After the dust settled, the calm that suffused the Adult Internet industry in the wake of super-stringent regulations on the part of corporate giants Visa and Mastercard threatened a proverbial storm. To the credit of Webmasters and billing companies, a vanguard of survivors formed, and solutions to the problems of chargebacks and spiraling, ever-constricting penalties levied by the monolithic near-monopolies were quick in coming.
Payment processing alternatives to Visa and MasterCard might make a little more trouble for Webmasters, but when compared to the big trouble the Terrible Two menace the industry with, the options are worth it. Online check processors allow businesses to accept online checks as payment for a small fee; phone billing charges customers via 800 or 900 numbers on their phone bills; merchant accounts provide a shell for the Webmaster who doesn’t want to chance direct dealings with the credit card co’s. There are also debiting systems available (debit cards are Europe’s most widely-accepted form of online payment), PayPal and PayPal clone services, pass card systems, and dialers-for-hire.
Enter cascading billing. With cascading billing, a Webmaster could opt for several systems to catch and keep a customer, and, for the most part, protect him- or herself from the slavering jaws of credit card hell.
Cascading billing is the process of using multiple billing providers, one backing up another, to get an online transaction authorized. If a surfer buys a site membership and his/her credit card is declined by the site’s primary processor, the site’s secondary processor picks up the authorization, and so on, until the surfer is either denied purchase, or a match is found and a processor accepts the payment. Alternatives to credit card charges can also be used as back-up plans, and the surfer will be asked to pay using an alternative method.
Kerry Brewer, president of WebStream Internet Solutions, notes, however, that the “technology has gotten to the point [where] many top-par billing companies use similar, if not the same services to scrub with. The chances of a secondary [processor] being able to pick up a charge are slimmer these days.”
He says a new technique being implemented in online sales is the adding of a second link “right at the gateway to the join page, thereby giving members or buyers a choice. Usually, the favored company is placed first, highest up on the page, followed by some verbiage that ‘If this one doesn’t work, try this one.’ Although this is not really true cascading billing, we’re seeing more of that.” Also, “By having your billing set to cascade on a rotating basis, you can have your charges distributed evenly between two, three, or more processors.”
Cathy Beardsley, senior vice president at iBill, says the company currently does not offer an in-house cascading billing solution. “We are integrated with cascading billing solution providers, but do not have a direct relationship with any one particular program.
“We respect the MPA3 (Mansion Productions’ [www.mansionproductions.com] newest generation cascading automation program)solution, and are integrated with them today, although not as a primary processor; but we often advise clients on the best way to set up and work with a cascade biller.”
On the other hand, Epoch Transaction Services’ (www.epochsystems.com) director of corporate communications, Rand Pate, says Epoch does have a cascading program, in the form of an interface that “allows clients to handle all approved/denied responses from our system,” called FlexPost.
“If a site owner wishes to send a denied transaction to an alternate billing company, a dialer, or anything else, FlexPost is the application programming interface (API) which allows this. The vast majority of larger programs use FlexPost as it also allows for a two-part join form.”
No strangers to cascading billing, Netbilling processes for many merchants who’ve opted for that function, says president Mitch Farber.
“A merchant can set up their affiliate software, such as affiliate tracking or MPA3, to use Netbilling as a primary or secondary processor, and send declines, or simply geographically specific transactions as well. Typically – since in the Netbilling administration interface, merchants can control their own level of fraud scrubbing – Netbilling will be seen as the primary processor. [If a surfer is] declined by Netbilling, or [turns out not to be a] transaction that the merchant is willing to take a chance on with their own merchant account, they will be directed to another processor or payment method.” For instance, using Netbilling’s internal program, a merchant can choose to send a surfer whose credit card has been declined to a check payment form.
Opting to use cascading billing is not the no-brainer it might appear on its face, however. Brewer notes that one of the method’s shortcomings is that a potential customer can “become confused when trying to interact with the respective customer service departments” of so many processors.
“Then there is the cost to consider... additional integration usually means more dollars spent on the site. It depends on what it is worth to the site operator. Have you been burnt before? Does your present re-biller turn down an inordinate number of charges? These are some points to consider.”
In the pain-in-the-ass department, “You also need to make sure that you’re not sending all of your decline transactions to one particular billing company,” Beardsley notes. “This could potentially put you on high alert with the card associations.” Pate agrees.
“Processing at multiple IPSPs could be detrimental,” he says. “If an IPSP cannot maintain your ratios, you could find yourself [fined by] Visa or worse, through no fault of your own.” Also, if one IPSP scrubs out a transaction, there’s probably a reason for it. “Why would you want to risk acceptance of that transaction anywhere else? Sending a denied transaction to an alternate IPSP may cause your chargeback or credit ratios at the secondary processor to become elevated, and ultimately risk your processing ability with your primary processor.”
When dealing with international sales, running the same credit card through multiple processors is not even a real possibility, according to Jens Leinert, director of marketing at Frankfurt, Germany-based WebTrade Group (www.webtrade.net).
“Cascading with different payment alternatives is a must if you want enter the European Adult market – but it’s a no for credit card processing. It is very difficult to open a merchant account for our Adult merchants. Cascading does open the door for fraud.” To combat this, WebTrade has developed the new telephon-PIN. “With this tool we can reduce the chargeback ratio for credit cards to less than 0.5 percent.”
International sales, in fact, make offering alternatives to credit card processing a necessity. Most international billing companies utilize cascading techniques in this specific way.
Mitch Platt, North American sales manager for NoCreditCard.com, says offering an SMS billing solution after a credit card decline has “worked extremely well for us – and for our thousands of affiliates who use it. We also cascade from our telecom billing solutions to SMS.
“You could also consider geo-sorting as a kind of cascading billing; in many cases we get foreign traffic sent directly to our telecom billing solutions, bypassing the credit card option altogether.”
“Goodthinxx.com does function as cascading billing company, although we have primarily focused our business toward the dialer model to assist Webmasters if their surfer doesn’t have a credit or a debit card, or doesn’t feel comfortable using an on-line check,” says Tanja Rahman, CEO and co-founder of the company.
“We do offer credit card and debit (ELV) transactions, and are in the process of rolling this out through GoodthinxxCash, as we have been testing the cascading effect in Europe for the past several months with our partners Deutsche Bank/Pago and WebTrade.”
Goodthinxx also offers an “Active X Dialer” solution for modem users and a “Voice Call Solution” for high-speed connection users in 21 different languages. “Voice call payments will not fade away [at] the hands of governments that have cracked down on dialers,” Rahman believes.
While cascading billing is pretty much the processing method-of-choice for the present, just about all of these businesspeople have a different vision for the future. Beardsley believes that online billing for Adult Web sites will one day be “technology neutral – allowing customers to use a wide array of payment options including credit cards, stored value cards (for anonymous purchases), telephone billing, etc. There will also be enhanced CRM solutions that allow Webmasters to slice-and-dice real-time customer data and better manage their finances.”
“The future will require Webmasters to offer all available payment options to compete,” Platt says. “Micropayments have been ‘around the corner’ for years now. Over the next three years, that field will experience 550 percent growth, from $2 billion today to $11 billion.”
He also thinks that telecom billing will continue to grow, for experienced users, but especially as the market expands with those who don’t have credit cards: “More end users are coming online in less developed countries. China is the obvious example. And given the global nature of the Internet, you need to have global billing solutions.”
Rahman says that Goodthinxx is now using “mobile billing solutions with premium rates, and we are working on a WAP dialer.”
Thinking farther into the future, she suggests, “Perhaps retinal and RNA video conferencing with the bank will lead the way. It all depends on your business model, but we live off of giving what the customer wants, and that [means offering] as many options as are out on the market.”
Farber’s opinion is that businesses should look into diversifying overall, not just in billing. “My word of advice to any growing Adult Web site operator is to not only utilize the services of more than one processor in case of a problem, but to vary the products and services offered by selling tangible goods in both the Adult and mainstream environments to generate revenue streams from a number of sources.
“[Netbilling does] believe, since more and more Webmasters and merchants are having problems with so many billing companies going out of business and not paying their debt for transactions processed, that Webmasters are realizing the importance of controlling their own customer databases, [giving them] the ability to move that database to another processor without loss of income.”
“This question comes up all the time,” adds Pate, considering what’s ahead. Though he says his “crystal ball only hints at what the future may hold,” he speculates that the industry will continue its pattern of consolidation.
“Programs which do not have a long-term view of the business may fall if they cannot maintain their ratios.... I think as the industry continues to mature, we will see a lot more programs careful to protect their businesses. For example, programs will sell off and merge instead of disappearing under a cloud of chargebacks or other troubles.
“I also think we’ll see Visa and MasterCard strengthen their presence on the Internet as the currency of choice. They will most certainly continue to protect their brand, but will find new and better ways of protecting online merchants through technology.”
Visa and MasterCard are probably here to stay; cascading billing is just another way for Webmasters to make peace with that reality.
