Just one year later, NetCash boasts more than 5,000 websites, and has paid out roughly $20 million to its merchant partners. In that time, it has morphed from a debit card-style system to one of the big players in online payment processing.
"Not bad for a first year," said Shapiro, CEO of NetCash. "We've evolved into a full credit card processor for the adult industry, as a result of getting so much primary traffic from merchants. We moved from the original gift card model to a model similar to Paycom and CCBill. We are an Internet Payment Service Provider [IPSP] in the U.S. now. There are very few IPSPs around. The only two big ones are Paycom and CCBill, and now we're among them. We also have an IPSP in the European Union. Over the past few months, we've worked very closely with Visa and MasterCard to become an IPSP and to meet all of the compliance requirements. So now we're the primary on well over 1,000 websites. Our merchants who have a history with us as an anonymous, discreet option have all tried us out, and they're finding out that we perform better."
Performance is the key to the phenomenal growth of NetCash, according to Shapiro, who points to an instant sales boost of up to 15 percent among merchants who have partnered with his firm.
"We're delivering results," he said. "Otherwise, they would take us down, and no merchant that has ever put us up as an anonymous solution has ever taken us down."
The growing roster of merchants turning to NetCash includes Hustler, and most recently, AEBN, which indicates that the firm has moved into the high-rent district of online adult.
Shapiro believes it was simply a matter of seeing a need in the market and filling it.
"When we first started NetCash," he said, "we looked at the consumers in the marketplace that worried about credit card theft, identity theft or who wanted to be anonymous when purchasing online. People don't want to put personal information into an adult website. They want to be completely anonymous. We set out to build a product that was easy to use, easy to understand for the consumer and that would generate incremental sales for the merchants. These are sales from customers who otherwise would have abandoned their checkout page. We knew that conversion rates on adult websites are extraordinarily low, one in 500 to 1,000. If we could build a product that would get just one or two more people to buy out of all the people that are abandoning, you really could have a substantive impact on their business."
The product Shapiro built was brilliant in its simplicity. He created a button that merchants put on their join pages that read: "Join anonymously with NetCash." He integrated it with the affiliate program software MPA3 and with NATS (Next Generation Administration and Tracking) to make it easier for merchants using those programs to add NetCash, and the results were almost instantaneous.
"What we found was, when we put this little button on there, we'd see a jump of between 5 and 15 percent in sales for that merchant," Shapiro said. "And they would see little to no cannibalization on their credit card sales. We were essentially capturing people who would otherwise have abandoned their page. The irony is that the consumers are still giving us all of their credit card information and all their personal information. It's just that the look and feel of the approach we've taken is really different from the adult site, and gives comfort to the consumer. So the consumer is not anonymous to us, but remains anonymous to the merchant."
The results of the NetCash system were so impressive that merchants immediately began looking at the firm as a primary processor. In what amounted to a Pepsi test, one large affiliate program and one large dating site added NetCash to their "pay by credit card" lineup along with CCBill and 365 Billing.
"We were tested for months with these other primary processors," Shapiro said, "and in both cases, we beat them by more than 10 percent in terms of conversion, and we rebilled at a higher rate."
The good news spread quickly that the NetCash system produced new customers and higher sales, which allowed the company to evolve from its debit card beginnings to a burgeoning primary processor in a little more than one month. Now that NetCash is on its way toward becoming the primary for thousands of merchants, Shapiro intends to keep the momentum by applying his special approach to the business.
"Webmasters need their payment processor to work with them as a partner," he said, "and not as a service or company that does something for them. If there's a lot of interaction, that can help us adapt our product as their needs change.
"The adult space is relatively new to me but I've always believed that when you're in a business relationship, it has to work for both parties. The best way to do that is to work with them as a partner and not as someone who says, 'I know what's best and this is what I'm going to do. Take it or leave it.'"
In the short time NetCash has been in business, webmasters already have requested changes in its program to suit their needs. Sometimes it requires a change in the system.
"Someone looked at our merchant reporting tool, which we spent better than six months building, and asked to see reports slightly differently," Shapiro said. "I made a change to our system in about six hours. We added a tool and put it out there for them. Maybe some other merchants will benefit from it now, which is great, but the bottom line is that I had one merchant who wanted things a certain way, and we created it. It's important to keep our system very flexible, and if you do that from the start you can adapt to the needs of your clientele."
The merchant-friendly NetCash setup includes a robust real-time reporting system and tools like the cancel-save program, which allows customers to cancel a site subscription and receive a discount, depending on what a merchant wants to offer. As always, the service remains free to the consumer, and pricing for the merchants is competitive with the other processors, according to Shapiro.
"We service the webmasters," he said, "but we're different in how we present ourselves to the consumer. That's the biggest thing. Over the past year this has resonated with the consumers and with the merchants. For the merchants, it's working because at the end of the day it's all about delivering results and making money for them. And since conversion rates are high and performance is strong, that's a clear indication that consumers welcome this as an option. It's about the ease of use, the marketing approach and the presentation. We focus on consumer marketing. What appeals to the consumer? What will get a consumer to take action?
"I'm a direct marketer by trade. I spent more than 20 years in direct marketing, where my entire career was about getting consumers to make a decision to buy my product. That's where our expertise lies." Shapiro's consumer-oriented marketing background included stints with Time-Warner and Reader's Digest. He moved to the Internet in 1999 with IWON.com, a portal similar to Yahoo, which gave away $10,000 every day. When the Internet bubble burst, Shapiro's company bought up firms such as Excite.com, purchased out of Chapter 11 bankruptcy. In 2003, his company created a search toolbar and nudged consumers to download it by offering access to more than 10,000 smiley face emoticons, which were popular that year on the Internet.
"We knew that if we had this toolbar on someone's browser and they did a search, clicking on a sponsored link by Google, we got paid a very favorable revenue share," Shapiro said. "All we had to do was market this toolbar. In 2003, we downloaded 17 million toolbars with Smiley as the hook, and we made $150 million a year. We sold the company to AskJeeves.com in May 2004 for $500 million. We were one of the big success stories in a rather difficult time. After a couple of years, I wanted to do another startup, so I thought about NetCash, and we put it together."
Shapiro wasn't thinking in terms of adult entertainment when he started his new company. With the prevalence of credit card fraud and identity theft, he merely wanted to create a product that could work for online dating sites, news, information and health.
"I used to think about people sending me an article from the Wall Street Journal, and when I clicked on it, it would cost me $4.95. I didn't want to spend 15 minutes filling out a long form just to read an article. But if I had a product like NetCash, where I could just type in a code to access the article, that would be great.
"The more we looked at the product, the more we realized that adult would be the early adopters, so we decided to start there. We do plan to go well beyond adult. We've had conversations with one of the top music download sites. But it's clear that the adult industry is pioneering a lot of technologies online. The adult webmaster is creative and innovative. A lot of technologies are tested in the adult market and then work their way over to mainstream."
Shapiro realized that moving into the role of primary processor carried its share of headaches, too — namely, chargebacks and credit card fraud. For the latter problem, he praises the work of companies he's hired to deal with fraud screening, especially DHD Media.
"Our fraud companies have lists of stolen credit cards, and we monitor it," Shapiro said. "Thus far, we have not had any big issues. We occasionally catch one, and we issue refunds and credits immediately and move on. We maintain a blacklist of customers who have tried to defraud us. We know these expenses and losses are part of the business we're in, and we just need to try to minimize it."
In managing chargebacks, NetCash has a "no questions asked" policy. When a customer calls and says he didn't buy something, he receives an immediate refund, according to Shapiro. In the long run, this maintains a peaceful relationship between NetCash and the major credit card companies, which is vital to the long-term existence of a primary processor.
And longevity is one of the keys to success in this business, although NetCash seems to have broken that mold with its astonishing performance.
"I don't think any of the firms have grown the way we've grown," he said. "Longevity is important but there are a lot of big programs that haven't tried NetCash yet. Once those programs see that we're generating a lot of money for their friends, they might want to give us a shot. They've seen a lot of companies come and go, but once they test us they'll see that we are here to stay."