Security, Fraud Issues
Convergence Inc. President David Levine has been e-selling adult novelties online virtually since the birth of the Internet. SexToy.com has one of the adult Internet's largest sex toy affiliate programs. Twenty percent of the Los Angeles-based firm's business is generated abroad. Levine estimates that up to 10 percent of SexToy's affiliates, as well as 10 percent of its wholesalers, are located overseas. In July 2004, SexToy's No. 1 and No. 3 wholesalers lived in Taiwan.
The e-commerce veteran divides his international operations into three distinct categories: shipping, affiliates and wholesale. Outside of the United States, the countries where Convergence conducts a significant percentage of its business are Canada, England, Japan, Hong Kong, Taiwan, South Korea and the advanced Asian nations. Plus a smattering of others, Levine told XBiz.
On the other hand, there are countries where it is problematic to do business. Political instability is something that companies working offshore must factor in. An example is the overthrow of longtime Indonesian dictator Gen. Suharto.
"Indonesia was not bad for about 10 years," Levine said. "But we took the country off our shipping list. You can see the political changes through sales online. They got involved with Muslim militancy and crime started cropping up."
Levine added that fraud has been a problem in countries such as Romania and Vietnam.
"Russia was the worst, but it's not bad now," he said. "There's not that much fraud. The big issue there is that we do not accept credit cards. We got screwed by scams and learned from experience. Russians have to send bank checks or wire money to us in order to do a transaction. We try to give everyone a chance."
In terms of shipping, Convergence uses the U.S. Postal Service or UPS. While product costs remain universal, delivery rates vary from country to country. The firm's online business model enables it to reduce costs by shipping products via regionally based warehouses, as opposed to from just Los Angeles, where Convergence is headquartered. For instance, Convergence ships orders to Asia from Australia. However, another shipping obstacle is customs.
"Sometimes officials feel it and the [sex toy] doesn't get through," Levine said. "Customs cracking down on adult products go through waves. It's streaky. Lately, we haven't had lots of problems with customs seizing and stealing our merchandise."
The customs conundrum also affects overseas online companies trying to ship products into America. XtremePay does business throughout Canada, the United Kingdom and Continental Europe, but its main customer base is in the United States.
"Different countries prefer different toys," Levine said. "We sell more dolls per order to Asia. They love dolls there. Male products for straight men, such as realistic vaginas, are popular there, too. We received 10 orders for penis enlargers from the West Bank at the same time. We thought that maybe penis pumps were the solution to Arab-Israeli problems."
Although America boasts of its free markets, and is, along with Canada, a co-signatory of NAFTA, XtremePay can run into lots of red tape when it does business south of the border.
"Europeans are interested in penis pills, but we can't fully ship because local customs classifies different herbs differently," Blair said. "Mostly the paperwork determines how much business we can do. It's very difficult to ship penis pills to Norway and Germany in particular."
Blair said that many of XtremePay's herbal supplements do not have to be approved by the Food and Drug Administration. On the other hand, shippers from Canada will soon have to fill out requisitions with the Federal Trade Commission for some products.
Blair attributes this to terrorism concerns and the United States tightening the borders.
"I don't think other countries have this security concern," she said. "The interaction between our two countries has not been great," given the fact that Ottawa and Washington differed over the Iraq War.
XtremePay plans to get around the FTC-imposed bureaucracy with its shipping office in Washington state. But for other foreign firms that do not have U.S.-based offices or subsidiaries, stricter FTC rules could pose a shipping nightmare.
It doesn't do webmasters much good if they sell their goods or services around the world and are unable to collect payments.
"The most crucial piece of this pie is actually the issue of globalized billing options," Rabinowitz said. "This has given birth to entirely new billing mechanisms over the years. These range from dialers, or telephone company-based billing, down to Short Messaging Service, or text messaging-based billing, where users can be billed for access to adult entertainment via mobile telephones. Make sure you are presenting a billing option to users that is familiar to them."
For instance, XtremePay only processes credit cards in U.S. dollars, but this too has a downside.
"There's lots of interest in our products in Asian countries," Blair said. "However, a lot of them don't like to use credit cards online. They use money orders, which slows down how they pay."
Rabinowitz added that companies in the adult industry who have been around for more than a few years were raised with the notion that credit card billing is global.
"Well, of course we see this on television in credit card commercials," he said. "In truth, there is no place in the world where the credit card is more used and familiar than in the U.S. and Canada. Does that mean credit cards aren't in use in other countries in Europe, Asia and other more remote places in the world? Not at all. But culturally speaking, Americans have all been raised to think that credit and debit cards are an active part of our reality. Although this is not the case across all borders worldwide."
Presently, the most common billing alternative methods are telecom-based — a transaction where a drop charge, per increment or per minute billing event takes place. This is either through a landline telephone or cellular phone bill. Rabinowitz said that currently the most predominant method is the dialer, which has the widest market share worldwide because it was one of the first options introduced for non-U.S. customers.
"If they're wise, providers of billing options actually look at it on a country-to-country basis to determine what's best," he said. "Previously we worked with a company in Germany that informed us that almost 90 percent of the age-of-consent population was more likely to buy online using a debit card that was unique to citizens in metropolitan areas in Germany. If you can find the local options to be able to bill, even if they're unique and proprietary to that country — they're well worth pursuing because this is flattering to your customer."
Hopefully, this information will guide you as you venture out beyond your borders...