It will be monumental this month when Visa Europe moves from a 2 percent chargeback ratio to 1 percent, and Adam McDonald, president of Humboldt Merchant Services, said that his processing company is in a great position to help adult businesses navigate changing times. After all, McDonald said, Humboldt has been processing for merchants at a 1 percent threshold for quite some time.
McDonald is one of the vets at Humboldt, taking on the CEO role in 2014 after starting with the company in 2010. He started in the payments biz at 17 and later practiced law, ending up leaving the law firm to pursue a career in payments.
As their business grows, webmasters need to take more control of their billing practices in order to effectively scale.
XBIZ last month had a chance to sit down with McDonald after his trip to Florida for XBIZ Miami for this Q&A interview to learn more about how he runs Humboldt.
XBIZ: Tell us a bit of history about Humboldt Merchant Services and your background?
McDonald: Humboldt has been transacting for adult merchants for over 15 years. Humboldt Bank was one of the earliest financial institutions to enter the adult payments space and our acquiring arm has been supporting adult merchants ever since. We pride ourselves on providing the highest level of service and value, security, transparency and ethical business practices above all else.
Personally, I have worked in the payments industry since I was 17. I sold as an independent sales rep during undergrad and worked in the technical support and customer service departments for a large acquirer while attending law school at night. After a few years practicing law, I left the firm to pursue a career in payments. I started at Humboldt as a sales executive and took on the role of president in late 2014.
XBIZ: What are some of the most valuable lessons you have learned about adult billing during your time in the space?
McDonald: My experience in the payments industry was primarily in mainstream brick-and-mortar prior to joining the team at Humboldt. What was most surprising when I began working in adult was how knowledgeable business operators were about billing. In hindsight, it makes complete sense. The landscape for adult billing is constantly shifting, and payments are the lifeblood for any e-commerce business. To this day it still amazes me that business leaders in adult know more about payments than 90 percent of the individuals selling payments services.
XBIZ: Adult processing is a space with a lot of competition. What are some of the things that make Humboldt Merchant Services stand out in such a competitive field?
McDonald: I get this question a lot. The reality is, however, there isn’t as much competition as people think. When broken-down, the number of providers that offer a wholesale/direct/proprietary service is much smaller than most people know. The majority of billing companies operate as brokers or resellers. Don’t get me wrong, some of these companies are led by highly knowledgeable professionals and provide valuable consultative and support services.
Humboldt, for example, has what is referred to as a wholesale BIN (bank identification number). Without getting too granular, this means that we have a direct relationship with our bank sponsor, underwrite our deals in-house, manage risk in-house, provide customer service in-house, and hold 100 percent of the liability that comes with providing merchant accounts to adult businesses. I can count on one hand the number of companies in the U.S. that have a direct BIN relationship.
XBIZ: How about customer service at Humboldt Merchant Services. How quickly can clients get issues resolved?
McDonald: Customer service issues are resolved same day, if not within hours. One of the things that differentiates Humboldt from our competitors is that we have always maintained a boutique operation while maintaining a banking relationship with one of the largest financial institutions in the country.
Put differently, my team doesn’t spend their days dealing with the restaurants and dry cleaners of the world. We work primarily with adult businesses and other large e-commerce merchants. This is one of the reasons we can provide such a “high-touch support” environment for our clients.
I don’t think there’s another payment processor servicing adult businesses that can say this.
XBIZ: What are some of the worst mistakes that webmasters typically make when it comes to billing in U.S. and foreign markets?
McDonald: Some webmasters have a set it and forget it mentality when it comes to payment processing. This is fine when just starting out as there are billing providers that can manage all aspects of the payment ecosystem, generally charging a healthy premium to do so. This is great in the startup phase as it allows webmasters to focus solely on growing revenue.
As their business grows, webmasters need to take more control of their billing practices in order to effectively scale. They need direct merchant accounts and form relationships with payment gateways that provide a central access point to allow them visibility into all facets of their payment operation. All of this will help in reducing the costs associated with accepting electronic payments.
XBIZ: What changes in the adult billing space do you foresee, and what steps will Humboldt Merchant Services take to address them?
McDonald: The biggest change to hit the adult billing in years will occur on July 1 when Visa Europe will move from a 2 percent chargeback ratio to 1 percent. This is going to have a profound effect on the way many adult businesses look at processing payments. Adult operators are going to have to put more value on conversion ratios, along with implementing chargeback and fraud mitigations tools if they haven’t already.
Humboldt is in a great position to help adult businesses navigate this change as we have been processing for merchants at a 1 percent threshold for decades. Our banking relationship provides for some of the highest conversion ratios in the industry, and we have partnered with the best fraud and chargeback mitigation companies in the world.
