Billing in a New Light

Stephen Yagielowicz

At the heart of e-commerce is the ability to process transactions and manage the sale, delivery and customer service process — processes that benefit greatly from automation and expertise — and which fall into two main implementation categories: using a direct merchant account or a third-party service.

A third-party payment processor, known formally as an Internet payment service provider (IPSP), aggregates transaction processing for a group of online merchants, while offering a range of value added services such as membership management and customer care — and do so for well over 10 percent of the take or more. Some also place a mandatory “hold” on funds for up to six months to cover any issues, such as refunds or chargebacks and have other fees as well.

The cost of utilizing a direct merchant account vs. an IPSP is significantly less expensive and it gives the merchant more control and higher throughput, increasing revenues. -Karen Campbell, OrbitalPay

An IPSP is an online entity that enters into a contract with an acquirer (a merchant bank) to shoulder the financial responsibility and liability for a high-risk merchant account by which registered sponsored merchants (the website owners) may process and settle Internet transactions. It is a popular, turnkey solution for accepting online payments for website memberships.

CCBill.com, an IPSP, explains that these high-risk merchant accounts are extremely expensive to obtain and require a large amount of maintenance and support to operate.

“The initial fees associated with opening a ‘high risk’ merchant account will quickly surpass Visa’s IPSP registration fee for Sponsored Merchants,” states the company’s website. “In addition, owning and maintaining one’s own ‘high risk’ merchant account can put added financial and operational strain on an online company, by requiring them to make major investments in customer support, fraud prevention, and automated reporting.”

CCBill adds that following a high-risk merchant account’s creation, its owner and the operating URLs will come under Visa’s monitoring, noting that “If that same ‘high risk’ account is closed thereafter, the account’s owner and/or its operating URL’s will no longer be afforded the future opportunity to register within the umbrella of an IPSP portfolio.”

This layer of protection is among the historical benefits of using an IPSP, but a benefit that changes in the card association’s rules have diluted — with more accountability required from adult merchants — including those who make use of IPSPs.

While enhanced scrutiny by the card associations has been with us for some time, the guidance of expert processing professionals has proven a valuable resource towards keeping operators up to speed and out of trouble. However, this level of assistance is not limited to IPSP clients, as a number of quality companies offer services that support and enhance the functionality of self-run merchant accounts.

This second type of online payment processing infrastructure, having a direct relationship with a bank and a web technology provider that can implement the necessary gateway and support systems (previously seen as the exclusive realm of larger, more highly capitalized operators), may now be more affordable than a thirdparty IPSP solution, while offering greater control and more profitability.

It is a flip-flop in the traditional paradigm caused by MasterCard’s domestic processing fee coming into effect, which added an additional cost and barrier to entry for adult merchants, while also serving to thin the herd of existing, but marginally profitable, paysite operations — in much the same way as Visa processing fees decimated a previous generation of adult website merchants. In fact, for many of today’s adult website operators relying on MasterCard rather than paying the Visa fee, this new charge may be the end of the line, putting the final nail in the coffin of smaller or “hobbyist” level paysites.

The upshot of this dramatic shift is that using an IPSP may now be as expensive as using a direct merchant account — making the advantages of having your own merchant status worth another look.

One top-tier firm is OrbitalPay, which according to the company offers a premier gateway billing solution as well as merchant accounts with competitive rates for all business types, including product sales, membership, VOD, and live cams, among other markets.

Karen Campbell OrbitalPay / Global Electronic Technology Inc. assistant vice president, told XBIZ that changes in the domestic highrisk transaction processing arena, along with factors such as the fees imposed by MasterCard and Visa, coupled with the higher processing fees charged by many IPSP’s, serve to mitigate cost as a factor when choosing an IPSP over a merchant account.

“MasterCard has recently required the IPSPs to collect a high-risk registration for each sponsored merchant processing under their umbrella,” Campbell explains. “MasterCard has also reduced the cost of registration for direct merchant account providers, leveling the playing field.”

As for analyzing the comparative costs involved, Campbell says that high-risk registration fees for direct merchant accounts run $1,000 — $500 for Visa and $500 for MasterCard. Compare this with the $1,250 these fees cost when dealing with a third party IPSP, which charges $750 for Visa processing and $500 for MasterCard.

Campbell told XBIZ that while lower costs equal more profit, low cost is not the only advantage that direct merchant accounts enjoy over other adult processing options in 2013. Further factors such as flexibility in fraud scrubbing levels, custom payment pages, and sales funded in two to three business days directly into the merchant’s bank account, with custom reporting and more, all add to the mix.

“We issue merchant accounts, build your gateway, provide merchant support, mitigate risk and handle call center services, all in our offices,” Campbell concluded.