Credit Card Companies to Charge Extra for use of Porn Sites
By Linda
New rules set by financial companies could threaten the growth of one of the most vibrant drivers of the Internet's early success: pornography.

In the wake of rules from credit-card companies and banks that have strangled many online gambling sites, Visa International Inc. and MasterCard International Ltd. are now charging for 'adult' sites that may have spotty credit-card records, the New York Times reports. Many of the online companies say that the new rules, which the card companies call anti-fraud measures, will clean up an industry rife with unethical billing practices.

But some operators say that credit-card companies have taken it upon themselves to step in as de facto regulators of their industries. Others say the costs, while modest, could also drive out some smaller sites with small profit margins. The financial companies say the rules merely extend policies that have long been in place for combating fraud to a new group of businesses.

'These are wild-eyed, crazy theories,' Martin Elliott, director of corporate risk at Visa, said 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.'

One focus of the issue is a set of rules and fees that went into effect 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 charges will be passed on, with a markup, to the sites themselves. MasterCard is expected to announce similar fees, industry analysts say. The sums are insignificant to larger sites but could be enough to cause losses at smaller sites. Tens of thousands of adult sites are home-grown entities, industry specialists say.

The new fee structure comes with banks that issue MasterCard and Visa cards having already made a significant impact on online gambling. Numerous banks, including some of the largest ones, now 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 are not even sure they will be repaid for extending credit, with some courts having ruled that gambling debts are unenforceable.

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

The credit-card companies say 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 cardholder denies having made a purchase and demands that the company take the charge off the bill.

Charges made on adult sites have 'significantly higher' rates of disputes than other businesses, said Elliott. He blamed these disputes on the Web companies, which he said often employed unscrupulous billing tactics. Elliott added that Visa had required other high-risk businesses to pay fees for a while.

The new rules, however, are focused on an emerging class of intermediary companies, known as Internet service payment providers, he said. Those companies process billing and provide innocuous names for adult sites. The intermediary companies, Elliott said, have given the adult entertainment 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 videos online and that worked with the intermediary companies - and were not anti-pornography measures.

'We're not singling them out,' he said, 'but they are, de facto, the predominant merchants' in the category. Chris Mallick, chief executive of Paycom Billing Services, a financial intermediary company, said that the credit-card giants' rules made sense and that his company had readily agreed to new rounds of security and background checks that were part of the process. 'They're making us more part of the solution to handle these sorts of transactions,' he said. He also called the system 'a great revenue generator for Visa,' as thousands of sites pay the fees. But his tone was less grudging than admiring: 'This is America - you're supposed to make money,' he said.


 
 
 
 
 
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