Credit Card Regulatory Trends to Look Out for in 2014

Alex Henderson

One of the first things that adult webmasters learn when they go into business is how greatly billing preferences can vary from one country to another — and in countries with a large credit card penetration, it is important for webmasters to stay abreast of regulatory trends with Visa and MasterCard. In 2014, webmasters’ Visa/MasterCard concerns range from anti-fraud efforts to intellectual property protection to the U.S.’ forthcoming implementation of EMV/chip-and-PIN technology.

Cathy Beardsley, president and CEO of SegPay, said that in 2014, adult webmasters will need to pay close attention to the ways in which Visa and MasterCard are trying to protect intellectual property. “Copyright infringement continues to be a big focus of the card networks in 2014,” Beardsley explained. “Merchants caught processing infringed content should expect to pay big fines. IPSP/PFs should also be cautious and continuously monitor their merchants to ensure proper compliance and protocol, as fines will ultimately roll down to them.”

When one segment cracks down on fraud and fraud drops in one area, that balance will shift to another method. -Gary Jackson, CCBill

Melody Lashmar, COO of L3 Payments, said that in 2014, webmasters can expect the card associations to be as aggressive as ever when it comes to anti-fraud measures. “For adult companies, Visa and MasterCard will continue enforcing their rules regarding fraud ratios and forbidding the sharing of credit card information between merchants,” Lashmar noted. “In the USA, we are seeing the Federal Trade Commission target payment providers in order to shut down multiple merchants with a single action. The FTC is about protecting consumers from unfair and deceptive acts. Visa and MasterCard will want to demonstrate their ability to protect consumers in their networks consistent with the views of the FTC. This will mean that merchants that are sharing card data with other merchants or deceiving consumers with intentionally confusing join processes or merchants that are leveraging loopholes in the rules to avoid the chargeback programs are all at risk of fines and enforcement actions.”

Beardsley observed: “MasterCard is very focused on identifying merchants that have opened numerous accounts across multiple acquirers and merchant IDs. While they do not have a formal way to identify this activity, MasterCard is working with acquirers to try to detect these merchants that are skirting the rules by keeping volumes below the threshold to avoid chargeback penalties.”

The U.S. continues to have a tougher chargeback ratio than some countries, but Lashmar pointed out that even in countries that allow 2 percent chargebacks, Visa prefers the 1 percent standard. “There has been a great deal of speculation about a universal Visa chargeback threshold that would lower the ratio in other regions to the same ratio of 1 percent as the USA,” Lashmar observed. “We are seeing banks in regions where you can have 2 percent chargeback ratios behaving and managing their merchants to the 1 percent ratio.”

A major change in credit card and debit card technology will be coming to the U.S. when American banks replace the current magnetic strip cards with EMV/chip-and-PIN cards, which are already the norm in Europe. From an anti-fraud standpoint, those cards (which might make their U.S. debut by October 2015) will be beneficial for brick-and-mortar adult businesses in the U.S. such as sex shops, strip clubs and BDSM dungeons. But adult webmasters, Beardsley stressed, will need to keep a close eye on the effect that EMV has on card-not-present transactions.

“The implementation of EMV here in the USA will be an excellent tool to reduce point-of-sale (POS) type fraud in the card-present world,” Lashmar explained. “However, those people that choose a life of crime will now concentrate in the card-not-present (CNP) environment, as it will remain easier to perform fraudulent transactions in this environment with the tools they have today.”

Beardsley asserted: “When the chip-and-PIN transition occurs, all of the fraudulent credit card activity faced by the traditional retail markets will move to the online world. This issue is something all e-commerce merchants need to be aware of. There are also plans for mobile and computers to have chip-and-PIN readers, eventually making online payments just as secure as in-person transactions.”

Gary Jackson, managing vice president of sales and Internet markets for CCBill, emphasized that if criminals commit more fraud online, adult webmasters must be as proactive as possible in fighting them. “Fraud will always be part of merchant processing in some form or another,” Jackson warned. “And fraud seems to consistently occupy approximately the same percentage of the business risk of overall processing, regardless of the environment. So when one segment cracks down on fraud and fraud drops in one area, that balance will shift to another method. That is the main concern for an online processor who works in a card-not-present medium. If chip-and-PIN has the intended result, fraud has to go somewhere — and online transactions seem like a logical path. With that assumption, the merchant needs to ensure that their fraud protection, risk management and trend monitoring is rock solid and up-to-date.”

Beardsley advised that in 2014, adult webmasters will need to pay careful attention to the actions of their affiliates. “Affiliate marketing is always a hot topic among card networks,” Beardsley noted. “Merchants need to be aware that they are held accountable for the actions of their affiliates. Merchants need to always be looking out for suspicious activity from affiliate marketers.”

Beardsley added: “To date, Visa has established the best practices for working with affiliate marketers. Both card networks will hold adult merchants accountable for the illegal actions performed by affiliates that result in sales to the merchant’s websites.”

Visa and MasterCard have experienced their share of criticism from adult webmasters, but Jackson asserted that instead of viewing card associations as adversaries, webmasters need to approach them with a spirit of cooperation. “I usually get in trouble with merchants for saying this because everyone wants to blame Visa and MasterCard, but using [their] networks is not a right, but an opportunity to access a network of buyers,” Jackson stressed. “And accessing those buyers comes with requirements and regulations — which hopefully, your financial partners are there to help you manage. The bottom line is that Visa and MasterCard are both businesses, and the regulations and payment models are designed to protect said business — theirs and ours.”