NETbilling: Payment Gateway Still Going Strong After 17 Years

Much has changed in the adult billing space since 1998, the year in which Mitch Farber founded NETbilling. Technology has evolved considerably, Internet speeds are much faster, banking rules have changed and many of the companies that offered billing for adult content back then have long since gone out of business.

But Farber’s Valencia, Calif.-based payment gateway has not only survived — it has grown, evolved and remained profitable. And in 2015, Farber continues to oversee a staff of 50 employees. Thousands of online merchants, including many companies in the adult entertainment industry, still turn to NETbilling for their billing needs.

At NETbilling we develop and implement new features regularly, add additional banks, have introduced chargeback collection services, integrated CRM and shopping cart systems and are big on merchant education.

“I strongly believe NETbilling’s longevity stems from three main factors,” Farber told XBIZ. “The first obviously is that we offer a superior gateway, fraud scrubbing tools, CRM, call center facility and other services to our clients that much of our competition, frankly, just cannot compete with. Secondly, our staff is amazing and love what they do. Many of our employees have been with us for ten plus years and look out for the company and our merchants very well. And third, not to toot my own horn, but I firmly believe that because I am so dedicated to NETbilling and our customers, it has helped the company achieve the success we have had for so many years.”

During its 17 years in business, NETbilling has remained faithful to Farber’s vision and remained a payment gateway. NETbilling has never been a third-party processor, and Farber remains adamant about keeping it that way.

“When we started NETbilling in 1998,” the CEO remembered, “we were owners of our own adult entertainment sites. When we had started processing those sites, we had acquired our own merchant account because the rates were far cheaper — 4 percent — than the 15-20 percent that the new startup third-party processors were charging. We had great success with our sites, but the billing was done manually at first. We had no recurring billing at the time and limited tools. We partnered with a company that had a basic payment gateway developed that supported recurring billing and fraud scrubbing for merchants that had their own merchant accounts. They were small and only had a few clients.”

Farber continued: “As we started to use the system and help enhance it, we realized that there were really no other companies out there supporting merchants with their own merchant account in the adult space, but there was a need. We felt if we could be successful with this method and offer merchants a way to pay 7 percent instead of 15-20 percent for their processing, others would follow our lead. We eventually sold our sites to develop a premier gateway and offer customer service and the most advanced processing tools anywhere.”

But the fact that NETbilling maintained its niche as a payment gateway does not mean that the company has not changed with the times. As the billing needs of online companies evolve, so does NETbilling.

“At NETbilling,” Farber explained, “we develop and implement new features regularly, add additional banks, have introduced chargeback collection services, integrated CRM and shopping cart systems and are big on merchant education.”

An increasingly important part of merchant education at NETbilling, according to Farber, is in the area of mobile/wireless technology. The mobile revolution is having a profound impact on adult websites, making it crucial for webmasters to understand the billing needs of smartphone and tablet users — and NETbilling, Farber noted, is helping them to achieve that. “NETbilling provides mobile payment form templates to use with our APIs, which allow merchants to completely control the look and feel of mobile-optimized pages and embed them directly into their mobile tours, shopping carts and anywhere else that they see fit,” Farber noted. “We are also launching new MMS verification features to enable a double layer of customer identification, which will be especially valuable for larger content and live and tangible purchases where merchants would like to truly identify the customer beyond traditional fraud-scrubbing tools.”

Farber added that NETbilling views helping adult sites with their mobile billing needs not as an option, but as a necessity. “We are seeing close to 40 percent of sales and access coming from mobile devices, smartphones and tablets,” Farber stressed. “This number has been increasing steadily over the past five years. While this is wonderful in terms of easier and anywhere access for consumers, it presents challenges for content distribution and optimization. Those that are mastering mobile are winning the race right now, and I think this is only the beginning.”

Although adult billing has been an important part of NETbilling’s business, the company has mainstream clients as well. And for adult-oriented companies that also have mainstream ambitions, the fact that NETbilling has expertise with both adult and mainstream billing is a plus.

“While I won’t divulge exact numbers, a large portion of our processing volume is derived from adult and other high-risk-based businesses,” Farber observed. “However, NETbilling also handles a good amount of traditional e-commerce, retail swipe, phone swipe and virtual terminal transactions. We are integrated with more than 40 processors on the back end, supporting hundreds of acquiring banks.

“Obviously, only some will accept adult clients, but we have always had many banks to choose from in all sectors of the transaction processing industry. We also provide customer service on behalf of many of our merchants, both high-risk and mainstream.”

Farber has seen numerous adult Internet companies come and go over the years. When he started NETbilling 17 years ago, the adult Internet was still the wild, wild west — and many webmasters were becoming prosperous almost overnight. But in 2015, achieving success in the online adult business is much more challenging than it was in the late 1990s and early 2000s.

Nonetheless, NETbilling maintains a philosophy that adult entrepreneurs who are creative, smart, tenacious and dedicated can still get ahead.

“Even though the industry has been consolidated to a certain extent,” Farber commented, “we see new ideas and niches from current and new merchants working to drive traffic and sales. This is encouraging because even though the barriers of entry and success are more difficult than years ago, it is not impossible — and those that are working hard and being innovative and are willing to take a chance are often seeing great success.”

As NETbilling grew in size, Farber had to delegate a certain amount of responsibilities. Even so, he still considers himself a very hands-on CEO.

“I personally am involved in the day-to-day operations and have been since we started in 1998,” Farber asserted. “I attend 95 percent of the trade shows that we participate in and have long-standing relationships with many of our clients. I think our customers recognize that and see the ownership involvement — and it helps create comfort for them in our products and the services that we provide.”

Vigorous anti-fraud scrubbing has been a crucial part of NETbilling’s business model. Along the way, Farber has observed the major credit card companies become increasingly strict with their rules on chargebacks — and NETbilling responded by making sure that their anti-fraud measures were top-notch.

“The card associations — Visa and MasterCard, mainly — greatly reduced the allowable chargeback thresholds from 5 percent to 2.5 percent and then, to 1 percent,” Farber recalled. “This scared many merchants and made it more difficult for NETbilling to acquire merchants and convince them to spend the time to let us set them up a merchant account and process with us — even at greatly reduced rates — because they didn’t want to risk getting shut down for chargebacks.

“This was challenging because back then, merchants could just hide their chargeback ratios under a third-party processor’s master merchant account without much accountability for those sub-merchants and their individual chargeback ratios. This put those with their own merchant accounts and companies like NETbilling at a disadvantage, but we still did well — although growth was slightly slowed.”

Farber continued, “Then a great thing happened: several years ago, Visa and MasterCard starting requiring registration fees and individual accountability for those sub-merchants, whether they are processing under a third-party processor or with their own merchant account using a company such as NETbilling. This leveled the playing field for us, as the chargeback rules became the same for both types of processors and their merchants.

“When this happened, it really changed things for NETbilling. Merchants started to understand that they could get everything they were getting from a third-party processor from NETbilling and a merchant account at a big discount over third-party IPSP rates. It’s not only the monetary savings either; it’s also about more control and flexibility using NETbilling. And best of all, the customer data actually belongs to the merchant. Should he ever decide to leave us, he can take the customer data to another processor, however extremely rare.

“Merchants get paid daily directly from the cardholder bank in most cases, not weekly or bi-weekly as with many processors. We have been extremely happy with our choice to concentrate on merchant account processing and have been riding that wave ever since.”