MasterCard's New Policies And What They Mean to You
by Kath Blackwell
The e-commerce community was turned upside down, after an announcement made by MasterCard with regard to its policies on third-party transaction processing. The statement said that effective May 1st, MasterCard would be clarifying its rules to prohibit members from submitting or accepting a transaction that had been submitted to the member directly or indirectly from a commercial entity that does not have a valid merchant agreement with the member. Translation - only companies using MasterCard as a "direct" processor for their goods and services would still be able to accept MasterCard on their Web sites. Companies like PayPal, FirePay, Yahoo's PayDirect, EBay Payments and other such "third-party processors" would be unable to be the "INTERMEDIARY" between small business merchants who use their services, to avoid the high costs and requirements of dealing directly with MasterCard.
When the news first broke, many Internet businesses - both small and large - began to panic. They contacted MasterCard asking for a "clarification on the clarification" because the wording seemed to state that third-party transaction processing was in danger of being prohibited under the new rules. MasterCard issued a statement a few days later saying that the rule clarification was put in place simply to ensure compliance with existing rules and is aimed at protecting consumers, merchants and member financial institutions. They further stated that nothing in the clarification would prohibit third-party processors from processing MasterCard transactions in accordance with the rules.
After further contact and discussion with MasterCard, USAToday.com published an article which stated that most third-party transaction processors like EBay Payments and Yahoo's Pay Direct, have direct bank affiliations that they go through for their processing and would not be affected by MasterCard's new clarifications. PayPal, however, does not have a bank affiliation and is still working with MasterCard to find a solution. MasterCard stated, through the USAToday.com article, that they were concerned about PayPal because without a bank affiliation, "PayPal isn't subject to the same regulations as the banks that issue its cards." Two solutions being considered for PayPal and other similar services would be to offer a bigger cushion against fraud or to give MasterCard more information about its "riskier customers." By working through a company like PayPal, MasterCard has less control over the merchants and the merchants' customers. Offering bigger protection and giving up more information on each transaction could ease MasterCard's mind about the possibility of a higher risk.
So what does this mean to the adult webmaster? What do the new policies and "clarifications" boil down to for the adult and gaming industries?
OnlineCasinoNews.com published an article expressing concern over how this might affect the casino industry, which depends in large part on third-party transaction processing. The already tumultuous industry, which has been under fire lately by the newly proposed US laws, now fears the worst. Yet, companies who handle much of the third-party transaction processing in the adult industry like Epoch Systems (www.epochsystems.com), CCBill (www.ccbill.com), PSW Billing (www.pswbilling.com), and WebsiteBilling (www.websitebilling.com) have stated to the press that they don't feel that they will be affected. Epoch Systems sent out a press release, which reads, "A recent announcement by credit card issuer MasterCard has prompted many webmasters to contact their Payment Service Providers (PSP's) with concerns about their ability to continue to accept MasterCard as an online form of payment. Most webmasters learned of the recent announcement after a story ran in USA Today. Epoch has been aware of the ruling for a few weeks and attended the ETA (Electronic Transactions Association) show in Orlando, Florida two weeks ago to meet and speak with MasterCard. 'Epoch Transaction Systems will not be affected by the new ruling on May 1st,' said Chris Mallick, CEO of Epoch Transactions Services. 'We will continue to provide credit card processing, settlement, and payment of MasterCard transactions without interruption.'"
However Avivah Litan, an analyst with Gartner, Inc. (www.gartner.com), a company that has been identifying and analyzing the trends and technologies of the business community since 1979, said that this new clarification won't affect small companies like Pay Pal or Amazon in the long run. Instead, she says more specifically, that the change was aimed at "pornographic and gaming sites, which generally have a higher rate of credit fraud and identity theft." Litan claims that one in twenty online consumers were the victims of credit card fraud in 2001. Of course the main blame for this goes to adult content Web sites and gaming sites.
Can you say, "Elaborate plan by credit card companies to hinder free speech through financial means?" Sure you can - and free speech advocates and legal eagles are already keeping their eyes on this case. Even before Litan's statement to the press, it was already expected that this was an attempt to squash adult industries - and to target smaller "mom and pop" businesses that are competing with larger more financially stable corporations. The travel industry is just one of the businesses claiming "foul play" in this move by MasterCard.
The suspicions and fears surrounding this latest change in policy by MasterCard are far from over. In an interview published on AVNOnline.com, well-known industry attorney Clyde DeWitt said, "Obviously, we have the specter of VISA and MasterCard conspiring to regulate speech by limiting third-party processors to those who refuse to process for adult businesses. We will just have to wait and see what they do."
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