Rock Solid Processing: Epoch Systems
A Closer Look at Epoch Systems
Interview by Kath Blackwell
What does every Webmaster know? The key element to creating a successful e-commerce enterprise is to find the best way to get the surfer to whip out their credit card. Smooth, flawless, seamless marketing strategies- combined with quick, easy, painless payment options are just some of the essential ingredients involved in attaining that Holy Grail. One of those basic elements - the one involving credit card processing, has become such a part of our daily lives that we, as webmasters, often take it for granted. Each one of us has our own favorite processor, our own favorite method and our own set of personal experiences accumulated working in this field. This article will focus on one of the longest running, Internet-based processing companies in our industry. Today we meet Epoch Systems - up close and personal.
I was given the opportunity to meet with Clay Andrews, President and co-creator of EPOCH Systems (www.epochsystems.com), to discuss this company's past, present and future - and what their history, plans and expectations mean to the average webmaster striving to make a living in this very unique industry.
Klixxx: Can you give our readers a little background on yourself and Epoch Systems- how and when it all got started?
CA: Actually I became involved in Internet business in 1995, and got started in the way that a lot of other people did. I saw it as an opportunity to start making money, both in non-adult and adult Web sites, and I quickly found that adult would be more lucrative, so I focused my efforts on that space. I started moving into pay sites, and discovered there was no reliable billing solution with the features you would need to process profitably. There were very few processors around at that time, so my partner, Joel Hall, and I decided that we could build a better mousetrap. Joel and I started, by thinking through the life cycle of a transaction and what each of those components would require, technically. So we started development and completed our first transaction in 1996 - that's when Epoch was born.
Klixxx: If you were to reflect over the years, from start to present, how would you sum up the "career" of Epoch Systems as a leading processor for the adult webmaster industry?
CA: A roller coaster.
Klixxx: What would you say were some of the high and low points during that time?
CA: Our industry has gone through so many changes in a six-year period, technically, economically and operationally. You know, most businesses experience difficulties while growing. Our business is no different. Except that in the Internet, the speed with which things change and move is far greater than any other business that I am aware of. So, you are moving at the speed of light, and when a problem arises you have to react- and fast. Our staff has grown from two, to seven, to 160. We started in an apartment and now we have 30,000 square feet. We hired many people over a short span of time, and trusted them. In hindsight, much of that trust was misplaced. We were hurt financially, as well as our reputation, by the actions of some of these employees. Everyone is aware and focuses on, our past payment problems, as they should. Late 1999- was a difficult time, and affected many people, including us. The issues which caused those problems - all of which are now resolved - had their basis in the fact that Epoch wasn't paid for credit card transactions, which were processed on behalf of our webmasters. This in turn caused payment delays to our webmasters- significant payment delays. However, although we have never been paid most of those funds due to us, we still made good on payments to our webmasters. We're talking about tens of millions of dollars. But you know, we did the right thing. We suffered personally, we lost business, and we started over again- financially. That problem, while we would not wish it on anyone, was a learning experience. We are stronger now, because of that experience.
Klixxx: How would you say Epoch Systems has changed and grown since that time? In what ways have you evolved and matured?
CA: While our cash flow was affected, our technical abilities were not. We focused on building and maintaining a stronger technical infrastructure so that our clients would never have to wonder "is EPOCH up?" We got rid of those people that were responsible for putting us and our clients into financial danger. We brought in a new CEO and partner, whose focus is on financial and administrative areas, allowing Joel and me to concentrate exclusively on technical, marketing and processing development. We are stronger now because we are focused, our cash flow is perfect, our infrastructure is stronger in every way imaginable and we are ready for the growth that we are starting to see today. Business is coming back to EPOCH. We have regained the trust of the Webmaster community and they are demonstrating that by returning their processing to EPOCH.
Klixxx: Aside from processing our payments for our businesses, what are some other things that processing companies do on behalf of the adult industry that most of us aren't aware of?
CA: Visa and MasterCard deem our transactions to be "high risk." As everyone knows, there are greater restrictions placed on our transactions and the processing requirements are changing, daily in some cases. So infrastructure and an ability to react quickly, technologically, become very important to the overall success of a processing company. From technology to billing - risk management to compliance - and customer service - Epoch is now at a point where it has never been before. In the not-so-distant past, we, as an industry- were afraid of Visa, for example. I mean, they were literally putting people out of business. Now, we work with Visa, both here in the US and Internationally. EPOCH is involved in the process- and effecting change- which will work for the webmasters, as opposed to sitting back and waiting for changes that could put us all out of business. EPOCH believes that we cannot be out of that important loop. We refuse to be a victim. We are proactive in every aspect of our business. We focus on our core competencies and that allows the webmasters to focus on theirs. Using a third-party processor means that you are choosing a partner. We learned, the hard way- that choosing a partner is the most important decision a business will make. We think that webmasters who choose EPOCH make a wise choice, when they compare our entire operation to those of our competition.
We're all in this business to make money, and the most important part is the ability to accept payment for services. It's been the most challenging aspect of the online adult business so far.
It is also important to show the major credit card companies that we, as a responsible company, can help them- and ultimately provide their cardholders with goods and services that they want to buy with their credit card. We now know that we are viewed as a true business by the card associations, and we have demonstrated that we are responsibly committed to our business.
Klixxx: A lot of webmasters don't understand just how important the value of a good, secure payment processing system is to the overall success of their business. How would you best explain the importance of this "heart of the industry" to the average webmaster just getting started?
CA: First of all, look at the companies that have chosen to process with EPOCH, and more importantly, stayed with EPOCH even when we had payment problems. Net Management, Flashcash, Topbucks, Python, SilverCash - the list goes on and on. The biggest, most sophisticated players in this business have chosen EPOCH as their partner.
For those just getting started, you have to understand that in order to accept a credit card as payment for a product or service, you must have a relationship with an acquiring bank. It's like a line of credit in many respects. This is called a merchant account. You either open your own account or use a company like Epoch Systems - a third party company, renamed recently by VISA, as a PSP (According to VISA, a PSP - or Payment Service Provider - is defined as, "a payment gateway, or a program that offers payment collection and disbursement services"). Our entire infrastructure has been built to support our PSP account, which must work within the credit card company guidelines. If you open your own merchant account - if you CAN open your own account - you will have to be able to manage the account and work within the guidelines yourself.
Getting a merchant account can be difficult, because the credit card companies classify sites selling adult content under a MCC (merchant category code) #5967. Those transactions are treated differently than a brick-and-mortar business, because transactions are processed in a card-not-present environment, which means that you can't swipe the credit card and obtain a signature from the cardholder.
Klixxx: I can understand the risks involved in processing Internet-based transactions - especially adult-oriented ones, but why is it sometimes difficult for webmasters to obtain their own merchant accounts?
CA: Obtaining a merchant account to acquire high-risk transactions is difficult because it's hard to find banks that will accept it- or that have enough Tier 1 capital, the amount of capital a bank is required to have to accept high risk Internet transactions. Once you get the account, you have to maintain the account within card association guidelines. If you don't, you will lose the account. Moreover, you will potentially be placed on the Terminated Merchant File (TMF) - and that can prevent you from getting another merchant account in the future - for any type of business. Our infrastructure is here to manage all of this for you - to keep your account in compliance with all of the rules and regulations set fourth by the card associations.
So when people call me about setting up an account - I ask what their experience is and usually recommend third party processing to start with, because it typically requires a lot of work and knowledge to manage your own merchant account. Chargeback and retrieval processing, customer service, account reconciliation, fraud filtering - there are a lot of services that we provide to our clients that they don't even realize are the keys to successfully maintaining a merchant banking relationship. There's more to it than most people realize.
Klixxx: The biggest "buzz on the streets" lately has been about all the changes that have been promulgated recently by VISA. I know a lot of webmasters are confused about what these new guidelines mean for them. Can you outline those changes for us in simple terms and tell us how they affect our businesses?
CA: For the first time in history, VISA has recognized third party billing companies, like Epoch, as entities that they have termed PSPs. VISA has also set forth rules and guidelines which PSPs are required to follow. One example of these regulations is that every PSP must now complete and pass the CISP (cardholder information security program), which is a security audit. This audit looks at every aspect of your business. An external auditing firm literally "camps out" inside your business, and looks at aspects such as credit card data storage, physical security, intrusion detection, system backup procedures, risk management policies, hiring policies, staff backgrounds, basically everything. I am happy to say that Epoch Systems has already successfully passed the CISP audit.
More recent changes that have come through quickly, regarded an initiative to remove the words "Lolita," "peda" and "preteen," from the marketing of adult sites. Basically, it says that PSPs cannot settle a VISA transaction if those terms are used in the marketing of the online adult sites. We knew about this in late-January, and made an announcement to all of our clients so that they would be in compliance immediately.
Klixxx: Other processing companies have recently come under scrutiny for their involvement with processing account transactions for Web site memberships that boast less-than-legal content. The processing of these sites (child pornography, stolen content, extreme niches, etc.) is said to be a blemish on our entire industry, hurting not just the processing company that supports them but all of the webmasters and companies who are associated with them as well. How does Epoch filter these types of sites out of their system?
CA: Epoch will not process for companies selling this type of content - and we enforce this through our compliance department. We visit each site for which we process at least once every month, if not more frequently. We review these sites inside and out - and we are not only looking for illegal content. We have to make sure that our sites are in compliance with our risk management guidelines. We look for deceptive billing practices, cancellation links and many other factors. EPOCH has a fifteen-point site compliance requirement that we enforce very strictly.
Klixxx: Do you feel that this is a growing problem within the industry, or one that is becoming more controlled?
CA: Unfortunately, I don't think that there's been a decrease in this area - most likely an increase. There's possibly been a shift in who's actually processing the transactions.
Klixxx: I saw in a recent press release that Epoch has taken a "no tolerance policy" toward UCE (un-solicited commercial e-mails). Since that announcement, have there been many complaints, or do you feel webmasters have responded to it positively, adjusting their marketing practices?
CA: We've always had a zero tolerance policy. If we find a webmaster or reseller that is sending out this type of mail, we shut off the account.
With UCEs, sometimes there's a gray area. There are things like UCE sabotage - where one party tries to get a competitor in trouble by sending out mass mailings. There is a zero tolerance policy in effect, but sometimes it takes a lot of investigation. We do that to protect all of our clients. Whenever we receive a complaint, we go through our internal process, complete our investigation and then decide how to handle the situation. What site owners need to know is that complaints to government agencies can force our hand to action. So, whether a spam is generated from a reseller or outside marketing agencies, if it advertises your site, then you are responsible and we are accountable.
Klixxx: Epoch Systems has experienced a great deal, and grown a lot through the years - and your experience shows. How would you summarize your present position, and what do you see in your immediate future?
CA: Our problems are in the past. Epoch is back, and we're rolling. We've released many new features to enable our clients to make more money. We know that we have to constantly work to regain webmaster confidence. The new features were developed as a result of listening and responding to the webmaster community. EPOCH is dedicated to listening to what webmasters want, and to giving them the tools to get to where they want to be. We have refined our systems during the past six years, and they are secure, reliable and flexible. Ask our clients and they will tell you that we have the best "up time," conversion rates, and features. That, we think, is rock solid processing.
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