The New Visa Rules And Their Effect On The Webmaster Community

Last Thursday at the Cybernet Expo, Dr. Clay Andrews of Epoch and Ron Cadwell of CCBill spoke to an audience of about 50 Webmasters regarding the new Visa regulations and what the latest updates mean to the adult Webmaster community. Most Webmasters became aware of the new regulations in October 2002 when, in an unprecedented move, the three largest billing companies (Epoch, CCBill, and IBill) made a joint announcement regarding the new Visa regulations and what Webmasters need to do to become compliant. Since that time, rumors abound about what these changes mean and why they are taking place. Cybernet Expo was the first Webmaster conference which allowed Webmasters to directly address representatives from the billing companies in a panel format regarding the new rules and their effects.

Knowing that Webmasters would be full of questions, Dr. Andrews immediately opened up the floor without any preface. One question that seemed to be on everyone?s mind was whether MasterCard would follow Visa?s lead with similar fees and mandatory registration. Andrews was quick to point out that at this time MasterCard has made no such announcement regarding IPSPs (Internet Payment Service Providers) but that similar rules and fees can be expected in the near future. Mr. Cadwell added that PayPal, an online payment service, has been classified differently from IPSPs, and merchants using their services are already required to pay a MasterCard registration fee.

Getting back to the topic of Visa, questions from Webmasters addressed what the rules mean and why they are being implemented. Basically, the new rules put an end to cross-border acquisitions. This means that in order to do business in the United States, you must be incorporated in the US and have a physical presence there. The registration fee for new accounts is $750 for the initial registration and then $375 annually thereafter. Cadwell pointed out that Webmasters who feel the initial fee too exorbitant should consider that it equals roughly $2 per day to be able to accept Visa payments and is not an unreasonable fee for most programs.

IPSPs are required to report credit and chargeback ratios to Visa (on the domain level) for each program (referred to by Visa as a ?Sponsored Merchant?). Cadwell stated that CCBill, as well as Epoch, have been reporting this data to Visa for over 18 months. Andrews elaborated on the new regulations adding, ?Lots of people have done damage to the system which has caused these new rules to come into place. Visa monitors us, we monitor you.?

IPSPs are expected to keep credit and chargeback ratios within the established thresholds. This is no easy task considering the thresholds are extremely low and Webmasters seem to be concerned with through-put above all else. Thus the balancing act: IPSPs must continually evaluate and tweak their systems to ensure longevity in the marketplace (by remaining within established parameters), and maximize transactions to remain competitive in the industry. Given today?s affiliate commission-based payout model, it makes the most sense to process with a company that allows maximum through-put while at the same time keeping chargebacks as minimal as possible. It makes no sense to pay out commissions on the front end if you?re going to lose them on the back end due to a credit or chargeback.

One Webmaster questioned whether scrubbing has changed since the new regulations went into effect. This particular topic has also popped up on various Webmaster chat boards. Both Cadwell and Andrews stated that scrubbing has not changed.

Another Webmaster questioned the ability for a Sponsored Merchant to obtain his/her own merchant bank account. Although this is not impossible, the new regulations have created an enormous barrier to entry. Merchant banks must now have 100 million dollars in tier one capital to accept and settle high-risk (code 5967) transactions. Cadwell added that this means the bank must have this capital in equity and not deposits and this has effectively put an end to ?boutique and offshore banks? that were frequently used by Webmasters in the past.

Andrews stated that due to the strict ratios and the enormous difficulties in obtaining a merchant account that can accept high-risk transactions, most programs stand to benefit most by using an IPSP to manage their transactions and maintain low credit and chargeback ratios. When asked about the processing rates billing companies charge, Andrews went on to say that given the amount of front end and back end support required to successfully manage a business for high risk transactions using your own merchant account, the cost of using an IPSP is very competitive and relieves the Webmaster of most of the risk and puts the transactions in the hands of a company which specializes in this particular industry. Cadwell went on to quote that CCBill rates vary between 10.8% and 14.5% based on volume.

Aly Drummond from Python, the seminar moderator, added that when it comes to processing you really get what you pay for. Having visited Epoch on a few occasions, she has found a new respect for the enormous infrastructure that it takes to effectively manage an IPSP, saying that with an IPSP, ?Your money is in good hands.?

Andrews took this opportunity to announce that Epoch is now offering members who call their billing support call center a ?loyalty discount? for sites that have approved this service. Epoch clients need only to elect to participate and to name their loyalty discount offer. Canceling members, whether online or calling the billing support call center, will have the opportunity to extend their memberships at a discounted price if they so choose.

We would like to express our appreciation to the organizers of Cybernet Expo for the opportunity to address these issues and clear up some of the confusion.