On Jan. 9, AVN readers were informed about new check processing rules passed by NACHA. These rules mandate that merchants and processors maintain no more than a 1 percent charge-back ratio and incorporate huge fines for noncompliance. AVN quoted some industry participants who expressed their surprise and suggested that a dramatic impact on ACH transactions was in store.
We see the new NACHA rules as standard operating procedure and do not see a dramatic impact being felt across the board. In fact, we do not plan to make any changes to our current processes.
NACHA has proposed network enforcement rules changes numerous times since 2004. Each time, they were voted down by a small margin, but NACHA's intent was very clear.
Now, with fines up to $500,000 per month and the potential of industry-wide removal from the ACH network, they have made their case unequivocally.
WTS understood NACHA's intent and the probable enactment of a 1 percent charge-back rule and in 2005, began upgrading TOAST, our exclusive anti-fraud system. In the beginning of 2006, all our merchants began using this new system, and today, are compliant with the new rule. Consequently, we have no additional steps to take, and it is business as usual.
The passing of this rule is not a good change for the adult industry as a whole and suggests trouble ahead for those who are now relying solely on a reactionary approach. The attrition of unauthorized returns (charge-backs) in recurring portfolios take time, and the implementation of more stringent authentication processes reduce throughput and volume while the charge-backs keep coming in. This has a negative impact on charge-back ratios.
The adult industry experienced similar events after rule changes for credit card payments in 2003. While the changes did push some processors and merchants out of business, several processors were prepared for the change, and the majority of merchants continued to grow their businesses.
If there is a silver lining to the recent events, it's that compliance with the new rules can be attained and the ability to offer ACH as a payment option for the adult industry will continue to be available. As with credit cards, processors and merchants who anticipated these changes by taking proactive measures will continue to enjoy revenues from the industry's second-largest payment option.
Bill Parodi is CEO of Web Transaction Services, an ACH processor located in Austin, Texas.
