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VISA FUTURES: Ready or Not
By Kath Blackwell
 The Adult Industry continues the maturation process with a new round of processing regulations from the leading credit card issuer. New requirements may begin a sorting process more effective than a giant weed eater.
With the memory of the early days fading into memory, Adult Online Entertainment is now maturing as an Industry. Having taken its stride through it's own version of puberty - we now see it beginning to grow up, and adulthood is bringing grown up considerations, just as in the mainstream corporate world - translation, regulation. As with our own adolescent years, sometimes it's just time to grow up - whether you're ready or not. Certain seasons and twists in nature force us to stand up, come into our own and rise to the occasion. The credit card issuers have initiated the latest winds of change to blow through our industry. Whether you think it's right, wrong or have no opinion - these changes will influence and affect all of us at some level, and will be factors in determining our growth and direction as a trend-setting, record-breaking industry within the realm of the World Wide Web.
THE E-MAIL HEARD 'ROUND THE WORLD...
Not unlike other pivotal landmarks in history, many adult webmasters can remember where they were and what they were doing when they first heard the news. Epoch/Paycom Systems, iBill and CCBill joined together to send out the first electronic mailing announcing the new requirements and changes mandated by Visa to Third-Party Processors. On October 2nd, 2002, the "Big Three" processing agencies notified their clients that the new changes would come into effect on November 1st and that all webmasters must become compliant OR stand to lose their processing abilities altogether.
The changes required of the processors by Visa- and passed on to their clients the webmasters, by many - were as follows:
First and foremost, credit card processors then known as "third party processing" services, would be required to become an IPSPs. The clients would become known as "Sponsored Merchants" in order to be allowed to process and settle Internet transactions. What this means is that the IPSPs (i.e. iBill, CCBill and Epoch) would provide a lot of new services to the Sponsored Merchants, and would also hold the responsibilities and liabilities attributed to traditional merchant accounts.
Sponsored Merchants (the webmasters) are required to complete a registration/application form for Visa, providing such data as: company name, address, transaction counts, dollar volumes, URLs, Tax ID or Social Security numbers, etc. The fee required for this registration would be $750 per company, plus an ongoing annual feel of $375. $250 of the initial fee, and $125 of the annual fee, goes to "administrative fees" of the banks and processors; the balance goes to Visa.
Applications/Registrations of Sponsored Merchants must qualify for- and be approved by- Visa, in order to process transactions for Visa account holders under the new rules. Merchants will be matched against the TMF (Terminated Merchant File) at Visa as well as the MATCH File, a combined database used by Visa and MasterCard.
THE IPSPs (credit card processing companies) are now only allowed to register Sponsored Merchants within the countries that the Merchants have a presence. This means - US companies need to process under IPSPs within the US. European companies need to process under IPSPs within their specific countries or regions. These changes are global - not just limited to the United States, so this affects our entire industry - not just the American webmasters.
IPSPs will be required to provide monthly sales, charge-back and credit data to Visa for review. This must be categorized by Sponsored Merchant, and identified all the way down to the URL of each Sponsored Merchant site used. If a Merchant is out of compliance on charge-back or credit ratios, they may be terminated by Visa at their discretion.
IPSPs will also be required to report information such as the Sponsored Merchant's identifier (company code), the IPSPs name - and they are required to display their Privacy Policy and Terms and Conditions on the Join Form.
MasterCard, not to be forgotten or left out of the new mandates, also weighed in with its changes in policy:
Merchants are no longer permitted to use the MasterCard logo on their Web sites.
And an ominous warning, that "several other rules will be changed."
SO WHAT HAS REALLY CHANGED?
Well, despite the initial panic webmasters have felt over having to come up with all of these new fees within a matter of weeks - days for those who weren't notified as early as others by their billing companies - not much else has really changed. Visa is still processing transactions for the adult industry - they aren't trying to shut us out of the Internet, nor are they trying to abandon us (like AMEX), so in actuality, business is still business as far as they're concerned. Sure, Visa made a "killing" from all of the new registration fees for the new "Sponsored Programs," but experts believe that this new registration process is a step in the right direction for the adult Internet.
"[This] seems to indicate Visa's willingness to listen to our industry and work with it," says Rand Pate, Director of Corporate Communications for Epoch Systems. "Cardholder acceptance is very important to them, so if someone wants to buy adult entertainment with their Visa card, then Visa wants the cardholder to have that ability." Visa maintains a desire to become the "currency of the Internet," and if they wish to hold that title, the adult industry will need to play an important role in their plans.
"All that really changed," says Rand, "Is Visa's stand on cross-border or cross-region settlement of funds. This affected foreign webmasters more severely, because the new rules forced them to have a US presence if they wanted to settle transactions through an IPSP in the states. For some, this was not a decision they wanted to make - and for others, they simply complied and moved on."
So if it's so simple - why are so many adult webmasters crying foul? Why are they alluding to some sort of "deal" made between processors and the credit card companies? Why would they think that the new Visa regulations were just the first step in a long-range plan to remove adult businesses from the Internet? For many, the new Visa regulations became a breeding ground for fears becoming realities - worries that "Chicken Little" actually knew what he was shouting about. For others, it was a sign to pack up and leave - go back to their day jobs and forget all about their dreams of making a fortune on the Internet.
"There has been a lot of misinformation out there about why this was happening," Rand explained. "In truth, these rules are not new at all, but are simply being enforced where they previously had not been. It is Visa catching up with the technology and pace of this industry. Yes, this may even put a lot of smaller programs out of business - and I personally hate to see that happen - however, the webmasters I have spoken with have overwhelmingly been in favor of the new changes and are happy to see them. It will be interesting to see what happens in the last quarter of this year. You'll probably see less new programs, and more affiliates than in the past."
CHANGES FOR THE GOOD OF THE INDUSTRY?
Could these changes actually help to heal some of the problems that we've been facing in the adult industry? Overcrowding, too much "free porn" and too many little businesses cluttering up the Web - all could be lessened by the "thinning" of the affiliate pool. Webmasters who do "bad business" - i.e. spammers, programs that cheat other webmasters, excessive charge-backs, fraudulent programs, etc. - have all contributed toward the bad business reputation of the adult industry on the Internet and have affected us all in one way or another. Could the natural selection process that will be enforced as a result of these new changes and requirements be just what we need to move forward in a more positive direction?
It's difficult to find the "good" in something that has caused such a stirring within the entire adult industry, but sometimes finding that silver lining is what separates those who will survive "the cut" from those who won't. This industry was founded upon unique innovations and risk-taking, and those who ultimately survive and lead the maturing industry, will implement changes based upon that "thinking outside the box" mentality and "anything is possible" attitude that has helped the adult industry become the leading, most successful genre of all Internet-based businesses. No minor change initiated by Visa - or coming from MasterCard - should be able to change that. We will continue to adapt and evolve.
SO...WHO SURVIVED?
Anyone who's been reading the adult webmaster boards since the announcement has seen a variety of changes taking place. Some webmasters who cried "foul" at the beginning have now changed their way of thinking, paid their fees, completed their registration and have moved on and forward with their businesses. Others have posted "going out of business" notices, selling off their paysites, members and futures. Still others have posted "paysites wanted" notices, and are buying up all of the little businesses, increasing their own size, power and opportunities. As in nature, change brings devastation to some, and at the same time provides benefit to others. Survival of the fittest means reacting to change with flexibility and innovation.
At Epoch, things are slowly returning back to normal. The rush and panic that had stricken some on the 'Net is subsiding, and the registration process is nearly over. "We are completing the final stages of our registration process as I do this interview," says Rand. "We were very happy with the way our clients responded to the registration process, and we registered 98-99% of our business with Visa. We are extremely pleased with this. Part of my job was to constantly remind our clients to register, and we even took further steps to urge some of the procrastinators to register on time. All of our efforts were very effective. I believe the only downside to being the person who brought this news to the industry, was the number of questions I received as a result of it. It helped me to understand industry concerns, perhaps in ways that no one else can. But the sheer volume of e-mail was almost overwhelming. I'm glad it's over."
NEW ALTERNATIVES?
Many webmasters called for an all-out boycott of Visa - others posted big notices to their surfers stating that they should boycott Visa because of its unfriendly actions toward adult Web sites. A few webmasters began looking for alternative solutions. Some smaller processing companies such as Jettis.com are waiving the registration fees, taking it on themselves, in order to woo customers away from the larger processing services. Paypal seemed like a logical alternative to many, but it was soon discovered via an e-mail from Paypal.com that this service too would be affected by the Visa reform.
However, once webmasters stopped and looked more closely at the changes occurring, they saw that it wasn't just aimed at the adult industry. Other businesses were also affected - other Web sites were labeled as "high risk" and were lumped in with this new mandate. As soon as they saw that it wasn't an attack on adult webmasters, the climate began to cool and tempers calmed down. Still unhappy about the new fees hitting them, webmasters settled into a quiet resignation with a very small handful of them still complaining and spitting on the message boards.
THE NEXT GENERATION...
And what of the next generation - the hundreds and thousands of new adult webmasters that will join our industry in the coming years? What advice would be given to them? "Definitely use an IPSP to process [your] transactions," says Rand. "Any of the top IPSPs can offer services designed to fit the particular needs of this industry... Epoch has programs in place to make it almost effortless to begin processing, or APIs which allow maximum flexibility and premium features."
So if you intend to become an adult webmaster - or are considering starting your own paysite and becoming your own boss - there's still hope to make that dream come to life. There will be a little more planning, investment and knowledge required on your part, but you will benefit from the hard work and sacrifices that have been made by paysite owners of the past. Some have truly given their "livelihoods" - and many have gone extinct just at the passing of this latest major evolutionary battle - but the war is not lost. There are still opportunities to make money, create new and successful businesses - and the credit card companies are still there, ready to help those dreams come true.
Sometimes success comes at a price - and the adult industry has paid some serious dues over the years. But we're all here to build a better industry - and these latest changes may just be the next major building block that will help us achieve our higher goals. Change is tough - but change can also be good. It's how you respond to it that counts.
The sky did not fall. Chicken Little was wrong again. It was a tough fight and many businesses were lost - but we're still in business. The adult industry has survived another battle - and won.
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