The long-anticipated one percent chargeback limit for so-called "high risk" businesses from Visa and MasterCard has arrived. The deadline was October 1. And those in the adult Internet who spoke to AVN.com about the new regulation as the deadline approached said, for the most part, that they were prepared well enough for the new regulation and had concerns about the coming picture.
"How prepared can you get," asked PSWBilling chief John Lombardi, a frequent critic of the tightened regulations against so-called high-risk businesses, "when somebody makes something absolutely ludicrous?" He thinks Visa and MasterCard are going too far in both extending themselves as credit near-monopolies and in trying to write the rules of doing business in general.
Nevertheless, other players said they think the adult Internet can do plenty enough to help itself survive – especially in the realm of delivering the goods and thus avoiding the need to worry about chargeabacks at any rate, never mind one percent. And plenty had taken such steps forward before the October 1 deadline arrived.
But as for PSW itself, vice president for marketing Cynthia Fanshaw said the company updated their acceptable use policies "and notified clients of what we expect and what is required." The company also "cleaned up" accounts in the red "or borderline," Fanshaw said, "on an individual basis, letting them know what they need to do.
"We've published informative articles, implemented new join forms with the correct compliance MasterCard and Visa terms and conditions," she continued. "We've updated our new account requirements making it tougher to become a PSW merchant by first meeting all our requirements such as visible support links and and cancel links."
Epassporte, the "virtual Visa" payment processor, said they added to their anti-fraud policies a requirement that more-than-single transactions on all credit cards must go through their verification process, with a small pending authorization charge of less than $2 against the cardholder until the cardholder contacts his card company, receives authorization, and then returns to Epassporte to verify.
ARS director of Webmaster services Matt M said it's still too early to know just what the actual effects of the new policy will be. "It seems like a regular business day," he said on day one of the new chargeback regulations. "There's no real changes as far as anything radical or any tidal wave situation."
He said his company wants to look for light at the end of the tunnel as objectively as possible. "I can't say that it's hurting anything right now," he said of the one percent limit. "I think most of the processors have taken all the adjustments they're going to, so I don't think anything unexpected is going to happen. We've pretty much made sure that any of the changes necessary to comply with the one percent, we've made. And from what we're seeing, things have pretty much stabilized, it doesn't seem to have taken a negative spin."
That doesn't mean some adult Web players don't think there could be some shifts in the ranks in the next few months, either players going out of business or players shifting their business focuses, depending on how the new regulations hit them. "I think it'll be interesting to see who stays and who goes after all this," said RatedHot owner Marsha Youngs. "I just think it'll be the one thing that makes or breaks a company, and I think we'll see a lot go. Sadly."
How right is she?
"I've been in this business through thick and thin," said Danielle Simons, head of Detour Interactive, whose career has included a long enough period working in audiotext. "And, with MasterCard and Visa and their crackdowns, and watching their (chargeback) ratios go from 22 percent down to 16 percent down to one percent. And everything we've had to do to meet those demands, they were tough, but one thing I've learned and still believe is true, is that if you comply, comply, comply, and do everything you can, you'll be ok."
Simons may admit that Visa and MasterCard are getting tough, and Matt M may think that they're aiming enough toward monopolistic behavior and some strong-arming, but in different ways both believe there's nothing wrong with what amounts to compelling businesses, adult or otherwise, to use plain common sense in doing business, including and especially scrupulous practice, which each believes is the root of keeping chargebacks down if not away entirely.
Simons especially hammered on the theme of adult content providers and Webmasters delivering the goods from entrance to exit with no short cuts or hedging in between.
"They're asking us to do this for our sake and their sake because the money has to be good money," she said of the new chargeback limits. "And if the product a Webmaster is offering to a surfer is the best quality the Webmaster can give them, then he's doing his part. The problem lies in Webmasters who are offering one thing and delivering something completely different. And you can't do that. It really is that simple. Offer the surfer a good product, and deliver a good product and you'll be fine. It's just simple business. And that's something I've been telling my clients, too, because they're scared, too."
"That's right on the money," Matt M said. "That's something we would preach, too… There are Webmasters out there who would do (false) advertising, and it doesn't pay off. I've said it before. We as a whole brought this on ourselves by Webmasters or even programs out there that condone this. You have to have somewhere to send your traffic, and if the affiliates aren't going to weed out those kind of things, you're bringing it on yourself. Yeah, Visa's taking this to an extreme, flexing muscles, making a statement. But if we didn't give them an excuse for it, we wouldn't be in the situation we're in right now.
Simons said billing companies and processors who have processed with and from good business sense in the past shouldn't have trouble with the new one percent chargeback limits. "I just think that, in the long run, if it's done by the book, no sneakiness, no back door approach, no skimming, no trying to make more in the short term than the long run, if it's just delivered with a good strong business sense approach, it'll be fine," she said. "The billing company had a good product to start with and if they can keep that product, they can conform."
Both Simons and Matt M and others say the image of the big brass ring of the adult Internet provoked, perhaps naturally enough, those coming in who thought it was just a question of how soon, and cut enough corners and back doors to make "how soon" mean "very soon," but the corner-cutting to hit it in the short term wasn't just short sighted, it provoked the kind of mistakes that lead to chargebacks that led to the credit companies tightening the noose a little more.
"When a surfer comes in and sees a product they want," Simons said, "they enter their billing information and they don't check to see what got them there. And, again, that's not producing what you promise. You have to make sure your back end is just as good as what got them through the door."
"Guys are making huge amounts of money and you see that big brass ring," Matt M said, "and it's difficult. Nobody said it was easy. But you find out you can cheat and cheat and get toward that brass ring. But if you don't have quote the proper moral, the right view, and you're not looking at long term benefits but you're looking for the quick fix and it's bang, you're out, it's going to hurt everyone."
Epoch director of corporate communications Rand said they have given their clients a thorough notification of the coming one percent chargeback ceiling over "months and months…the good programs who listened to our advice moved on it," he said, adding that the larger the program or client company, the more adjustment might have to be made if they want to survive – including price changes.
"There's a lot of changes going to have to come out of this," he said. "The smaller to medium programs tend to be well within the ratios. But probably the biggest change to get the chargebacks down will be people changing their price points. The higher the price points, the more it charges back."
He said that, in that regard, retention is more important than conversion, because "as soon as it does convert you're paying a commission. Let's say it converts and the person not realizing it was supposed to convert charges back. You lose the dollars in the conversion and the dollars you pay the affiliate. What's more important is retention, and it's no secret that lower price points retain longer than higher ones."
Rand added that he, too, doesn't think anyone is likely to be put out of business right away under pressure of the new chargeback ceiling, even though one or two companies long before the deadline arrived had done so rather than deal with it. "I wouldn't be surprised if it happens," he said, "but anyone who took the time to make some changes will be showing progress. And Visa, if they see dramatic progress taking place, I think they'd be ok with that."
Rand concurred with Simons and Matt M on the issue of product quality, that it's one thing to wonder whether Visa is singling out the adult Internet for restrictive treatment but something else again for the adult Internet to all but ask for it by not delivering the goods it promises from start to finish of a surfer's experience.
"If the content inside the Website is not as promised, that has always been a chargeback problem," he said. "If you say we have five thousand pictures and a hundred live girls, and you go in and there's 100 pictures of one live girl, you hit a link and its broken, it doesn't work, those are the kind of issues that cause chargebacks. And if there's no direct contact with the Webmaster, that can cause chargebacks, too."
He said any online merchant, not just adult merchants, must maintain extremely low chargeback ratios or face fines and possible termination. "There are a lot of things online that are high risk," he said. "Even airline transactions are high risk… The people who are serious about their business, and willing to make the changes necessary to meet the Visa threshold and maintain them, can make easy changes to their business models and make sure that happens. They will be costly, people will have to change their price plans, they may have to cut their price points, but that would make a dramatic difference in the amount of surfers who will charge back their transactions."
"I've already done this and been there before with Visa and MasterCard," Simons said. "So I'm sitting back and saying what was the approach we took and survived with in audiotext. The people who were yelling and screaming and stomping their feet didn't survive, because they weren't willing to take the simple approach. This is nothing new. It's new for the adult Webmaster, but it's not new for other people. You offer something and deliver what you offer, and you'll cut your chargeback ratio."
An early version of this story on AVN.com wrongly identified Matt M as CCBill director of Webmaster services. Matt M is director of Webmaster services for ARS.
