Most of us understand the credit card billing model pretty well; we know about scrubbing, and rebilling, third party processing and Visa registration. Sure, things are changing quickly, and it can be hard to keep up, but most of us still understand all the basic concepts involved.
The webmasters that have been around since the earliest days remember well the convoluted methods that we used in order to take money from surfers on our BBS’s. They sent money orders, checks, sometimes even cash in the mail just for the privilege of viewing a small amount of content.
Obviously, those days are long gone.
These days, with ever more restrictive credit card regulations, and an ever-changing political environment to deal with, the smart webmasters are looking to diversify the ways in which revenues are generated for their sites. My mission in this column will be to explore those new methods.
I’m not going to talk down to anyone. I’m not going to pander to people that are looking for clever quips about this business. I’ve gotten to know quite a few webmasters over the years and I’ve found them on the whole to be intelligent, money-minded people that also happen to have a flair for life, and a wish to follow their own path, unrestricted by the ridiculous corporate rules and protocol that rule most business people. If you are looking for a serious study of alternative billing, then this is the place for you.
Obviously, I work with Duocash, so, in this first column, I’m going to deal with a study of what they do, where they come from, and what they offer the online industry. In each installment after this, I will examine another alternative billing choice, using my experience in the transaction side of the online industry to try to put some perspective on each alternative.
Duocash is a system that enables pre-paid phone cards to be used as a payment method on the Internet. In 1999, Victor Nappe, then the Director of Global E-Commerce for Apple Computers, had an idea. Sitting in a coffee shop in New York, he watched as someone came in and plunked down $20 for a pre-paid phone card. He was suddenly struck by a concept. Pre-paid phone cards are not just pre-paid phone cards – they are also the largest stored-value product in the world! After completing the patent process and getting things set up, he went live in early 2001. Almost immediately he was approached by sites that wanted to use Duocash as a way to avoid all of the problems that Visa was giving them, and the business took off. Unfortunately, the offices were located in the World Trade Center, as were the offices of the insurance company that was covering the Duocash assets.
Needless to say, after Sept 11th, everything had to start from scratch. The now existing version of Duocash went live about 18 months ago, in November of 2002.
Duocash itself is not in the business of selling phone cards. It is the transaction network for the value on the cards. The problem with earlier business models has been distribution of proprietary cards. The retailers won’t stock the cards if the customers aren’t asking for them. The consumers aren’t aware of the cards if they aren’t on retailer’s shelves. It’s a chicken and egg type of issue.
In the case of Duocash, something different has been done. They are using a product that is already on the shelves, in distribution online, and in call centers. Since the card is accepted across several industry verticals, it avoids the issue of a single-use card that won’t be carried by retailers and distributors because of perception problems associated with a card that is specific to adult, gaming, etc… Duocash transactions are being accepted by music download, ringtone, dating, and e-book sites, as well as adult sites and others.
Duocash has already made distribution deals with several large telcos, including: I.D.T., G.T.S., Quest, and Network I.P. They have Duocash enabled phone cards available in thousands of retail stores, several online outlets, and an inbound call sales center. They are also in the process of putting together distribution with several nationwide retail chains as well as companies that are involved in offshore distribution in the E.U., Australia, the Far East, and Russia.
The Duocash cards have several advantages for both customers as well as merchants. The anonymity that the card allows is attractive to many customers. The customer need only present the 800 number and pin from the actual or virtual card in order to make a purchase. The process is actually faster than an online credit card transaction. Banks and card associations are not involved. This means that, for example, Visa regulations regarding content, chargeback levels, cross-border acquiring, etc… do not apply to Duocash transactions.
Customers who cannot get a credit card, due to their age, location, or credit rating, or will normally refuse to use one on the Internet for security reasons, will have access to transactions via physical Duocash cards purchased at retail outlets. Even those customers who can use a credit card online, but are hesitant to use one on particular types of websites, generally feel better about giving personal information to online telcos instead.
The chargeback situation is also advantageous to online merchants. In the case of adult, even with online virtual card purchases for example, issuing banks that would normally push the chargeback “button” immediately upon seeing the merchant category code for adult, will instead issue a retrieval request when seeing a purchase from a telco for a pre-paid phone card. This gives the telco a chance to dispute the request and present evidence to show the validity of the purchase. This obviously lowers the “friendly fraud” problem of normal credit card transactions. Also, customers tend not to be upset by the appearance of pre paid phone card charges on their credit card bill – unlike online website charges. Lastly, the purchase of physical cards from retail outlets obviously tends to involve a cash transaction that completely precludes any chance of chargebacks. Thus, overall, chargebacks are held to an absolute minimum.
The Duocash system also works very well in the micropayment space. For transactions less than one USD, normal credit card per transaction fees can result in excessive cost to the merchant. The Duocash system does not involve any per transaction fees, merely a discount rate, and is therefore much more cost-effective in the micropayment space. Duocash, in fact, currently has merchants that are processing transactions of 5 cents! This would be impossible with credit cards, since they would cost 15 to 30 cents per transaction just to process.
Right now there is quite a high percentage acceptance of Duocash cards in the online gaming space. There are a quickly growing number of merchants in the adult and dating sector as well. Most important to all verticals is the mainstream market, such as ringtone and music downloads. With some very large merchants in those mainstream markets that have already agreed to implement the Duocash system in the next 90 to 180 days, the consumer awareness of Duocash as a payment option will be growing very rapidly. This will be extremely helpful to ALL of the verticals, mainstream or otherwise, in addition to attracting increasing numbers of distributors who will wish to have their phone cards enabled by the Duocash system.
The Duocash process is quite simple. When a customer wishes to make a Duocash transaction, they simply click on the Duocash symbol. A box pops up which asks them for the 800 number and the pin number from the card. Once those are filled out, the transaction is complete. On the back end, the merchant passes the numbers into the Duocash interchange. The Duocash system then passes the ID numbers and the transaction amount to the appropriate telco. The telco then authorizes that there is enough stored value available on that card account, and deducts that amount, notifying the Duocash system, which in turn notifies the merchant site. The funds thus generated then pass from the telco, to Duocash and on to the merchant to satisfy the transaction amount, minus appropriate fees. The entire transaction takes a split second, and there is actually a much faster response time than with a credit card or ACH transaction.
Duocash has now also partnered with a company that is providing a “third party” model for Duocash transactions, known as Duobill. Duobill have setup a payment gateway that provides such features as affiliate tracking, password management, etc., for the small and medium sized merchant who does not wish to spend the resources to develop those systems themselves.
As to the cost of Duocash, like all alternative billing solutions, they are more expensive than credit cards, but there are different ways to address this. Their costs are derived from the need to pay out the telcos and the card distributors.
Like all of the alternative billing systems out there, Duocash at this point is not an alternative to credit cards, it is an addition to credit cards. The customers that can and will use credit cards already will not suddenly switch to Duocash. The Duocash system is for the customer that can’t or won’t use credit cards right now. These customers would otherwise be altogether lost to the web merchant. On the other hand, with the future of credit card acceptance in the adult online market place a murky one at best, we may very well see Duocash and other alternatives as the ONLY method to extract payment from the surfers in the not-too-distant future.