential is there.”

One company that has been helping adult webmasters increase their business in countries where most online payments are not being made with credit cards is the alternative payments solutions provider 2000Charge. Wolfgang Kring, CEO of 2000Charge, pointed out that non-credit card payments still dominate online billing in a long list of European countries — and he doesn’t see that changing.

“Alternative billing solutions are the primary and preferred payment methods in Europe, and any financial developments in the Eurozone are fundamentally geared towards alternative billing methods,” Kring asserted. “As such, changes and financial developments in the Eurozone will bring a greater benefit to alternative billing than to credit card billing.”

Kring added that in all those European countries where online credit card use is the exception rather than the rule, adult webmasters are not being affected by Visa and MasterCard’s actions to the degree that they are in North America.

“Changes and the evolution of rules and regulations by Visa/MC do not affect alternative billing methods, which is why alternative payments are a major benefit to merchants who need to rely on stable and dependable payment methods,” Kring explained. “Changes by the card associations, such as the limitation of allowable chargebacks, puts additional pressures on merchants. With alternative payments, this is not the case because alternative payments are either chargeback-free or different processes are applied to minimize the risk to the merchant.”

Kring continued: “Regulatory and compliance programs are instituted to lower the risk for all parties involved in the payment process. With processing alternative payments, the concerns are manageable with the proper usage of risk tools and compliance processes. As a processor of alternative payment solutions, the biggest regulatory and compliance concern is to maintain a balance between usability, risk and compliance for our merchants.”

McDonald said that when it comes to credit card billing, a country that adult webmasters need to keep a close eye on is Brazil. “A lot of the businesses we work with are seeing a lot more traffic coming from Brazil these days,” McDonald observed. “I think that Brazil is a good example of an emerging market, but the Brazilian banking community isn’t the easiest to build relationships with. If you’re looking, as a merchant, to go out and extend your reach, I would highly recommend finding international providers who have very solid banking relationships with financial institutions in Brazil.”

Adult billing was much simpler back in the days when most porn-related transactions were made in person and the words “cash only” were no big deal. But as erotica diversified in terms of both content and distribution methods, so did billing needs — and webmasters will need to stay on top of developments in the credit card realm.

“It’s also a matter of time before EMV, or chip and PIN, technology becomes the standard in the U.S. as it already has in Europe,” Gharapetian predicted. “Projections from Visa have stated 2013 as their goal for standardization in the U.S. While there are hurdles to this, American banks have already begun issuing EMV cards, which also feature the magnetic stripe. While EMV technology has helped reduce crime at brick-and-mortar merchants, card-not-present, CNP, fraud figures are growing every year.

“So, as EMV begins to roll out in the U.S., it’s quite possible that there will be an increase in CNP fraud. It’s more important than ever to have a well-managed portfolio with an experienced processor.”