The Complexities of Internet Currency

The lifeblood of any online merchant is the payment system. And the currency of choice for the online world is the credit or debit card. The two leading brands of cards accepted online are Visa and MasterCard, with their credit and debit brands making up more than 86 percent of all transactions on the web. That number is even higher in the business of adult entertainment where brands such as PayPal and American Express are not accepted.

Online businesses by their very nature are at the mercy of Visa and MasterCard. That in and of itself can be a complicated place in which to do business since there are so many different levels of rules and regulations from issuing banks, acquiring banks, processors, and the card associations themselves. Add to this the complexities of interpreting and understanding these rules and the very real possibility that they are subject to change without notice.

Furthermore, the card associations have marketed their brands extensively as safe to use online, which translates to being more pro-consumer/pro-bank than pro-merchant friendly when conflicts arise. After all, the merchant pays a one time fee for the use of the funds, whereas the consumer using a credit card pays interest on a revolving account.  Not to mention, each card type wants a bigger piece of the market share so catering to consumers is the obvious way to gain a bigger slice of the pie.

The card associations have different risk allowances for different businesses. For example, a charge for your lunch is looked at very differently than a charge for concert tickets. The way in which all this is tracked is through Merchant Category Codes (known as MCCs). It is against association rules for any merchant to mis-code their transactions or to mix them. For example, a tire store and a barber shop cannot share a common merchant ID. The MCC for the online adult entertainment industry is MCC-5967.

Merchants who accept credit card payments in a card-not-present environment are at a high risk for disputes. And to this day, no amount of data, identification, collection of IP addresses, etc. can prove that an individual made a purchase so that the issuers cannot charge back that purchase. Although banks may, at their discretion, use such information to determine the legitimacy of a charge they are under no obligation to do so.

There are also the risk management rules which every adult merchant needs to be aware of — especially for the various merchant monitoring programs the card associations use for monitoring chargebacks, credits, excessive fraud, and counterfeit. MCC-5967 merchants exceeding the established thresholds lose money because they must return funds and pay fees. Elevated ratios put their businesses in jeopardy of paying substantial fines, being placed in monitoring programs, and possibly losing the privilege to accept cards altogether.

The adult business is rife with fraud. Unscrupulous parties see adult entertainment programs as easy prey assuming the programs will be less likely to seek court action should something go afoul. Knowing that the affiliate base is responsible for a large portion of the traffic driven to sites, and that most of it is good traffic and good business, an inexperienced program operator could get into trouble quickly if affiliate sales are not monitored correctly. Maintaining the required ratios in this environment can be extremely difficult if a program is unfamiliar with all the variables and rules or is not using a well established processor. When using a third-party service to screen your transactions there is a significant benefit to using a company that works with many programs and websites in the industry, and can take advantage of that data to identify and filter fraud more effectively.

Some adult programs have attempted to work around the ratio restrictions by using multiple banks or merchant IDs. Some of these practices violate association rules and result in the business and its owners being placed on a Terminated Merchant File (TMF), which precludes them from accepting credit cards through an Internet Payment Service Provider or their own merchant account.

Adult webmasters have several considerations in today's environment. Protecting minors from content, ensuring compliance with U.S.C. 2257 regulations, marketing, affiliate management, site updates, content, and more keep most programs quite busy. Adding the responsibility for risk management of card transactions and customer service can be best handled by an established service that specializes in keeping your business within all association rules.


Rand Pate is director communications at Epoch.

This article originally appeared in the June 2009 issue of AVN Online. To subscribe, visit