Adult Billing Options Keep on Growing

Alex Henderson

As 2014 winds down, billing for adult entertainment continues to be diverse, multi-faceted and full of options. The U.S. remains, hands down, the world’s top market for adult credit card billing.

Yet adult billing is robust in many other countries as well, with alternative payment options ranging from debiting to prepaid cards to SMS billing and direct carrier billing.

We see new opportunities with the cross-sales networks, oneclicks for diversifying product lines and so many partner opportunities out there for new traffic, as the consumer has grown smarter, the site and the payment flow has to be smarter as well to serve their needs and keep them buying from you. - Gary Jackson

Savvy adult webmasters are thinking globally, and as 2015 approaches, important billing trends range from the E.U.’s new digital VAT requirements to stricter anti-chargeback regulations with Visa EU to preparations for the arrival of PIN-and-chip technology in the U.S.

Cathy Beardsley, president and CEO of SegPay, stressed that in 2015, adult companies will need to pay close attention to developments in the banking industry — and that includes banks’ anti-fraud efforts.

“Billing and acquiring banks that operate in the adult space are very stable,” Beardsley explained. “There is continued focus on fraud and lowering fraud ratios. Both the card schemes and acquirers are tracking fraud-to-sale ratios very closely and on a regular basis.”

Beardsley noted that the unveiling of the chip-and-PIN technology (which is already the standard for Europe) in the U.S. next year could have strong implications for online adult companies.

If chip-and-PIN discourages card fraud in American brick-and-mortar stores, Beardsley said, criminals will step up their online activities.

Beardsley explained, “The big challenge for 2015 falls outside of the adult world, but could have implications for program owners: by October 2015, all U.S. consumer cards will switch over from magnetic stripe to chip-and-PIN. This will push a lot of the fraud that occurs at physical point of sale outlets online. So we could potentially see an increase in fraudulent attempts and will need to keep our focus on transactional risk analysis.”

Apple has been one of the most influential mainstream companies of the 21st Century, influencing the digital world greatly with its iTunes model for micro-payments as well as its smartphones, tablets and other mobile devices. And Mitch Farber, founder and CEO of NETbilling, predicted that Apple will have a strong impact on billing in the months ahead.

“Apple’s new NFS billing platform, dubbed ApplePay, will surely make a huge impact in the world of payments,” Farber asserted. “It will help make purchases more secure, using fingerprint authentication for purchases in a retail environment and online using Apple devices that have Touch ID active on them. Google and others have tried for mass adoption, but with Apple’s strength, plus alliances with the credit card associations and card issuers, Apple should succeed where others have failed.”

Farber also predicted that one-click purchases will continue to be refined in the months ahead.

“At NETbilling, oneclick purchases offered by our merchants and upsells/cross sells have really helped merchants make it easy for their customers to make additional purchases, re-buys, and to help sell complimentary products and services,” Farber noted. “Continued innovation in this area will play an important role in 2015 and beyond.”

Countries in the European Union are among the world’s most enthusiastic consumers of adult content, and Beardsley pointed out that come 2015, webmasters with European customers must abide by the EU’s new online value-added tax (VAT) requirements.

“Starting Jan. 1, there will be significant changes in the EU VAT regulations on the sale of digital goods,” Beardsley observed. “If you are selling to a consumer located in the EU, regardless of where your business is located, merchants are required to pay VAT on the country location of the consumer sale. No longer will a merchant pay a single VAT rate, based on its own location. In addition, the merchant should be showing the actual VAT charge to the consumer at the time of checkout.”

Beardsley continued: “To help you manage these changes, merchants will need to collect three data elements to confirm the location of the consumer. Data such as the country of the consumer’s IP address, credit card BIN and the country selection on the payment page can be used to back up and support the VAT location. Having two matching pieces of data are sufficient to support the country location of your consumer. At SegPay, we have created a report that helps the merchant gather these data elements for reporting purposes.”

Because Europe is so important to the adult industry, webmasters need to put a lot of time and effort into understanding Europe’s diverse billing needs.

Gary Jackson, managing vice president of sales and Internet markets for CCBill, cited the growth of the Single Euro Payments Area (SEPA) as a positive trend in European billing. Presently, at least 34 countries are part of SEPA.

“It is just not feasible for a business to keep up on all the localized payment options, languages or buying habits of the local buyer,” Jackson noted. “We are excited about the unification of the banking platform in Europe in SEPA, and are already seeing steady adoption by consumers as they transition to this debit system. We believe that with the open borders of the EU, a single payment solution like SEPA meets the needs for a region with so much travel.”

Jackson emphasized that with consumers of adult entertainment making their purchases on a variety of platforms — from desktops and laptops to smartphones — companies billing in the adult space will need to have a multi-platform outlook in order to keep their billing opportunities growing. “The key change in the market has been in consumer knowledge and purchase ability,” Jackson observed.

“The consumer has grown smarter and more adept at payments, and more discerning of where they buy. Many of the early adopters for online entertainment have not kept up with the buying habits, visual sophistication and multi-screen savvy of the buyer, and it is impacting the smaller business. Many legacy sites are making decisions to retreat and close rather than adapt. But we see new opportunities with the cross-sales networks, one-clicks for diversifying product lines and so many partner opportunities out there for new traffic. As the consumer has grown smarter, the site and the payment flow has to be smarter as well to serve their needs and keep them buying from you.”

Wolfgang Ruecker, CEO of the European payment solutions provider Global Humax Cyprus Limited, said that adult companies will need to keep abreast of which European banks are and aren’t friendly to adult billing. “In March 2014,” Ruecker noted, “one of the strongest banks in Spain, La Caxia Bank, cleared their adult merchants portfolio and terminated overnight 85 percent of all online adult merchant accounts. It is getting more and more difficult for adult companies to fulfill the European banks’ requirements. Additionally, each European bank has different requirements. So it is very difficult for adult companies to understand and to become compliant.”

According to Beardsley, adult webmasters will also need to be aware of Visa’s new anti-chargeback regulations for the EU.

“Visa EU just announced an additional €12 surcharge on all chargebacks that are reported with a fraud reason code,” Beardsley noted. “This is in addition to the chargeback fee charged by your acquiring bank or the payment service provider. This €12 surcharge is on all chargebacks labeled with a fraud reason code. Unfortunately, almost 80 percent of all chargebacks that merchants get are labeled as fraud. This surcharge is being enforced by the card schemes in hopes to push their acquirers to have their payment service providers and merchants take advantage of Verified by Visa and MasterCard SecureCode. Using these PIN-based services will eliminate a large amount of chargebacks.”

Beardsley added: “For those programs that have very low chargebacks, dealing with the fraud chargeback surcharge will be a non-issue. Those that tend to load balance across multiple MIDs and acquirers will see a significant increase in the cost of their business.”

Europe’s billing landscape will remain diverse in 2015, with adult payment preferences varying from country to country. The U.K. remains one of Europe’s most credit card friendly places for adult billing, but in Germany (which is the largest economy in the EU), debiting is king.

And Julia Dimambro, founder and managing director of the Barcelona-based mobile specialist Cherry Media, said that some American webmasters still make the mistake of assuming that Europe is exactly like the U.S. when it comes to adult billing preferences.

“I know in the states, it’s all about credit card billing,” Dimambro noted, “and we see American-based service providers focusing on the same when trying to launch services in Europe.” But Dimambro stressed that if webmasters are only offering credit card billing, they are missing out on “80-90 percent” of potential customers in the EU.

After the economic crash of September 2008, many adult businesses adopted a lean-and-mean model and cut their overhead as much as they could. But Jackson said that companies may harm their billing opportunities if they are penny-wise and pound-foolish with their promotional budgets. “The economic situation in the world is improving,” Jackson asserted. “And with that, credit lines increase. There is more money to spend, and with that, more opportunity. But we have seen a continued contraction mentality in the adult business. With all the talk of adult business dying off, we have not seen success in our merchants who follow that approach.

“The adult merchant needs to be aware of their costs, but not at the expense of sales or new sales opportunities. With the economic growth in the U.S., the expansion of payment solutions in Europe, and the new markets exploding in the Americas and Asia, an adult business needs to partner with a company that can expand with them and empower them to reach varied markets. Looking at costs is always good business, but making decisions solely on price and not on the potential opportunities are a risk to the business.”

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