ACH Remains Viable, Although Battling Fraud Still a Challenge

Alex Henderson

When Internet entrepreneurs from Europe, Australia or Japan are learning the essentials of electronic billing and payments in the U.S. market, one of the first terms they learn is Automated Clearing House (ACH). Credit cards continue to be the U.S.’ dominant online payment method for both mainstream and adult purchases, yet outside of the credit card payments — which are handled by separate networks — ACH handles an abundance of U.S. transactions: according to NACHA, close to 22 billion ACH transactions were processed in 2013 (which was almost a five percent increase from 2012). And while ACH clearly takes a back seat to credit cards at adult companies, it remains one of the various options for adult entertainment billing in the U.S.

Mitch Farber, founder and CEO of NETbilling, noted that in late 2014, combating fraud continues to be a challenge for the ACH network.

In September of 2015, NACHA (which oversees the operation of the ACH network) will push the threshold for fraud rates down to .5 percent. —Cathy Beardsley, of SegPay

“ACH is a great alternative form of payment in the U.S.,” Farber explained. “However, because it is not real-time authorization of funds, merchants often lose out to closed accounts, insufficient funds, etc. At NETbilling, we have many merchants that process ACH — and although we do a great job of fraud scrubbing, credit cards have less fraud, real-time authentication, and less returns overall.”

The ACH network is used for a variety of functions in the U.S., from direct debit payments to business-to-business payments to payrolls.

And ACH, of course, is used for American e-commerce payments. Continuing to improve and refine the ACH network is a primary concern of NACHA, the association that manages and oversees the rules that the network must abide by. NACHA doesn’t actually process any payments, but it oversees the operation of the ACH network. Cyber crime is an ongoing issue for NACHA.

Cathy Beardsley, president and CEO of SegPay, pointed out that in the adult industry, some of the companies that accept ACH payments (including online checks) don’t allow access until the check clears.

That policy makes perfect sense from a security and anti-fraud standpoint, but having to wait a few business days can be problematic in an industry where consumers are known for craving quick or instant gratification, Beardsley said. Porn is often described as an “impulse purchase,” and credit cards are convenient for impulse purchases.

However, not all U.S.-based consumers have credit cards — and when that’s the case, ACH can be a useful alternative billing option for the U.S. market. SegPay, L3 Payments, OrbitalPay and iProcessing are among the billing specialists that provide ACH payment solutions for adult companies.

Led by Hilda Tuel and Amber Tringale, the Eureka, Calif.-based iProcessing is known for its credit card expertise but has also been providing ACH options for adult companies’ American customers.

L3 Payments has been serving the U.S. market with credit card solutions and has been offering ACH billing as well. Based in Westlake Village, Calif., L3 has an ACH-friendly team that includes Kjell Petridis (the company’s founder and CEO), CTO Hrag Kopooshian and Director of Client Services Thomas Kraus. And the Torrance, Calif.-based OrbitalPay, in addition to focusing heavily on credit card billing, has been helping adult companies with ACH check processing under the direction of CEO Steve Bryson.

A lack of credit cards is not the only reason why adult companies may offer U.S.-based consumers an ACH option. Some American consumers have credit cards but might not be able to use them for an online transaction. Perhaps the credit card is maxed out, and if that’s the case, the consumer might be willing to make an adult purchase via another method such as ACH. Even if an American consumer ordinarily uses credit cards for online payments, offering an ACH option can be a good backup plan in case the consumer’s preferred method, a credit card, fails.

There are alternative payment methods used for adult entertainment, from ACH to prepaid cards to SMS payments.

Gary Jackson, managing vice-president of sales for CCBill, urged webmasters to be flexible where billing is concerned.

“The best option for a business is to test payment types — either from one provider or from multiple providers — to know the market,” Jackson advised. “A few trickling sales compared to the effort to market to a specific market may not make business sense, and you should be able to adapt quickly to the changes.”

Although ACH can be a useful alternative billing option for the U.S., webmasters shouldn’t forget the importance of credit card billing in North America.

“As 2014 winds down, it’s important for billing industry professionals to be aware of any changes that the card brands make to their rules and regulations moving forward,” advised A.J. Almeda, marketing manager for GTBill. Meanwhile, Octav Moise, CEO of Paxum, recommended that adult companies have a variety of alternative payment options available in order to continue expanding their traffic.

ACH’s challenge, as 2014 winds down, is finding ways to continue improving that payment option. Beardsley observed: “The U.S. ACH system does not have real-time authorization, and it is fairly easy for consumers to cheat the system and earn access to a site without putting in accurate account information. It can take two to five days to receive confirmation that the authorization went through. We see, on average, about a six percent revoke rate.”

Asked to identify what some of the most important ACH-related concerns and trends for 2015 will be — and how they will affect the adult industry — Beardsley responded: “There is definitely more focus on revoke rates and overall fraud rates. At a risk conference that I participated in this year, NACHA is focusing on maintaining fraud rates at one percent — which is very difficult in the high-risk space in which there is no real-time authorization. In September of 2015, NACHA will push the threshold for fraud rates down to .5 percent.”