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 it 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 90'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 2005, 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 AdultShopping.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."
In addition to the extra high cost imposed on the adult industry credit card
processing. 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
[email protected] .
David Levine will be on YnotRadio.com Wednesday May 10 at 12:45PM PST to
discuss this topic.
Dave Levine
617 666 3856
Convergence Inc.
President