Rewind to 1996.
Mitch Farber has just been laid off. He gets a call from a former co-worker in the same situation who has stumbled into the online porn business. The money looks good and Farber joins up.
Soon after, their merchant account decides not to do business with adult sites. Rather than move on, Farber decides to take over and Netbilling is born.
Fast forward to today.
Things are looking much nicer. Having grown with many of the company’s early clients, Netbilling is the most recognizable name in merchant accounts in the adult industry. Farber runs the company with his wife, Sarah. He doesn’t worry about his job, Visa, or much else for that matter.
Farber, who co-founded the Porn Poker Tour in 2005, mostly just worries about converting the masses and when he’ll see his next pair of aces.
You used to be a Mac consultant. Are you in the Mac cult?
I’m not part of the cult, but I’m an avid fan. I use a couple of G5s. I rarely use my Windows machine. Whenever I get a chance, I try to convert people. It’s a better operating system; they’re faster and more stable.
Do you still have adult sites?
I have a couple traffic sites but no pay sites. I had pay sites up until 2005, but Netbilling slowly engulfed all of my time.
What kinds of sites were they?
One was CheapPorn.com and another was HornyBitches.com, which was our most successful. Horny Bitches started in 1997 and we just took it down this past year.
How did you get into porn?
I worked with a guy, Greg Spackman, who now works for Dating Gold. We worked together at an ISP and both got laid off at the same time. He lived near me and called me up one day and said ‘I started this pay site with a guy down the road and we made $50 today.’ I said, ‘Really? That’s kind of interesting.’ He calls me three or four weeks later and they’re making $400 a day, which, if you’re looking for money, is a lot of money.
What was the billing environment like back then?
A lot of people had merchant accounts at the time, but they were blowing through them. Even though they were getting tons of sign-ups, there were a lot of chargebacks. People were double billing and not scrubbing properly. It was the Wild, Wild West. Everyone started taking advantage of the consumers and losing their merchant accounts.
How did you end up taking over your merchant account provider?
We got our own merchant account and ended up teaming with Credit Card Network for our processing. One day, they decided they didn’t want to do adult processing anymore because the owners were Mormon. So we took over all of their adult merchants and leased their software for a year while we developed our own. That’s how Netbilling got rolling.
Who were your first customers?
We don’t like to blab, but several of our adult clients that were up-and-coming or even small at that time have now grown into large programs. Some companies that started off with one site and never had an affiliate program now have dozens – even hundreds – of sites and they’re running huge programs.
What’s your take on merchant accounts versus third-party billers?
Obviously there’s room for both in this industry. Third-party processing is more popular and a lot of it is because people start off that way. A lot of the banks that do merchant accounts like to work with established businesses because they’re taking on risks with those businesses, so they want to see a processing history. Many people start with third party and move to their own merchant account once they reach enough volume. Once a merchant has six months under their belt and is making $50,000 a month, then a bank will take a look at them.
What’s the current situation with Visa and MasterCard?
The registration rules Visa and MasterCard have in place enable them to keep an eye on chargebacks and the type of sites that are going up. Because Netbilling and some of the other gateways and viable third-party billers have been able to keep chargebacks down and because there haven’t been many customer complaints about billing practices, Visa and MasterCard are pretty comfortable. They don’t plan on changing any of the rules anytime soon.
Is there a scenario where they would stop processing for adult?
The way things were going a few years ago, I was a little concerned with that—the way chargebacks were high. Visa and MasterCard kept lowering the chargeback threshold because they were getting pressure from the government for accepting pornography. That had me worried. I think now we’re in a good place and the revenue generated by these sites have made Visa and MasterCard recognize the amount of money coming in, and so do the banks that process the transactions. As long as we keep things under control, I don’t think we’ll have a problem.
What types of sites have you turned down for processing?
Anything listed on the forbidden list for Visa or MasterCard. Anything that is a teen-type site where the models are purposefully made to look underage. We turn down some types of extreme sites. The banks have standards, too, and some banks, even if it’s not deemed illegal in Visa and MasterCard’s eyes, don’t want to process a particular site because they fear a backlash from their shareholders. There are a few things I’ve seen that I don’t really want to mention. There is some pretty extreme stuff out there. Things like rape sites, morally, Sarah and I have decided we’re not going to take.
How has Netbilling diversified over the years?
We’ve stayed away from doing third-party processing and we’re going to continue to do that. We’ve built up some alternative payment methods. ACH has done really well for us over the past couple years. There are a lot more people accepting online checks, especially as fraud scrubbing and account verification gets better. We’re looking at SMS billing, but until it gets standardized in the United States we’re not going to jump on that boat. We’ve expanded our call center to not just handle customer service, but we’re doing a lot of inbound and outbound call center services like order taking and order verification.
What is Netbilling’s standing in the industry as far as billing companies go?
As far as flexibility and control goes, there’s no other merchant who gives as much as Netbilling does. That’s how we built our company—by putting all of the controls right at the merchant’s fingertips. As for third-party processing, we don’t see them as competitors because there is a great need for both types of processing. As more banks come around we’ll be able to get webmasters merchant accounts more easily.
Who do you look up to in this business?
I really look up to the companies that stuck with it. [Epoch’s] Clay [Andrews], [CCBill’s] Ron [Cadwell] and [ePassporte’s] Chris [Mallick], the guys from WTS and Electracash are guys who have really stuck to what they do well. They haven’t tried to diversify too much and have really kept the focus on their core business and making sure their clients are taken care of.
Have 2257 and obscenity laws changed the way people process?
I’ve had merchants come to me who are scared to process in the United States. They want to take things offshore, but I don’t feel that’s the right reason to make that move. The laws aren’t so far out of whack that you can’t get your sites in compliance. Even extreme sites can still get complaint, and to run offshore to avoid these laws is wrong.
What is it with poker?
I love playing poker, but I’m not real good at it. With these tournaments we’ve been putting on, I think it’s a great chance for people to get together. People that don’t usually talk to each other sit at tables for hours and get to know each other. It’s not about whose got two aces; the Porn Poker Tour has turned into a great networking thing.
That’s funny. I recall your raking in several hundred dollars at YP.
[Laughs] I think I got a little bit lucky. I don’t do to well in the tournaments because I’m wound up with everything that’s going on – making sure everyone gets T-shirts, making sure everyone is having a good time, that the dealers are announcing the sponsors – my mind just isn’t there. When we get up to the hospitality suite, then I can kick back and focus a little more.
So, look out for Farber in the hospitality suite?
Oh, yes, sir [laughs].
If you were on the cover of Forbes, what would you want the headline to read?
The Element of Control: How Netbilling Puts it Into the Hands of Online Merchants.
