On Oct. 1, Visa's new regulations limit-ing credit card chargebacks to 1 percent of a merchant's transactions went into effect - a move with consequences for all pay site owners. While most operators have considered chargeback reduction steps to ensure their compliance with these latest Visa regulations, a hidden danger exists that could threaten the very existence of our industry as we know it ....
Author's note: I had originally run this article as a message board post over at Amateurs Guide. I was, and still am, quite unsure about the wisdom of discussing this "publicly," but I am certain that our enemies have already considered the following, and so present it here for a wider audience, in the hope that a feasible solution to this very real threat might be found.
A BIT OF BACKGROUND
Recently, I wrote an article for XBiz that outlined the new Visa regulations, the impact they would have on adult Webmasters, the penalties for non-compliance, and several options that could mitigate, or entirely avoid, the situation. As I finished the article, an idea occurred to me; an idea with such devastating implications that I would be remiss not to alert you of the threat.
While some folks may consider me to be "paranoid" or "a fear monger," I prefer to see myself as someone who analyzes as much information on a given topic as possible, who then develops scenarios - no matter how unlikely they may be - as tools to aid in effective business planning. I'm not saying that "the sky is falling"; I am playing "what if" games to enhance profitability while mitigating pitfalls. And my latest "what if" poses a potentially catastrophic scenario.
As background, realize that the bottom line for violations of Visa's 1 percent rule is having your site name, URLs, company name, and the personal name of the "responsible party" (the Boss, as listed on the merchant agreement) added to the Terminated Merchant File (TMF). Once your name has been added to the TMF, it's there for good; you can kiss goodbye your Visa/MC acceptance ability - and not just for your adult pro-jects, but "everything, everywhere." For some folks, this will mean that they will never again have the opportunity to run a legitimate, truly profitable business.
In "the real world" this is not a horrible thing, as it keeps merchants "in line" and bound to "easily maintained" minimum acceptable business standards. In other words, if your name is already on the TMF, it most likely deserves to be there, as you have demonstrated that you are unwilling or unable to treat customers fairly.
So, at this point, you should realize that chargeback limits are not bad, benefit all consumers, and, given the vast number of merchants who have historically maintained a less-than-1-percent chargeback rate, not impossible for you to maintain. Not impossible, that is, unless someone doesn't want you to maintain them.
Here comes the bad part: First, you should realize by now that "life is unfair." If you're young enough to believe otherwise, and that somehow you are "owed" fairness, then wake up! Next, realize that regardless of your opinions about porn and your "right" to do whatever you want, there are very many people out there who consider you to be "an evil pornographer." These people want to see you out of a job, with your business closed, and you in jail - or worse - before you go off to burn in Hell. In short, their attitude towards you is simply "fuck 'em."
Now many readers will respond, "Fuck me? Fuck them!" and there will doubtless be howls of indignation against "the closed-minded religious hypocrites"; but the fact of the matter is that they could soon destroy our industry - and do it all without petitioning congress to pass new obscenity laws, going to court, or facing first amendment arguments and all sorts of other "inconveniences" to their plans which keep us in business.
THE ENEMY'S BATTLE PLAN
It's really quite simple, you see: By taking advantage of Visa's new chargeback limits, a dedicated group or coalition of groups, acting covertly, could launch a concerted attack on adult pay site operations with a goal of showing the owners to be "in violation" and placed on the TMF. This would preclude the sites, URLs, company, and owners from using Visa/MC ever again.
Impossible, you say? Consider that 1 percent is one out of 100. While a small handful of major operators might claim overall site membership rates in the tens of thousands, most sponsors are not nearly so fortunate.
This opens the very real possibility that a group of affiliated churches (or another such ideologically motivated organization) could consciously target one pay site at a time for "elimination." By having fellow conspirators sign up to a pre-selected site, then charging back their membership along with false claims of "unauthorized" billing, they could drive the chargeback ratio through the roof! Nothing excessive, just a steady 2 percent CB ratio - no matter what the merchant tries to do to lower it.
A successful anti-porn campaign conducted this way could be untraceable: Members would not come from one affiliate or IP only, eliminating those common denominators as a base for TMF inclusion appeals, and by using networked groups, the chargebacked signups would not be geographically identifiable. In other words, if a "local" group attempted this, the pattern of dozens of signups and chargebacks from a certain area would be easily discernable and tagged as fraud. But if they used different subscribers/credit cards/billing addresses, etc., spread across the country (or even globally), then no pattern could easily be made.
This week it's "Suzy's Smut Shack"; next week it's "Cybererotica." One after another, entire operations could be decimated within a few short weeks. Visa doesn't need to "be in on it"; the government doesn't need to be involved either. Just a handful of holy zealots on a mission to rid the world of porn. One out of every 100 members calling their bank to say "I want to charge back an unauthorized debit." After all, such good "church-going folks" would never join a porn site ....
Sure, small to mid-size operations could flexibly cope with being on the TMF, changing site names and URLs, and altering their business structure. But what about "the big boys"? Changing their name and other factors affects millions of inbound links, established affiliate bases, and the compensation mechanisms for those at the top, among many other issues. The very real threat of this scenario - or other "triggers" for TMF inclusion - might lead some players to decide that their merchant status is more important than their porn empires, and move on to other ventures.
Oh, and lest you think that this assault would be a weapon limited to our enemies, consider the possibility of our "friends" seeking a competitive advantage this way: Not only could "catty" cliques of amateurs squeeze out their rivals, but Sponsor A now has a workable method of eliminating Sponsor B - and even if they are unable to outright eliminate a competitor, they can cause them to focus their energies on chargeback mitigation rather than marketing and new program development.
While I have intentionally left out many of the details of how this scenario could "successfully" unfold, the fact remains that it is a blueprint for an unlikely - but an all-too-easily conducted - assault on our industry, both from the outside, and from within. It's an attack which has no really workable defense, if accepting Visa/MasterCard is necessary for your business.
Stephen Yagielowicz is the editor-in-chief of XBiz.com.
