Billing Experts Offer Tips on Staying Ahead of the Curve

This article originally ran in the April 2016 issue of AVN magazine. Click here to see the online edition.

As many now acknowledge, the adult industry was the driving force behind much of the world’s ability to engage in ecommerce, and throughout the history of adult online the processors have continued to evolve in ways that shape many of the monetization strategies used by business owners today. AVN spoke with key decision makers at several notable payment processing companies to see what the world looks like from their point of view and to get insight into upcoming events that will lead to another round of adaptation for executives interested in staying ahead of the curve or amplifying their own competitive advantages.

In November of this year a new president of the United States will be chosen. Focusing strictly on an adult processing perspective, is one candidate better than any other?

Thierry Arrondo, managing director of Vendo, analyzed the race this way: “Clinton will maintain the status quo. That’s good for adult. Sanders used to write erotic fiction. He’s a big fan of Sweden. He’ll follow their example and leave adult alone. Trump is personally as liberal as Hugh Hefner but he plays to a conservative, fearful audience. He’s said that his daughter is so hot that if he weren’t her dad he would sleep with her. That doesn’t sound like a guy who would go after adult. But he’s full of contradictions. He employs foreign workers and attacks them because they are a convenient target for him. Cruz is the ideal consumer and a nightmare candidate. Moralizing, repressed = great conversions and lifetime value; however, it could also lead to prosecutions like we haven’t seen since Larry Flynt’s youth.”

For others, the notion of political correctness was at the core of the issue. “My choice may be ‘politically incorrect’, but I believe Trump would be the best candidate for the adult industry … and he probably loves porn too!” Mitch Farber of exclaimed.

There did seem to be a consensus among processors that the leader of the free world was actually much less likely to impact the industry than some of the nameless, faceless, association executives who set billing policy more directly. “To be honest, whether the new president is Democratic, Republican, male or female, there is very little it means to the online adult industry in my humble opinion,” said Doug Wicks, CEO of “I am more concerned with the new Visa regulations coming this year and heads of banks, because their impacts are far greater on this community as a whole.”

Speaking of Visa and the banks, are there any new regulations on the horizon that you believe will impact the industry in 2016?

“Yes!” said Cathy Beardsley, president and CEO of SegPay. “The biggest announcement is the alignment of the Visa Inc. chargeback policies to all sub Visa regions. In a Visa EU member letter dated February 3, 2016, Visa EU announced that they would be aligning their chargeback policies with Visa Inc. Effective July 1, 2016, Visa EU will require all merchant accounts to maintain 100 chargebacks and a 1 percent chargeback to sales ratio in order to be in compliance. In addition, Visa Inc. rolled out new early warning thresholds that all regions will have to abide by moving forward. Each month, any merchant that exceeds 75 chargebacks and a .75 percent chargeback to sales ratio will receive an early warning notification. Visa Inc. is encouraging acquires to have merchants that hit the early warning threshold develop action plans to get below these thresholds quickly.” She notes reads can download the updates on the site.

Others pointed toward the summer when new rule sets codifying these changes will likely be released. “Visa will be the big news in 2016 with its intended changes to the current Visa regions and rule sets coming this summer. I wouldn’t be surprised to see stricter policies and lower chargeback ratios allowed,” said Payze CEO Wicks.

There is some hope, however, that high risk may wind up being unaffected by the broader changes in regulations. According to Vendo’s Arrondo, “The big talk is about a change in European chargeback ratios. The guidance right now is ambiguous. It seems that they could go to 1 percent and 100 CBs per month. But it also could be that this change does not affect high-risk processing. In fact, they have said that high risk processing could maintain its current 2 percent threshold and the count could go up. We’ll watch and see.”

A strong case could also be made for the fact that the biggest changes of 2016 are ones that are already affecting day-to-day sales numbers. “It’s not a change on the horizon ahead of us, rather, the horizon behind us,” said Mia Hyun, president of Mobius Payments. “The liability shift for EMV has come and gone and not nearly enough merchants are compliant with the EMV regulations.  Granted, this only affects a small sector of the adult business, as EMV is only for face-to-face transactions. We need to be acutely cognizant of the increase in fraud in ecommerce due to the implementation of EMV for face-to-face transactions, as it has been evidenced that there is a direct correlation between EMV implementation and increase in online fraud.  We highly recommend stronger enforcement of AVS and CVV2, at the bare minimum, for online businesses to continue to combat fraud in their sector.”

Karen Campbell of OrbitalPay agreed, “PCI and EMV are two items that affect any company that accepts credit cards. Payment security is paramount for every merchant, financial institution or other entity that stores, processes, or transmits cardholder data. If you accept or process payment cards, the PCI Data Security Standards apply to you. Our PCI compliance system includes breach insurance for our merchants in the unlikely event they are storing credit card data and get hacked.”

In the ACH market segment newly mandated chargeback fees were recently enacted. “In September of 2015, released a new set of rules that pertain to ACH Total, Administrative and Unauthorized Return percentages.  We started preparing for those changes 18 months in advance” said Vinny Lipari, president of WTS. “In September of 2016 (affecting transactions back to August 1, 2016) a new ACH rule will become effective and will impose a mandatory chargeback fee on unauthorized ACH returns.  From a business owners’ perspective, it all boils down to minimizing claims of unauthorized debits by placing focus on the user experience, managing affiliate channels and working with billing partners to achieve a common goal.”

Of course, one of the primary ways to combat chargebacks is by providing the easiest access to support services. “While we continue to add new gateway features, new banks and new retail merchant services to our current offerings, Netbilling has just introduced online chat services into our call center” said Farber. “This feature allows expanded coverage beyond phone and email support, for our merchants and their customers.”

Beyond Visa and the U.S. are the significant obstacles being created by some local governments. “From a regulations standpoint, the biggest thing to keep an eye on is the politically driven government regulatory changes, as we have seen in the U.K. and the regulatory leanings from other EU countries,” said Paul Kluzak of CCBill. “Random, localized regulatory changes and laws are an absolute issue for any business attempting to work globally.  Honestly, this is where leveraging the expertise of a payment services provider becomes valuable, as they are quickly addressing and setting up solutions to adapt to these changes for their entire portfolio, thus removing much of the heavy lifting.”

Dynamic pricing has been around for a while but was a common buzzword during Internext. Do you believe business owners are still leaving money on the table that dynamic pricing would recapture?

“Absolutely,” said SegPay’s Beardsley. “Business owners are leaving lots of money on the table! Dynamic pricing gives webmasters more flexibility in offers to their consumers and allows them to run promotions without hassling their processor. It is also a great tool for add-on purchases or clip sales.”

More than just a way to geo-target different regions with different price points, “dynamic pricing has allowed business owners to create new incentives for the consumer which absolutely helps recapture money being left on the table,” explained said Wicks of Payze. “The fact that you no longer have to charge a single amount for a monthly subscription and can create new options makes the consumer experience that much better.”

At its heart, dynamic pricing is a way to maximize the monetization of each individual consumer. “At Vendo we’re leading the industry to discriminate between shoppers who will give you more money if you give them a higher price and shoppers who will spend more with a lower price,” said Arrondo. “The really interesting thing about dynamic pricing is that it can effectively eliminate the cost of payment processing. If someone is paying 12 percent they can see increases in revenue from dynamic pricing in that range. We are developing artificial intelligence to do dynamic pricing. It can’t be done by humans (too much data, too many calculations to be performed instantly). We’ve been at it for years, investing millions of dollars. We’re happy with the results we’ve achieved so far and are looking forward new breakthroughs in 2016.”

If anything, it appears adult businesses are trailing the varied use of dynamic pricing in other more mainstream markets. “Airlines have been doing this for many years and have built very specialized systems to handle pricing fluctuations based on supply, demand and peak purchase times, as well as geographical regions,” explained Farber. “Adult companies have been experimenting with different forms off dynamic pricing for some time now, with mixed results; however, dynamic recurring pricing for subscription services has been extremely effective in adult and is utilized by hundreds of Netbilling merchants, selling both content and hard merchandise as well.”

Business owners should also keep in mind the potential public relations problems that aggressive dynamic pricing can cause among experienced consumers. “Is it leaving money on the table? If your customer in Los Angeles finds out that, had they been in Oklahoma City, they could have paid less? Does it buy loyalty to offer a product for more in largely densely populated areas?” warned Hyun of Mobius Payments. “Dynamic pricing is a good marketing tool, but when it comes down to it, do you have a record of clients you lose because of this strategy?  Yes, it’s more convenient to offer a service or product in the customer’s native currency, let’s be clear, that’s called multicurrency. Dynamic pricing can hinder a sale decision because the tech-savvy consumer may attempt to access the same product and payment page via VPN to change their IP to another country and they may become upset that the price is significantly lower due to the region if the merchant is employing that type of marketing tactic.”

Kluzak of CCBill echoed that sentiment, saying, “When the offering is digital, with a seemingly unending inventory of subscriptions or cam time, we fail to see how this doesn’t just show the buyer that you are somehow scamming them. Honestly, does anyone like paying a different airfare than the person sitting next to them on an airplane? Providing value for the price is the only real way to have a solid, long-term and financially viable business offering. Scamming only hurts us overall and hurts the business long-term.”

As the adult industry continues to evolve, billing and payment processing services will remain at the heart of every monetization strategy. Fortunately, the industry has a robust set of proven experts to rely on for strategic advice and a continually upgraded set of technological tools to overcome all obstacles.