IPSP Update: 08-08-03

Stephen Yagielowicz

One of the two biggest issues facing the adult Internet today, staying on top of the ever-changing transaction processing situation is not always an easy thing to do. With changes occurring daily, and sometimes hourly, having the right information to make important business decisions is vital for the financial health of your company – here’s the latest:

While much of the recent commotion has been focused on what VISA is doing within the marketplace, there is another major player that is dictating new terms for compliance and ongoing processing relationships – and that is MasterCard. While this brand does not account for as large a percentage of adult Web revenues as does VISA, they are certainly a force to be reckoned with, especially for those Webmasters who dropped VISA in favor of so-called ‘lite’ processing arrangements that focused on MasterCard as a way of avoiding the former processor’s newly instated fees.

This ‘hop scotching’ between merchant / processor relationships might provide some dubious short-term comforts for smaller players, but it is a naive approach that does not take into consideration the broader scheme of things, as if the goings on at VISA are occurring within a vacuum. The latest billing processor (IPSP) to address MasterCard’s concerns is iBill, who released a statement earlier this week:

"As you know, iBill has invested considerable effort in conjunction with our acquiring bank and MasterCard to submit a compliance plan for our clients that would meet the revised MasterCard processing regulations. As a result, iBill was the first merchant to gain approval from MasterCard for their compliance plan. Since approval of iBill's compliance plan, we have continued our discussions with MasterCard to lobby for approval of additional changes to the submitted plan, including the feedback we received from our clients. We are pleased to notify you that we have received approval on key changes to our compliance solution that result in a revised solution which is easier for our clients to implement…"

In an attempt to make the new MasterCard compliance process easier to understand, iBill is providing clients with a Flash demonstration of their revised solution. I’ll outline the basic steps that Webmasters will need to take in order to be compliant with MasterCard’s new demands for the purpose of illustrating the brand’s concerns, and as a window on the potential future of our relationship with them – and other banking entities:

The principal steps that Webmasters will need to take are simple, but telling, involving minor alterations to your sites that include the removal of all MasterCard trademarks and logos, and clearly identifying iBill as the "merchant of record." Once these steps are taken, your sites will be submitted to iBill for compliance review and approval – a process expected to be completed as soon as possible, since "Any client site not approved by iBill’s compliance team as of midnight on August 21, 2003 will result in the inability to process MasterCard transactions on that site." Once approved, Webmasters will merely be required to update the payment button codes on their sites.

While this process seems simple enough, it’s not too difficult to read one thing between the lines: MasterCard does not wish to have it’s brand tarnished by association with the adult industry. While they have not yet (publicly) decided to go the way of AMEX, discontinuing the processing of all adult related transactions, there is a clear distancing underway. This isn’t necessarily a bad thing however, since they will (for now) still allow us to process cardholder transactions, while taking steps to protect their brand in what is becoming an increasingly hostile legislative (and anti-porn activist) environment. MasterCard’s willingness to continue in this market in exchange for some minor adjustments in the status quo is a quite reasonable gesture on their part.

Another requirement is that Webmasters must submit a description of their sites and choose a suitable category for them. According to MasterCard, the description must "be sufficient for a reasonable person to ascertain what the underlying Website will provide to the cardholder based solely on the iBill description." Once a Webmaster has created their description and selected a category, their site will automatically be submitted to iBill’s compliance review team for approval.

Examining this requirement, it appears to be a content validation process for the purposes of charge back reduction – in other words, when the IPSP is certain that a participating Web site actually offers all of the advertised content, then there is one less argument that can be made by the consumer complaining that he "didn’t get what he paid for…" This seems to be all well and reasonable, and while I am sure that iBill’s legal team has gone over the particular wording of this requirement from MasterCard, I can’t help but feel that there is a potential vulnerability to liability here, and at the very least opens the door to IPSPs being forced into the role of ‘censor.’ This is a seed that once planted might yield an unexpected crop.

iBill should be acknowledged for their proactive role in smoothing their client’s transition into compliance with the new MasterCard regulations, and for heeding client feedback throughout this ongoing process. Hopefully, such two-way co-operation will help ensure the long term viability of the online adult industry. Stay flexible ~ Stephen