Adult website payment processor Epoch announced last Friday that Visa has made more changes to the adult website billing model – this time lowering the acceptable chargeback percentages while implementing new policies that could cause some webmasters with high chargeback ratios to face heavy fines and possibly even lose their ability to accept Visa cards.Adult website payment processor Epoch announced last Friday that Visa has made more changes to the adult website billing model – this time lowering the acceptable chargeback percentages while implementing new policies that could cause some webmasters with high chargeback ratios to face heavy fines and possibly even lose their ability to accept Visa cards.

News has been circulating that the adult website billing model is once again in store for sweeping changes due to reported additional tinkering from Visa USA, this time in regard to the rules concerning acceptable chargeback ratios for “high risk” Internet merchants. Third party billing company Epoch/Paycom claimed recently that all Internet Payment Service Providers (IPSPs) will be affected by the new rules.

CHARGEBACKS AGAIN THE ISSUE

There has been no word yet if Visa International will implement similar changes in regard to their chargeback policies.

WEBMASTERS AT RISK

Of special significance in the Epoch/Paycom announcement is that Visa USA will apparently start monitoring the chargeback ratios not just of the IPSPs, but also of the individual “sponsored merchants” who use IPSPs to process their websites’ credit card orders. This new development was also confirmed by ccBill. Webmasters who exceed minimum chargeback ratios could be looking at fines of $100 per chargeback. Webmasters who are forced to pay these fine will also be placed in a “break out” list by Visa, which means they will have six months to get their chargeback percentages below the cap or else be terminated by Visa. Being placed in Visa’s Terminated Merchant File (TMF) could effectively end a company’s online business.

Many adult webmasters have been concerned recently that the IPSPs, which in the past have just eaten any chargeback fines instead of passing them on to their clients, will be forced to take drastic measures and make significant changes in order to stay in business and continue offering their services. Epoch/Paycom has already announced noteworthy and significant changes that will be phased in over the next few months.

EPOCH SINGLES OUT IBILL

Yet perhaps one of the more controversial announcements made by Epoch on Friday was that of their new policy concerning clients who also use iBill’s payment processing service in addition to Epoch’s service, a practice commonly known as cascading billing. Some websites use multiple IPSPs to process payments in the hope that the redundancy will provide better financial security and a higher level of conversions. According to Epoch, Visa USA’s new policy of monitoring sponsored merchants directly means that the performance of another IPSP can now affect Epoch’s business directly if Epoch shares clients with that IPSP. As a result, Epoch announced that they will no longer process payments for clients who also use iBill to process new subscriptions. Clients who use iBill only for re-bills will not be affected. So far Epoch has only singled out iBill, with no policy against clients using the services of other IPSPs such as ccBill, NetBilling or Jettis.

In response to the Epoch announcement, iBill has charged that Epoch is merely trying to frighten clients away from iBill through unjustified scare tactics, and iBill says they have not ruled out seeking a legal resolution.

“We feel these comments and ‘revised business rules’ are the result of our competitor’s attempt to introduce a rather aggressive marketing program directed at our largest clients,” said iBill account manager Crystal Corbie through a company statement. “At this time, iBill is working with our legal counsel to review the recent policies another billing provider has introduced into the competitive landscape to determine what, if any, actions iBill will pursue.

Corbie added that later this week iBill will announce its solution to a new set of rules recently imposed by MasterCard. Epoch/Paycom is suing MasterCard over the same new set of rules but has no plans at this time to pursue similar legal action against Visa.

Not all affiliate programs are backing away from free trials, however. Following Epoch’s announcement, Cybererotica sent an email out to clients assuring them that free trials would continue. Rowdy of CECash.com offered the following defense of the free trial business model:

“If you have 100 free trial sign-ups, 60 percent cancel, you only put 40 percent of monthly members [through] the banking system, or 40 transactions. If you have 100 paid trial sign-ups, 60 percent cancel, you process at total of 140 percent of transactions for trials and monthly members [through] the banking system, or 140 transactions. [That’s] 78 percent more transactions for paid trials than free trials put [through] the banking system in a given month. This highly increases your exposure for chargebacks from the bank.”

And not all IPSPs will be introducing changes in response to Visa’s new chargeback cap. When asked how the acceptable chargeback percentage drop might affect his company’s policies, Jeff Night of ccBill said that since the company was already “well below” the 1% chargeback rate, the new rules would not affect it and would result in no new changes. According to Night, ccBill plans to continue offering free trials, but Night was quick to add that webmasters must meet a set of requirements before they can be considered for offering free trials through ccBill processing services.

SAME WAR, NEW BATTLE

Yet while adult webmasters were busy worrying about the new registration fees last October, Visa USA quietly put in place a new system that gave them more direct control over the individual webmasters who use IPSPs to process Visa payments. Each webmaster who accepts Visa cards through an IPSP is now required to register with Visa and to provide a list of website URLs showing all websites that will be accepting Visa payments through the chosen IPSP. It was this change that set the stage for Visa to monitor the activities of the individual companies that use IPSPs – a fact that has now placed some adult merchants at risk both of high chargeback fines and of losing their ability to accept Visa payments on their websites if high chargeback rates continue.

WEBMASTERS REACT

Some webmasters are left wondering why Visa seems determined to hold merchants responsible for the fraudulent activities of Visa’s cardholders.

“VISA seems to be obsessed with punishing the merchant – I wish for once they would start to look at the cardholder instead,” wrote Joe Bonin of XYCash.com during a recent discussion on YNOTMasters.com’s general chat board.

Other posters felt Visa was just trying to profit from excessive chargeback fines.

“It seems obvious to me that Visa is thriving on the chargeback penalties and just wants to make a little more money starting in the forth quarter.”

“Visa, at the same time that they dropped the [chargeback] rate the last time, began a TV advertising promotion about the Internet … and how easy it was to chargeback so that people supposedly would not fear using their cards, and [to] educate the sleazy people [as to] how to get free stuff on the Net,” wrote a YNOTMasters.com poster identified as 1\’00Guru. “It seems obvious to me that Visa is thriving on the chargeback penalties and just wants to make a little more money starting in the forth quarter.”

Yet not everyone in the adult industry sees anything sinister in Visa’s latest changes. Some in the adult industry feel that Visa is just tired of dealing with unethical adult website owners and is looking to bring some degree of control to a chaotic situation.

“I don’t think there’s any back room deals, any handshaking, etc.,” said Oz, president of TrueCash.com when asked if he though Visa had a hidden purpose in mind when they implemented this latest round of changes targeting adult merchants. “We’re just a pimple on the ass of a giant. They don’t give us that much forethought, they are simply tired of the hassles that our little industry causes them.”

Although Oz does agree that the latest changes are nothing to chuckle at. “It’s definitely the most significant event I’ve yet seen in the processor/credit card wars,” he said.

VISA RULES CONSISTENT, YET POSSIBLY INAPPROPRIATE

After a quick call to Humboldt Merchant Services, a bank that provides merchant accounts to traditional real-world retail stores, it was found that traditional retail stores also face the 1% chargeback limit – the limit doesn’t just apply to adult merchants. According to a Humboldt Bank representative, retail merchants that exceed the 1% cap for more than three months running will face chargeback fines and possible termination – although she was quick to add that the bank works closely with merchants to bring down excessive chargeback rates if they occur, and problem merchants rarely surface. She defined the high chargeback percentages that do occur as a “serious problem” and said that merchants with lots of chargebacks cause the bank to worry about the quality of the products and services that the merchant is offering.

Of course online merchants have several disadvantages working against them that don’t apply to many retail stores. Retail stores usually have the card in the store at the time the purchase is made, resulting in a card swipe and a signed receipt to prove that the customer intended to purchase the product or service in question. Adult webmasters don’t have the luxury of viewing the card in use, nor do they have the ability to collect a signature from the cardholder. It’s this lack of signature that usually allows a website customer’s chargeback request to go through without many hassles. And of course many male adult consumers will deny they purchased adult entertainment at later dates when their wives or girlfriends confront them with charges on the credit card bill. These factors contribute to chargeback rates that are generally higher than retail stores – often through no fault of the merchant.

UNCERTAIN FUTURE

Where these new charges will lead the online adult industry remains to be seen. Some adult webmasters feel the less ethical businesses will be driven out of business, which will improve the image of the entire industry while decreasing the level of competition for the remaining businesses. Others feel that Visa has too much power over the industry, and that alternative billing methods should be sought out and promoted by adult websites. There’s even the possibility of a lawsuit being leveled against Visa, although no IPSPs seem to be contemplating that route at this time.

Yet the adult industry still has one advantage that isn’t likely to go away. No matter what happens with Visa USA, the demand for adult entertainment isn’t likely to waver in the foreseeable future. And where there’s a consumer will to be billed, merchants usually find a way.

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Connor Young is Editor-in-Chief of The ADULTWEBMASTER Magazine.