"We couldn't find a good credit card processing company that didn't want to charge us 15 percent," Mitch remembers. "We didn't want to use any of the third party billers such as DMR or iBill who were the biggest at that time, so we got our own merchant account. With that, we ran our adult sites successfully for a while. Then the company (gateway) that we used for our credit card processing decided they wanted to get out of the adult business. We wound up buying the rights to their software, and we took over all of their adult merchants, which numbered about 100 at the time. After we did that for about a year, we decided to develop our own software. It was a particular need of the webmasters, because the adult Internet was really starting to grow."
Mitch and Sarah's decision gave birth to NETbilling, which — a decade later — has morphed into the largest payment gateway in online adult for merchants with their own merchant accounts, according to Farber.
What began as a business run by the couple from their master bedroom (their current Sales Manager, Karen Campbell, worked from the living room couch and a small desk in the bedroom), has grown into a large office employing 60 people. With Mitch as President, and Sarah as CEO, NETbilling currently processes many thousands of sites, including mainstream companies like investment sites, photography sites, ski resort reservations and health clubs, not to mention all of the merchants that sell products through them.
"The company was profitable from day one," Farber says. "We didn't have a ton of money at the time to get it rolling. We had to borrow some money from family. But we started well with the 100 clients we inherited, and soon after that, many of those clients started to take off in terms of the volume they were doing. Video streaming and live feeds were just starting to come around, and that really helped the adult Internet to grow."
With a sound division of labor between husband and wife — Sarah oversees the accounting department and call center, while Mitch manages sales and marketing — NETbilling has set itself apart from other payment processors by adhering stubbornly to a basic philosophy.
"We've always stuck to our guns in terms of never doing third party processing," Farber says. "All of our merchants always have had their own merchant accounts. Since we started as webmasters, we already understood what webmasters need. We built our processing gateway, call center and our shopping cart system to fulfill the needs of the webmaster, including compatibility with most affiliate marketing software, cascading billing, cross-sells, up-sells, member retention, and an extremely flexible system which we are constantly upgrading. We created a robust system to give merchants what they want and they know they can count on us to always be one step ahead for them. Merchants come to NETbilling and stay with us because we make them more money, period.
"But I think our biggest advantage lies in the personalities of our employees. We have several employees who have been with us for years, and they're on a first name basis with so many of our clients. Because of that, we really provide a lot of one-on-one service that you won't get with other companies. Whether a merchant is moving to us from a third party company, or whether they're starting from scratch, we have our hands in their entire business as far as processing goes, from getting their merchant account to deciding which banks are best for them. We'll help them establish a corporation. We'll help them set up their payment forms. We'll help them get their affiliate programs running. From end to end, we have so much contact with our merchants, because we know their success depends on how well we take care of them. This is one of the reasons why we don't have an automated demo of our administration area. We want to be one-on-one with every client. Having 60 employees can be tough to manage so it is important to have the right ones and we are very fortunate to have such a dedicated crew of professionals as part of our team."
Any business that flourishes for 10 years in the Internet environment has to have survived the lows as well as the highs. NETbilling is no exception, and Farber recalls how his firm had to navigate those lows.
"Just like everyone," he admits, "we've had to deal with Visa and MasterCard cracking down on chargeback ratios. They began with a 5 percent chargeback ratio, and then they reduced it to a 2.5 percent ratio. We had to diversify and expand our fraud scrubbing, and help our merchants change the way they do business, in order to comply with the new ratio, and keep their customers happy. We have a good success rate in helping merchants to keep their chargebacks low, and facilitating their cross-sells and cross-promotions."
As to the high points Farber remembers from the past decade, he immediately fastens on one that has nothing to do with profits.
"The high points are the relationships we've built over the years," he says. "We go to dozens of shows every year, and we've built some incredible friendships. Of course, the increase of business is a high point, too, but having the relationships within the industry has been the best reward."
In the 10 years he's spent at the helm of NETbilling, Farber also has witnessed some important changes in the business landscape of online adult payment processing. Again, they were the result of decisions by the major credit card companies.
"One of the nice things that has changed over the years," he says, "is that running under someone else's merchant account via third party processing used to be a good umbrella, under which the merchant could hide a guy with high chargebacks, and offset him with a guy who has really low chargebacks. Over the last several years, Visa changed the rules, and now each merchant must be looked at individually, whether or not it's a third party account. That's really leveled the playing field. Now, if somebody processes through NETbilling, they still have to maintain the same chargeback ratio, as if they were using someone else's merchant account.
"Our clients are comfortable with NETbilling, because they know we're not taking the risks on other merchant chargebacks, outside of losing that merchant's income. This gives our clients confidence in us, because over the years so many third party processors have gone out of business. And often, they've walked away with the merchants' money."
Despite the established position NETbilling holds in the industry, Farber continues to improve his company's services to stay ahead of the competition. NETbilling constantly upgrades its reports to merchants, and continues to add new bank integrations, especially with offshore banks. At the same time, Farber is careful not to jump into partnership with new banks until after it's been proven they can handle the higher risk in the adult arena. For this reason, NETbilling has earned one of the most impeccable reputations in the industry, according to Farber. Many of the firm's merchants have been with NETbilling since the beginning, and that was long ago. This too, is one of the secrets to the success of NETbilling.
"Longevity is extremely important in our business," Farber says, "especially since so many processors have come and gone. It takes a long time to establish trust from webmasters, who are very smart these days. They don't automatically trust any new company. After all, credit card and check processing — along with hosting — are the two most important aspects of running a successful Internet business. There is a good reason why so many of the largest programs on the net process with us. Total dedication to our clients and providing the best services in the industry are our focus, and we have never lost sight of those objectives, and never will."