trends

Shifting Regulations: Keeping on the Straight and Narrow

Shifting Regulations: Keeping on the Straight and Narrow
Stephen Yagielowicz

In an industry as heavily regulated as “commerce” in general, with hefty dollops of declarations and corporate policies covering internet merchants, individual payment methods and that lightning rod for new restrictions of all types — adult entertainment — it behooves merchants to stay abreast of evolving regulations in order to keep on the straight and narrow, and to maximize their profits in the process.

To get a glimpse of today’s most current trends, XBIZ recently asked a range of adult billing professionals “How are changes in regulations impacting adult billing?”

Since our industry has many partners to be paid, models, affiliates, content producers, etc., merchants are coming under heavy scrutiny by their operating banks due to the high volume of payments.

Here’s what they had to say:

DIMOCO VP of Sales Bettina Sommer said the most relevant change for all billing of digital goods, including adult content, is most definitely the revised Payment Services Directive (PSD2), implemented in all European Union (E.U.) member states.

“Although the date of implementation, Jan. 13, 2018, seems far away, it is vital to be ready and comply with all 117 articles, separating the wheat from the chaff,” Sommer said. “The PSD2 will truly be a game changer for the industry, and many direct carrier billing providers will be filtered, due to not being fit for the new regulative environment.”

Sommer told XBIZ the change means that only regulated suppliers will be able to operate, which wasn’t the case with the initial PSD.

“Direct carrier billing (DCB) is statuted as a regulated payment instrument in the new regulation, under strictly defined regulations,” Sommer explained. “The new governance will bring a large shift to the world of direct carrier billing, which previously has seen a lack of regulations and control.”

Sommer noted a fundamental piece of PSD2 is the product of a review of the original Payment Services Directive and requires payment service providers (PSPs) to make a significant number of changes to existing operations.

“The main objective is to make payments safer, increase consumers’ protection and advance innovation in an increasingly integrated E.U. single market,” Sommer explained. “The Austrian Financial Market Authority (FMA) granted DIMOCO a payment service license back in January 2016 and the license was then passported to all E.U. and EEA member countries, meaning the Institute is deemed fit as a FinTech for direct carrier billing of micropayment transactions across Europe.”

“Although this all may sound daunting,” Sommer concluded, “as long as merchants have the right PSP and DCB partner, most importantly licensed, in addition to understanding the directive in its depth and complying with the regulations, there is nothing to worry about.”

OrbitalPay VP Karen Campbell told XBIZ that Visa has recently streamlined the chargeback dispute process by initially reducing the chargeback reason codes from 22 to only four, noting that providing merchants with simplified dispute categories reduces the complexity of the dispute process.

“With the enhanced dispute process Visa will identify and block chargebacks that do not meet the necessary criteria, so hopefully this will reduce the number of chargebacks issued,” Campbell explained. “Obviously the key is to prevent the chargeback, but at least Visa is helping merchants a little bit.”

SegPay CEO Cathy Beardsley agreed there is some good news for merchants from Visa.

“After a year of tough changes and new enforcement of merchant location rules and new E.U. chargeback standards, Visa will be updating its chargeback policy to limit clustered chargebacks to 10 per account,” Beardsley said. “This goes a long way for the cam market, as cam sites often become victims of ‘friendly fraud’ where a consumer will chargeback months of token purchases.”

Beardsley told XBIZ the updated policy provides relief to the merchant in a scenario where a consumer takes advantage of the liberal chargeback policies associated with online purchases.

“Visa will also be reducing the chargeback penalty,” Beardsley revealed, “from $100 per chargeback to $50 for those merchants that exceed the one percent/100 count chargeback threshold.

“There will continue to be regulatory pressure on dating and escort sites as the federal government continues to pursue human trafficking,” Beardsley concluded. “These sites will be looked at with a close eye to make sure they are on the up and up.”

Payze.com CEO Doug Wicks told XBIZ, “A good example is where financial institutions throughout the world are getting pressure to know their client’s businesses in regard to high volume account activity. Since our industry has many partners to be paid, models, affiliates, content producers, etc., merchants are coming under heavy scrutiny by their operating banks due to the high volume of payments.”

For some operators, little has changed, and there is little coming down the pike to worry about.

“There are no significant changes on the horizon that will impact adult billing,” ChargebackHelp’s Raja Roy-Choudhury told XBIZ. “Merchants that stay on point with how current regulations affect their business will always be in a good position if and when the rules change.”

This is a perfect example of how the way a company is structured, its line of business and the choices it makes in payment processing, can level — and leverage — the adult billing playing field.

“Unlike merchant account service providers, who are dependent upon the location, aptitude, and tolerance of their banks to enforce new regulations, CCBill has always taken a preemptive approach by proactively working directly with our banks globally, especially when it comes to regulatory changes,” Gary Jackson, CCBill’s VP of sales and marketing, says. “This allows us to continually future-proof our business to address market changes well ahead of time, and saves our merchants the pain of a dramatic or sudden impact, which is sometimes experienced when managing your own merchant account.”

Outhouz CEO Christon “Doop” Le’John says regulations in adult billing are a classic set of hoops to jump through.

“It seems like there has been somewhat of a ceasefire, so long as certain visible lines aren’t crossed,” Le’John told XBIZ. “It’s still going to be an uphill battle getting major banks to open an account for your adult business in 2017 — but being discreet is what we do best!”

Vendo CTO Buddy Love says that as new financial and risk regulations kick in, they affect daily operations for billers and merchants alike.

“Modernization is inherent if anyone wishes to stay in the game,” Love explains. “Risk and revenue tools that once were modern need to evolve to offer clients better profitability, risk prevention and valuable free time to grow their business.”

Love told XBIZ there are many day-to-day tasks that most billers still perform manually, leaving little time for strategic decisions that can maximize revenue and minimize risk for their clients.

“Vendo has invested heavily during the last three years developing the most advanced payment platform in the industry,” Love says. “ Our artificial intelligence is now applied in pricing, sales funnel optimization and risk operations, creating increasing revenue by letting more sales through and reducing the number of transactions that get rejected.”

Love believes new regulations that are being discussed are a sign of what is coming and will significantly impact the way we do business.

“The first companies to adapt and evolve will have a better chance at surviving stricter constraints,” Love concludes. “The future is already here and up for grabs.”

One positive note in the equation surrounds looser, rather than stricter, constraints on commerce.

Mobius Payments’ Director of Sales Matthew Mund told XBIZ the most notable change this year is the termination of the U.S. Department of Justice’s Operation Choke Point — an Obama-era attack on a variety of “high-risk” businesses, including porn, which was rolled back as part of President Trump’s repeal of a wide range of regulatory burdens. Operation Choke Point impacted a number of adult businesses and even individual performers who had their personal bank accounts closed.

“Adult business is no longer being ostracized by the federal government,” Mund said. “The Durban Act, which affects retail merchants more than e-commerce, will have some effect on the card-present brick-and-mortar merchants in our industry as the Act lowers the interchange fees associated with debit card swiped or dipped transactions.”

The end of Operation Choke Point shows that evolving regulations do not have to hurt adult businesses — in some cases, they can help. But this is a rare glimmer of hope on a shifting landscape that requires merchants to stay aware of their responsibilities — and new opportunities — to profit from better billing.

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