Basically, webmasters in the U.S. have two options. The most common billing ideology is to use a third-party billing company that has been approved by Visa. There are two main U.S. Internet Payment Service Providers (IPSPs) that provide billing for the high-risk (MCC5967, the card association category for online digital content) digital content entertainment industry — Epoch and CCBill. The other option is to use a gateway service and process transactions to your own merchant account. The two best-known U.S. gateway services are Jettis and NetBilling.
Sites that choose to process transactions to their own merchant account have somewhat more control over certain areas of their transaction processing, and have a direct relationship with their bank. This allows them to adjust their level of risk and sometimes pay lower transaction fees.
There are several factors to consider, however, to decide the ideal way to accept your transactions. Both gateway and third-party billers have vast amounts of data from thousands of websites, which put them in a unique position to develop algorithms to detect fraud and identify transaction trends. You also enjoy the added protection of a billing company's fraud database, risk management and other clients who've identified fraudulent affiliates and card holders.
IPSPs, due to their popularity with start-ups as well as large established programs, have much more data to support their fraud control engines and are able to move quickly to protect their clients' interests by having full control over the filtering process. While it is true that processing fees may be lower with the gateway method of billing, once you consider other factors such as maintaining customer service; legal matters such as banking and card association rules, processing credits, retrieval requests and chargebacks; and monitoring your own fraud parameters to avoid penalties, the cost of maintaining the same services that an IPSP can provide may be substantially more than the fees charged by IPSPs.
When you use an IPSP, you do not pay for denied transactions, as opposed to using your own merchant account. In many cases, an IPSP also may be able to provide better throughput as they offer a more sophisticated analysis of transactions than the standard filtering methods offered by gateway companies which leave it to you to adjust your fraud parameters as you see fit. Additionally, third-party billers offer sponsored merchants a suite of marketing features that allows companies to cross-sell to each other, adding value to their programs and increasing sales. Each program must determine the level of risk and involvement they are willing to take on and make their choice wisely.
While it's true you want to accept as many payment options as possible, there are really only a handful that produce a significant return. There is no doubt that the card associations, primarily Visa and MasterCard, are the currency of the Internet. There are several other card types that are worth accepting such as Discover, JCB, Switch & Solo, Carte Bleue, and Maestro. Processing companies have engineered their join/payment forms to address multiple languages and currencies. They also use various techniques to determine what join/payment form to present to the customer. A real misconception is that you need to use offshore or region-centric billing services to accept the currency types not usually offered by major billing companies. In fact, utilizing such services might put your site in danger of violating cross-border acquiring rules without your knowledge. The risk of losing your ability to accept the major card types is hardly worth the limited rewards you might gain from accepting local billing currencies. You should check with a legal consultant to make sure you are not exposing yourself to risk.
Here are some statistics regarding the top eight card types:
- Visa: With 1.55 billion cards in circulation, Visa is the most popular form of online payment.
- MasterCard: More than 632 million MasterCards have been issued.
- Discover: One of the top four major credit cards offered in the U.S., Discover has more than 50 million cardholders.
- JCB: Primarily used in Japan, JCB has issued 57 million cards and has a 40 percent market share in Japan.
- Maestro: In most of Europe today, online debit cards are more widely used than credit cards. Maestro is MasterCard's lead international debit brand with more than 550 million cards issued in more than 100 countries.
- Switch: Approximately five in six adults in the U.K. have at least one debit card. Switch is the largest private-label debit card used in the U.K. with 23 million cards issued. Switch migrated to Maestro in July.
- Solo: A sister company of Switch, Solo has approximately 7 million cards in circulation in the U.K.
- Carte Bleue: The exclusive representative of Visa in France, Carte Bleue is the leader in its market with an approximate 60 percent market share, handling 220 million international transactions valued at 202 billion euros a year.
The Deal For Canadians
It is a misconception that there is a conspiracy to keep Canadian competition from gaining significant market share from their American and European counterparts. The truth of the matter is that Canada is its own Visa region, as is the U.S. and the EU. In fact, there are only six Visa regions and they are Asia Pacific, Canada, Caribbean and Latin America and Central and Eastern Europe, Middle East and Africa (CEMEA), European Union and U.S. This means that for a processor to be able to set up Canadian companies for billing, that processor would need to have a presence in Canada. This is not impossible to do, but at this time no HR-IPSP has opened for business in Canada. Canadians wishing to participate and have a presence in the U.S. as a sponsored merchant may set up U.S. companies and utilize IPSP services. In this scenario, a presence is defined as the specific business location where the principals of the business work.
Are Cross Sales Safe?
Cross sales when used appropriately and managed properly are safe, effective and increase sales. Cross-sale tools when used aggressively not only damage brands but can cause site owners to find themselves in trouble with ratios. Cross sales themselves do not present a significant risk and are used in many mainstream sites. Think of them as a scaled-down shopping cart where you can offer your customers other products. The key is to be very clear about your offers and make no attempt to disguise additional sales.
Some sites may offer opt-out cross sales if their program qualifies. The site owners must agree on a traffic deal, be well matched for content or niche and must not cause a spike in customer service calls. Additionally, all sites must use the same IPSP in order to make the transaction as seamless as possible and ensure that everything is properly tracked. Memberships obtained via a cross sale also should be monitored more closely to see if your customer is accessing your content (e.g. in the members area).
Any time an account is deemed to be causing an inordinate amount of customer service problems or experiencing an increase in credits/chargebacks, they may not continue with an opt-out model. It should also be noted that opt-out cross sales are not a sure bet to increase sales. Web surfers are increasingly deselecting pre-checked offers.
Opt-in cross sales are very successful and generally qualify a customer as someone who genuinely likes your products. The ability to offer reduced prices to other programs and merchants from your site or the customer's email receipt does add value to your brand as well as increase sales.
There are several sources of rules and policies which affect what can and cannot be processed online. Without going into specifics, some content matters are regulated by federal agencies. Still others are regulated by the card associations, some by acquiring banks, and others by individual processors. A good lawyer can help you steer clear of specific trappings that could cause you trouble.
Your billing company, which works closely with the card associations and acquiring banks, is your next level of support. Compliance departments may seem too meticulous and their requirements too strict, but they know what it takes to get your sites approved quickly so you can begin processing transactions as soon as possible.
It has been suggested that compliance rules are not the same for everyone. This is partially true, but not for the reasons given by the conspiracy theorists. The fact is that some rules regarding specific types of content added later on were not enforced retroactively. Therefore, there are some companies which process for content that could not be approved today.
Visa Cross-border Rules
To bill cardholders in the European Union, you do not need an E.U. processing agreement. Once you have an account to process online transactions, you can accept customers from around the globe. With the exception of the Specially Designated Nationals List (SDN) from the Office of Foreign Assets Control (OFAC) you are able to accept transactions from any nation or region.
To understand this better one needs to realize the difference between billing and processing. Processing is the backend of the transaction and the owners of a company must have a presence in the region where their transactions are settled. Once you are set up for processing, you can bill cardholders from every region.
What you cannot do is set up your processing in a region in which you are not registered. Visa does this to maintain fair practices in the various regions. In other words, you would not set up an EU and a U.S. account to process for the same site as that would put you in violation of cross-border acquiring rules.
The basic idea is that the sponsored merchant and the IPSP (and its merchant banks through which transactions are cleared) must be registered within the same Visa region. Violation of cross-border acquiring rules could cause a sponsored merchant to be fined or banned from accepting Visa transactions.
Many new webmasters looking to set up processing in the U.S. look for billing companies that do not charge a Visa registration fee. Given the history and ultimately the demise of companies that did not charge a fee or attempted to skirt the Visa rules, this would seem to be a very bad idea. You must pay an initial Visa registration fee for your company to accept Visa transactions and an annual renewal.
Additionally, if you are set up to cascade transactions this fee is accessed for each billing company that you use. You may have as many sites accepting Visa within your company as you like, but each sponsored merchant must pay the registration fee per billing company.
A common misconception among webmasters is that IPSPs routinely tweak their scrubbing parameters at certain times of the week, month or year. There have been several conspiracy theories about why this might happen. It is important to remember that billing companies and website owners' interests are perfectly aligned. It's in the interest of all parties to approve as many transactions as possible. However, the job of your billing company is to identify fraudulent sales (to the extent that it can) and closely monitor activity and maintain credit and chargeback ratios.
When you consider that Visa chargeback ratios must remain under 1 percent, and MasterCard starts monitoring merchants once they obtain a 0.5 percent chargeback ratio, your billing company has quite a task to ensure that you accept as many sales as possible without getting into a fine program, or worse, losing your ability to conduct business online.
There are countless factors that can affect throughput, but a blanket change to portfolio-wide scrubbing is not one of the factors. There is no giant scrub-o-meter that gets turned up when the risk management guys get nervous or bored. Instead, careful and precise changes are what affect scrubbing.
Think scalpel — not sledgehammer. Each transaction is looked at individually, and in many cases these slight tweaks actually improve sales instead of causing more declines. The true measure of a billing company is how well it can balance optimum throughput and maintain ratios. This is why choosing an experienced billing company is so important.
Your online businesses literally let you make money while you sleep. In the end it's all about how much money you make and keep. You obviously want to utilize a billing service that creates the least amount of friction for you and your customers, is attentive to your needs, delivers the services it promotes and looks out for the best interests of your company.
The intricacies of online billing are not what most people are interested in. Most site owners just want to produce and market great sites and make lots of money. Decide what you want to focus on, find the billing service that will help you build your empire so that you don't have to worry about throughput and ratios. Work less. Make more.
Rand Pate is director of corporate communications for Epoch.