The following editorial was submitted to YNOT by a member of the YNOT community and represents the opinion of the author. If you would like to contribute an editorial to YNOT, please use one of the many “submit” links found throughout the home page of the site.

Visa and Mastercard is a monopoly. That fact has been upheld by courts in several decisions over the last few years. It is also a fact that Visa/MC uses its monopoly to raise prices for all merchants, and restricts supply to adult merchants. Visa/MC actions are illegal and there is more progress being made on the legal front than many adult companies realize.In the late 1990’s and early 2000’s there were a lot of young entrepreneurs making lots of money selling porn over the Net. Although the sales poured in, many of those companies didn’t set up customer service centers and many didn’t even know how to issue refunds. Even worse, some were real crooks who stole money.

The problem was a new fast growing easy money industry with almost no barriers to entry. Yes, there was a lot of fraud in the adult video industry, but that happened not because the product was porn. It happened because too many bad business people at the same time did a bad job at running their companies. Fraudulent billing at many of these companies was over 50% of sales!

Now in 2006, the only big adult porn companies that have survived are well run honest profitable organizations. And as everyone in the adult industry knows, chargebacks over 2% are a thing of the past. The only one that loses on fraud is the merchant. That incentive as well as good business sense has virtually erased the credit card fraud issues that occurred before the internet bubble burst.

Visa/MC has used this history to convince many in the adult industry that they actually have risky businesses! If you run a large successful company with chargebacks under 2% from a diversified customer base, you are not a risky company. And if you are paying over 5% per transaction, not only are you not a risk, you are a gold mine for Visa/MC. The banks make money on the fraudulent orders as well with the only loser being the merchant.

I own SexToy.com and thus am allowed a lower rate for processing orders to ship product rather than delivering video. Visa/MC have convinced many people that shipping product is less risky than selling video electronically. This is also absurd. If someone steals from me, I lose the money and ship product. An online video company loses the money, but can just shut down the account and only loses any used bandwidth. I would rather lose bandwidth than a vibrating rabbit any day.

Up until a few months ago, I wondered if I was crazy because the insane high rates charged to adult video and membership companies seem to go on with little complaint. But recently, the front page of the Wall Street Journal had an article describing how several merchants have filed a lawsuit against Visa/MC regarding their illegal interchange fees.

Then a few weeks later, Kroger said it “charged Visa USA Inc. and Visa International Service Association with colluding with its member banks to illegally fix prices on interchange fees, which credit card issuers like Visa and MasterCard charge merchants each time a customer pays with a credit card. Cincinnati-based Kroger also alleged that Visa set rules and restrictions that forbid merchants such as Kroger from negotiating lower fees.”

Merchants’ number one risk to their business is Visa. If Visa determines that any company has violated its illegal regulations, that company can be immediately shut down. Without Visa or MC processing, almost any company would quickly perish.

This is a huge complex issue that has a great effect on the profitability and value of adult companies; yet, as far as I know, no one is working on solving this problem! The industry should form an organization that works together in this fight against the illegal actions of the Visa/MC monopoly. If you are interested in joining. or for more information and articles, go to http://www.sextoy.com/content/visa-monopoly.html.

Or just email stopvisamc@davelevine.com.