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Visa/MC is a monopoly
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 |
interesting, to be very honest
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Actually Visa/MC only take .095 basis points on a transaction and the issuing bank gets the rest.
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more than interesting . . . its a lot of money.
No reason for video processing to be over 2% per transaction. If you run a good biz and are paying 10% or have the offshore 6-7% deals, you are being ripped off! |
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My main point is that as a monopoly Visa restricts banks ability to sign up adult video companies and the also sets rules to fix high prices. Thus someone is unfairly making extra money due to illegal monopoly actions. This is a good point however, to figure out exactly who is making the $$. I believe that Visa is federation of banks that do its processing. Thus even if the banks rather than visa get the extra profits, somehow, that may be further distributed to visa? Not sure, but I am going to research this. . . . thanks! |
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Visa/MC doesn't restrict the Banks to sign up adult videos or products but they do have a different classification on adult memberships, pay per minute and pay per call etc.. The reporting and chargeback monitoring can be extensive on these merchants as well as the fines for violations and that's the reason banks don't want to process adult. |
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The idea that online video is riskier is absurd. Shipping a physical item is more expensive than bandwidth! The different classification is used to "unqualify" all those transactions and therefore fix higher prices. The extra reporting and monitoring are actions used to restrict supply; however, they do other things to restrict supply as well. The extra monitoring alone is not enough to stop a bank from making all that money! The point is, banks are not allowed to make descisions and set prices like they can for other classes of products. (Kroger for example argues that all transactions even in their category are at inflated high prices because visa restricts competion for them as well) |
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Great point as far as the shipping costs are concerned. At least with physical goods you actually have a shipping address though, it's pretty hard to scam that way. The fact that they are controlling this based on their own interests IS crazy. They do it with buying of all sorts of intangibles in adult. |
Btw Dave, we should get together some time and have lunch or something. :)
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They claim the address verification system restricts fraud, but that is BS since it is very unreliable. We don't even use it at SEXTOY.com. We have other methods to reduce fraud. Also, a lot of fraud is not to buy the product, but to become an affiliate and enter fake orders to earn commission. In that case, a wrong shipping address doesn't matter either. The bottomline is that there are many adult companies with under 1% fraud who sell online video, membership, etc. We should stop believing the hype about those businesses being high risk. Not sure what you mean by "The fact that they are controlling this based on their own interests IS crazy. They do it with buying of all sorts of intangibles in adult" |
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Lunch is for wimps! Call anytime to catch up! |
If I remember correctly I think visa issued a statement a couple years ago that said adult transactions were only 1% of the profit but 50% of the complaints.
The fact is they can't legally ban adult sites unless there was a law against viewing adult sites so they've tightened the screws. |
big dogs don't bite eachother....
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Visa and MC make money no matter what. They make money on fraud, they make money on legit orders, they make money from merchants and they make money from customers. They cant lose.
The fact of the matter is this situation will NEVER change until merchants stop accepting credit cards or until government regulation prohibits these practices. Neither well happen, as ceasing to accept cards is certain death for any online business. When someone makes a better system, this bullshit will end. Until then, everyone is crying about a system that cannot be changed or fixed. |
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Dave,
You know the score.... Look at the court battle Amex had with visa and visa issuing banks. Finally banks can enter an agreement with Amex, issue consumer credit cards from those banks / process through the amex network and not worry about visa pulling the cord on there visa issued cards. While I have always thought that products / tangebile items are less risky fraud and chargeback wise - I do belive non tangebiles should be just as cheap processing % wise. When verified by visa and mastercard secure code finally is mandatory or something mabey less fraud will = less risk = less fees. On all our product orders we use avs, but that's just the start - our internal fraud screening is what really matters and we don't get many cb's at all. Wasn't like that years ago but it's better now. |
capitalism is the best
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visa makes money? wtf?!?!
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I belong to a few associations for credit card merchants and am constantly amazed at the games Visa/MC play.
Fraud happens with tangible goods as well, as that's a huge portion of my income. I remember one customer who ordered 3 videos and they were shipped to him via UPS, weight of the package was 3 lbs. When he got them, he didn't like 2 of them and sent them back. I explained my "no return unless defective" policy that he CLEARLY checked off and agreed to, and I refused to issue a refund since he watched all videos. He issued a chargeback for the full amount. I showed proof of delivery by his signature, proof of weight of the package that was sent to him, yet he told his credit card company he returned all 3 videos. I had proof that his package, shipped to me by the USPS, weighed exactly 2 videos-worth and that was it. In order to fight the chargeback, I would have had to pay a fee of $400 whether I won or lost. In another situation, I noticed a higher discount rate on several transactions and asked why. They were debit cards, and they process those at a higher rate. The problem? Somone giving me a credit card number online or over the phone doesn't differentiate to me if it's a debit card or not and there is no way to know by the number. So I lose another 1.25% of each sale if it's a debit card. You said Visa/MC can shut you down at any time. What's worse is they can put you on the TMF (terminated merchant file) and after that, basically, you can never, ever get another account. |
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unfair as it may seem, a Monopoly is needed in this case of Visa/Mastercard. Reason being that if there wasnt a monopoly then you wouldn't have access to billions and billions of card members. Would you really want to take all the time and effort to go out and collect a million different banks issuing gateways and connect them up to your system. You would spend years.
Visa/Mastercard is one of those monopolies that allows everyone to make more in the end. Yeah sure they take some money, but everyone needs to profit. Think if there was no Visa, where would the adult industry be? Alot further behind. Jim |
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They lost a couple cases last year. |
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The case against microsoft was not that it was wrong for them to be a monopoly. The case was about them abusing that power. Visa is in a similar situation in that they are abusing their power. Since most video transactions are billed at say 9% on average and they should be billed at about 2%. That is 7% of about probably $1 billion a year in transactions. Thats 70 million dollars per year being seized illegally. That is not just "some money". |
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Further, there is no reason for them to be a monopoly in this way. They should allow banks the freedom to determine risk and set prices as they see. Some banks may choose to process for adult and other may choose not to. Instead Visa makes it expensive and often impossible for adult video companies to accept visa without banks even having the option to act as private company and choose who they want to do business with. |
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"Chargeback Reversals/Collections If your dispute and documentation supports a reversal of the Chargeback to the card issuer, and is received within the MasterCard and Visa reversal timeframes, we will reverse the item back to the card issuer and your account will be credited. It is important to note that the reversal is contingent upon the acceptance by the card issuer and/or the cardmember. The item may be represented a second time and your account will be debited accordingly. A reversal is not a guarantee that the Chargeback has been resolved in your favor. If the Chargeback is presented by the card issuer a second time, it cannot be reversed and you may be debited. If you feel strongly that it is an invalid Chargeback, you may request us to have MasterCard or Visa review and arbitrate the item to determine the validity. Both MasterCard and Visa have a $150 filing fee and a $250 review fee; both fees may be non-refundable and may be debited to your account. In addition, if the decision is ruled in favor of the cardmember and/or card issuing bank, an additional penalty may be assessed and debited to your account. If your dispute and documentation supports your case, but is received after the MasterCard and Visa timeframes, our only alternative is to attempt a 'good faith' collection with the card-issuing bank. This process can take from 30 to 180 days, the transaction must meet the card issuer's collection criteria (e.g., above a set dollar amount; within a specified time limit; etc.), and the card issuer may assess a collection fee (e.g., $25 to $100). A 'good faith' collection is not a guarantee that any funds will be collected on your behalf. You will be credited, when and if, the card issuer accepts the collection and makes payment (less any fees charged by the card issuer)." |
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Cable companies are the same - monopolies. |
they sure as hell are
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Cable companies used to have monopolies for their local areas. but now there is competition in most markets against cable companies. |
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.. trust me when I say someone is working on a solution though! |
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SexToyDave, Dave here are the solution's. ** put together a group who pay for attorneys and court fees. maybe win. agianst visa/mastercard maybe not...lol or ** create a company 'XZY' get a merchant account at 2% (adult) then open up sub accounts under company 'XZY' merchant account for other companies. example: sextoy processing 2% xondemand processing 7% have sextoy process all orders for xondemand on a sub-account to sextoy merchant processing... I have in my main stream biz set up processing with a bank for one company a. then I had company a. do processing for company b. same merchant account with several sub-accounts. we don't need to do buisness with everyone, everyone needs to do buisness with us. <-- visa visa and master card 4-sure control a % of online processing and set pricing. :) |
You people have obviously never heard the phrase... "the road to hell is paved with good intentions"...
You may claim that the card associations are a monopoly. They may in some instances be breaking laws like Sherman Anti-trust or other collusion type laws. In the case of coding and segregating their merchants based on historic data -- of which they have tons that would stand up in court if they decided to pull the plug, not to mention the fact that by the time anyone ever actually managed to get them into court over doing such it would be so long after the fact that it wouldnt matter -- they have every right to segregate merchants based on risk factors. Visa and Mastercard are associations. Their member banks are the ones that sit on the association boards and make up the rules. Visa and Mastercard are brands. Very well funded, highly marketed brands. The associations create rules based on what is best for the member banks. There is no man behind the curtain in this case. Rates are determined and merchants coded in the same way that insurance rates are arrived at -- based on historical risk and loss analysis. Shipping a physical product is not more of a risk than a downloaded product is to the association. With a physical shipment there is proof of delivery which negates the majority of chargeback claims arising from consumers saying they didn't receive a product. Most of the chargebacks on physical goods come from consumers saying the product wasn't what they expected, was damaged, was not what they ordered, etc -- and those chargebacks are supported when the consumer returns the goods to the distributor. Consumers failing to return goods don't generally get a chargeback to stick. Portable media, especially involving recurring billing models, is an entirely different animal. There is no way to prove that the consumer was able to utilize the materials in the manner that they expected. Compatibility issues with software or older computers, installer software failing to work, etc, these are not things that can be disproven that easily by the merchant. When MC or Visa terminate accounts for failing to stay in compliance (and their compliance terms are pretty well published) they have every right to do so. We don't have to like their rules but they are the ones that make the rules. When you have industries where fraud is rampant and out of control -- which it still is today, ask any PPS program owner -- combined with materials being sold that are borderline legal -- finding a judge that will side against the associations is nearly impossible. The amount of money that such a campaign would take, coupled with the fact that by the time it was over it would probably be a moot point anyway, simply isn't worth it. No one forces merchants to take Visa or Mastercard. That's their biggest trump card and one that isn't going to be overcome any time soon. This isn't a case of the associations telling their member banks they can't issue Amex cards, this is a process and a set of guidelines based on historical data that those in this industry directly are responsible for. |
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Not monopoly, More Oligopoly or Cartel is the right words.
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Would love to know what ticket masters charge back ratio is.
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Cable companies most of the times (around here too) have the monopoly. But you do have satalite as an alternative for television. :2 cents: |
lol many would be surprised to know that Amazon had cb ratios of nearly 9% at one time .. however, there are different TYPES (reason codes) of chargebacks.
For example, for Chargeback Reason Code 83: Fraudulent Transaction The types include: Error cb, Dispute cb, Post transaction cb, Fraud cb, Unathorization related cb. Certain types of CB's are more highly frowned upon than others of course so I doubt Visa was breathing down Amazon's back too much. When viewing cc use in this manner you can certainly see why having a customer swipe and authorize his card at your local diner (card present transaction) has every right to get lower processing rates than a card not present vendor. The associations 'high-risk' categories are certainly not confined only to adult merchants and they do have legitimate reasonings behind many of the regulations IMHO ... however, it is my right to complain about it if I darn well feel like it ;P |
Remember Paycom tried to sue Mastercard around 2 years ago for abusing their oligopolistic market position and got their asses handed in court. The judge followed the defense argument that Paycom and any other merchants were free to focus on of the dozen or so other credit cards in circulation, such as Visa :1orglaugh
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Well said KimmyKim!!!
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I understand that card present vs card not present are labled higher risk. And although one could argue that banks and not visa should make that decision as well. My issue is regarding the extra restrictions against adult video transactions. NO ONE is working on this issue. No offense, but the only reason people get off shore accounts is because Visa has restricted accounts in the USA. Thus, you are not working on this problem, you are profiting from it :) |
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An Economy does not have monopoly periods. companis can be come a monopoly or an industry may be dominated by a monopoly or oligopoly. And yes, the structure within an industry varies over time. |
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My replies are within these quotes after the ***
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Actually I am not sure how many cable markets are competitive . . . but this is off my topic anyways. |
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I use 2CO.com for my stuff, as I dont have anything adult up and running yet. They dont take adult stuff in most cases. My chargeback fee is $30 on one account and $18 on another. I have no liability for chargebacks that are a result of fraud if the internal fraud department clears an order that later turns out to be fraudlant. |
wOW.... thanks for the info....
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