Visa/MC step in to regulate online porn sites

[Timber Loftis]

Today's NYTimes.
http://www.nytimes.com/2002/11/18/te...ORN.html?8hpib

Credit Cards Seek New Fees on Web's Demimonde
By MATT RICHTEL and JOHN SCHWARTZ

New financial industry rules could threaten the growth of one of the most vibrant drivers of the Internet's early success: naughtiness.

In the wake of rules from credit card companies and banks that have strangled many online gambling sites, Visa and MasterCard are now looping the noose for adult sites that may have spotty credit-card records. Many of the online companies say that the new rules, which the card companies call antifraud measures, will clean up an industry rife with unethical billing practices. But some operators say that, in fact, the credit card companies have taken it upon themselves to step in as de facto regulators of their industries.

"It gives Visa a level of control over the way business is done," said Tom Hymes, the editor of AVN Online, a magazine that covers the online adult industry. "The smoke signals are worrisome."

Others say that the costs, while modest, could also drive out some of the smaller sites that have very small profit margins.

The financial companies say the rules merely extend to a new group of businesses policies that have long been in place for combating fraud. "These are wild-eyed, crazy theories," said Martin Elliott, director of corporate risk at Visa, of the idea that this is the beginning of a larger crackdown on adult fare. "We're just trying to protect our payment system and cardholders."

At issue are rules and fees that went into effect on Friday — measures that apply to sites and companies that the credit-card issuers call "high risk." Visa will charge its member banks a $500 registration fee and an annual renewal fee of $250 for each high-risk company they pay a credit-card charge to. Those fees will be passed on, with a markup, to the sites themselves. MasterCard is expected to roll out similar fees, industry analysts say.

The sums are insignificant to larger sites, but could well drive smaller sites into the red; tens of thousands of adult sites are home-grown entities, industry experts say.

To Mr. Hymes, the magazine editor, it all looks like an attempt to put a broader squeeze on the industry. He said he was especially worried by a Visa statement on the fees that has been posted to his company's Web site: "These steps will also help keep illegal activity from entering the Visa network." That, he says, could mark the beginning of decisions by credit card companies based on the content of sites. "The implications of that statement are really chilling," he said.

Many of the entrepreneurs who run such sites agree. "I'm concerned that Visa or MasterCard could use their position to regulate content on adult sites," said Brooks Talley, who runs a site devoted to bondage and sadomasochism through his company, the FRNK Technology Group.

The new fee structure comes at a time when banks that issue MasterCard and Visa cards have already made a significant impact on online gambling. Numerous banks, including some of the nation's largest, now entirely prohibit the use of their cards for online gambling. The banks say that they are not sure that Internet gambling is legal, and that they do not know if they will be repaid for extending credit when some courts have ruled gambling debts are unenforceable.

PayPal, the big online payments company, which acts as an intermediary for consumers to buy from Internet merchants using their bank accounts or credit cards, has also said it would no longer accept payments from gambling sites. Some of the 2,000 sites devoted to gambling have said the added fees from Visa and MasterCard alone have caused their revenues to drop by as much as 70 percent.

The credit-card companies say that the new charges for adult sites are necessary because those sites cost them more money in fraud and a practice known as "chargebacks." In a chargeback, a credit card holder denies having made a purchase and demands that the company take the charge off the bill. This practice, which gives new depth to the term "buyer's remorse," often occurs, for example, when a husband incurs a charge and his wife discovers it, said Chris Mallick, the chief executive of Paycom Billing Services, another financial intermediary company.

[This is part 1 of a 2 part article]

[WillowIX]

Will part 2 follow soon TL? Interesting reading. Whatever the credit card companies say their reason is, good riddance [img]graemlins/thumbsup.gif[/img] ! Now if they could get the spam mail and some of perves of the Net as well...

I don't have a problem with any material on the internet as such. I think the fact that there is so much diversity online makes the whole internet experience interesting and addictive. The only thing that really gets to me is advertisements, pop-ups, spam emails, things like that. I've lost count of the amount of times I've received 'enlarge your breasts' emails in my inbox. I may be flat-chested, but I'm also male. Things like that just get on my nerves.

[WillowIX]

Originally posted by Arledrian: I've lost count of the amount of times I've received 'enlarge your breasts' emails in my inbox. I may be flat-chested, but I'm also male. Things like that just get on my nerves.

But shouldn´t men be the ultimate target for that sort of spam? I mean we women already have breasts whereas most men are sadly lacking [img]tongue.gif[/img] .

[Timber Loftis]

Per request, here's part 2.

TL's brief OpEd.
Now, I'm not against smut- which I think is healthy, especially in our be-and-assert-yourself society we currently live in. I am all for a healthy attitude towards sex, and think that couples should (and are happier when they) define their own personal boundaries rather than have the nanny-culture dictate such boundaries for them. As for how these sites hurt our society, I'll note all freedoms hurt someone. Hell, empowerment of women helps cause the breakdown of families (obvious: when both sides are empowered, both have the freedom to leave a marriage), but that doesn't stop us from realizing a social good when we see one. Plus, if you're someone who visits the readily-available beastiality and rape sites, etc, all I can say is some day you will accidently out yourself, and we'll all know what a sicko you are.

But, I cannot stand the porn industries incessant spam, fraudulent billing practices, and general fraud. Such abuse has been around for ages. TL almost got his father fired once when he was in 7th Grade. SOmeone at school gave him a 1-900 number to call. TL, ever curious, called it that afternoon when he was at his father's office (he rode the bus there after school) waiting until the usual 5:30 trip home. TL, and other kids who waited for their parents at this office, called, heard the smut, giggled a bit, passed the phone around, and hung up. Then it called back!!! It was like a horror movie. Anyway, several parents got in trouble with their bosses, and TL learned early on that if you're going to pay for smut, just buy the magazine and limit it to a cash transaction.

Oh, and BTW, some % of "chargeback" (usually up to 3%) applies to every challenged credit card transaction, so the cards are simply raising the % rate of an already-existing penalty to those industries that are "high risk." On the other hand, repeat "chargeback" offenders garner higher rates and possible withdrawl of their approval to take credit cards, so these penalties would apply to an offender anyway - making it suspect that they target a group of offenders on a first-strike basis. LIke all disputes, there are a few sides here.

THat said, here's the requested second part:

Credit Cards Seek New Fees on Web's Demimonde
(Page 2 of 2)

David Robertson, publisher of the Nilson Report, which follows the credit card industry, calls many chargebacks "friendly fraud," and says they are rampant on both pornography and gambling sites. "The dirty little secret that occurs in the card business is this kind of fraud," he said. Banks, which generally have to absorb the loss, do not want to challenge the cardholder, "who's making valid and profitable transactions at other merchants," Mr. Robertson added.

Chargebacks are a headache for site owners as well, said Mr. Talley, the owner of the bondage site. He has some 8,000 subscribers who each pay $16.95 a month, but he loses about $100 each month to chargebacks, he said. Often, the denials come from people who have been subscribers for several months — in one case in Newport Beach, Calif., 18 months. Generally, thieves will use stolen credit cards in different locales, but in this case the company's user logs show that the subscribers are dialing in from the same town as the credit-card billing address, he said.

Sometimes, the subscribers make the call themselves, Mr. Talley said, and he hears a tone in their voices that suggests the callers are claiming, for the benefit of their wives, that they have never visited a site like his.

"It would be the moral high ground to fight these, but in the end it's just not worth it," he said. "It just creates bad feelings."

But a Visa executive said that friendly fraud was not the kind that worried his company. Charges made on adult sites have "significantly higher" rates of disputes than other businesses, said Mr. Elliott, the director of corporate risk at Visa, which is based in San Francisco. He blamed these disputes on the Web companies, which he said commonly employed unscrupulous billing tactics like charging for membership after a subscription lapses.

Mr. Elliott added that Visa had required other types of high-risk businesses to pay such fees for some time. The new rules, however, are focused on an emerging class of financial intermediary companies, technically known as Internet service payment providers, he said. Those companies process billing and provide innocuous names for adult sites. The intermediary companies, Mr. Elliott said, have given the adult industry an end-run around the earlier rules by masking the identity of pornography merchants.

Mike Smith, senior vice president of corporate risk at Visa, said the rules applied to the broad class of companies that sold images or video online and that worked with the intermediary companies — and were not anti-porn measures. "We're not singling them out," he said, "but they are, de facto, the predominant merchants" in the category.

Mr. Mallick of Paycom Billing Services said the credit card giants' rules made sense, and that his company happily submitted to new rounds of security and background checks that were also part of the process. "They're making us more part of the solution to handle these sorts of transactions," he said.

But he also called the system "a great revenue generator for Visa," as thousands of sites pay the fees. His tone is less grudging than admiring: "This is America — you're supposed to make money," he said.

But Mr. Robertson of the Nilson Report says that Visa's fees are not designed to shake money out of the lucrative vice industries. "Visa doesn't make money on this type of thing," he said. "They're trying to weed out anyone who is a quick-shot artist. Anyone who doesn't have the money to pony up doesn't belong in the game."

The operator of one of the best-known adult sites on the Internet agreed. The notion that credit card companies might be trying to shut down the pornography industry is "complete and utter nonsense," said Gerard Van der Leun, who retired earlier this month as the vice president in charge of Internet activities for General Media International, the publisher of Penthouse magazine and the magazine's Web site.

Mr. Van der Leun said the rules were an intelligent response to an unruly industry whose members often "depend on, how should we say, a fast and loose relation with their customers' credit cards."

"It basically says you have to be an honest, upright, ethical business person," he said. "If not, you're going to suffer."

[WillowIX]

Thank you for adding the last part TL [img]graemlins/thumbsup.gif[/img] Saved me the trouble of clicking your link [img]graemlins/hehe.gif[/img] If you want to pay for this (won´t post what I´m thinking ) go ahed. But when your 7 year old daughter end up on a porn site after using googl (searching for "dogs") then you have to wonder!

[Timber Loftis]

Originally posted by WillowIX: quote: Originally posted by Arledrian: I've lost count of the amount of times I've received 'enlarge your breasts' emails in my inbox. I may be flat-chested, but I'm also male. Things like that just get on my nerves.

But shouldn´t men be the ultimate target for that sort of spam? I mean we women already have breasts whereas most men are sadly lacking [img]tongue.gif[/img] .[/QUOTE]I know some rather... ample... men in that area, thanks.