Cor! Look at the embossing on that!

[Dave Birch] Since you are reading this blog post, you are undeniably familiar with the interweb. And since you are undeniably familiar with the interweb, you will be aware that it has always had, shall we say, adult areas. Let’s not be squeamish about this: you can’t go on the interweb without occasionally getting a peek behind the curtain. We’ve all been there, however inadvertently. You click on a link in an e-mail or a tweet or a web page and all of a sudden find your self looking at pictures of attractive young women in the nude, or some sexy girl-on-girl action or inappropriate pictures of under age girls in bikinis. I thought that I read in The Telegraph that the government/Mumsnet alliance were going to get ISPs to install new technology to block “The Daily Mail” from UK households unless they explicitly requested it, but apparently no such barrier on behalf of public morality has yet been erected.

You get the picture. But if you didn’t want it, stop reading now. I’m serious: if you are uncomfortable reading about what we refer to as adult services, please stop reading now, don’t read on and then send me a complaining e-mail later.

So sometimes you click and find yourself in an adult area. But you don’t expect it in a work e-mail. So I was mildly surprised, but only mildly, when a correspondent e-mailed such a link in the context of a discussion about future of online payments. (There is no reason to disclose his or her identity, so if he or she is reading, do not fear!). The link was very relevant to this discussion. Please note (and I am not joking about this) that this link is not suitable for work and you should not click on it unless you are over 18 years of age and happy to be taken to page advertising adult services. But if you want to see the link I was sent, go ahead:

Welcome to leChateau deCrypto, a cooperative of women dedicated to providing a safe and exploratory atmosphere for bit coins,

[From Chateau deCrypto]

For those of you who didn’t follow the link, it takes you to a page of adult classified advertisements where women (as far as I could see: I didn’t check all of them) offer to perform via a video link (e.g., Skype) for money. Now, it goes without saying, that as a man of the world I was well aware that such things existed, but had never actually visited any. So I was pretty shocked when I clicked on the link and saw what was there: I’d never been to a web site that accepted Bitcoin before.

That, your honour, is how I came to the world of adult web chat services. I had never given any thought to the genre before, although I’m pretty sure I’d heard of it. But I was so amazed to see these women accepting Bitcoin that I couldn’t but give thought to it. Why would they take Bitcoin? Presumably because it is sort-of-anonymous. If I were a purchaser of such services, I suppose I would be much happier with the sort-of-anonoymity of Bitcoin compared to the not-anonymity of, say, credit cards. Suppose hacktivists broke in to the adult site and posted a list of the customers somewhere? I’d much rather be BZQAHDIHEYGQA than “Dave Birch”. There are clearly a set of markets where identification of counter parties makes trade less likely. I listened to an interesting podcast about this on a plane journey recently.

Silk Road is a site where buyers and sellers can exchange goods much like eBay and Craigslist. The difference is that the identity of both the buyers and sellers is anonymous and goods are exchanged for bitcoins rather than traditional currencies.

[From Nicolas Christin on anonymous online market Silk Road]

There’s a bit more to anonymity than using Bitcoins, but you get the idea, and that set me to thinking further. Messing about setting up a Bitcoin wallet isn’t trivial. So presumably the sellers and buyers value the sort-of-anonymity highly enough to make it worth while. Which, of course, then led me to think: well, if they value sort-of-anonymity that highly then why aren’t my clients selling it to them! Or, not to put not too fine a point on it, why doesn’t my credit card issuer offer me a stealth card (name: “Card Holder”, address “17143 Non Existent Street”) that I can use to purchase adult services safe in the knowledge that neither the service provider nor hackivists can ever connect it to me. Only the issuer does that, and they know about security and encryption. (And, of course, they will respond to legitimate requests from law enforcement agencies.)

If we are going to offer such services, we need to understand the customer requirements and not ignore the signals for change from the edge. It is well-worn meme that “3G” services (i.e., girls, gambling and games) drive the adoption of new technology because they are on the edge. In the case of specifically “XXX” services, so the meme goes, it was XXX video that drove the video player into millions of households and it was the XXX rental business that tipped the technology to VHS.

It’s the unspoken rule in the world of technology; sex innovates. For generations, the urge to create, disseminate and watch pornography has driven many of the great technological advances we now take for granted.

[From iSex: How pornography has revolutionised technology]

There’s a big story here in payments too. Some of the earliest demand for payments on the web came from the adult industry, hurrying to monetize the audio/video download market. I don’t know if you’ve seen the very enjoyable movie “Middlemen” that came out back in 2009, but that portrays (rather well – it’s quite a good film) the invention of online payments for the mass market as a significant cusp in internet evolution.

Chronicles Jack Harris, one of the pioneers of internet commerce, as he wrestles with his morals and struggles not to drown in a sea of conmen, mobsters, drug addicts, and pornstars.

[From Middle Men (2009) – IMDb]

When this description says “pioneer of internet commerce”, it’s referring to credit card payments on the web. The adult business was early into the space, has constantly evolved paid content technology and business models, and has all sorts of experience with anti-fraud techniques and all the rest of it. They pioneered premium-rate SMS services and, for example, I’m reliably informed that even now, it is still the 3G services that provide the majority of MNO income from content-related services. So I couldn’t help myself from thinking, “I wonder if the adult industry, then, is telling us that Bitcoin is the way forward?”. (It’s a sad comment on the tragic trajectory of my life that that is what a picture of an attractive, naked woman makes me think about.) And so I clicked on a couple of links, Googled a couple of terms, and went off to visit the world of freelance on-line adult chat services. Remember, I do this so you don’t have to.

What I discovered on my short and unscientific walk on the wild side was genuinely interesting and I’m pretty sure will deliver insight to one or two of the strategies that we are working on for clients. I found a couple of web sites that listed these webcam services sites and I found that they fell into (very broadly speaking) two categories. There were aggregated sites where the customer buys tokens or credits with a credit card and can then spend them with any of the people listed at the site. I should say, by the way, that while most of the sites that I clicked around were women, and I’ll refer to women in the examples below, it’s not exclusively a female business.

So far so conventional. They were obviously making money, or they wouldn’t be there. So clearly there are plenty of people happy to pay with credit cards. I suppose that in days of yore when the credit card statement was a piece of paper that came through the door then men might have been reluctant to pay for such services in case someone else (e.g., their wives) read it on the statement. But I have loads of cards and no paper statements any more. I’ve got credit cards, debit cards and prepaid cards, in Sterling, Dollars and Euros. I have enough trouble finding legitimate charges to book for my work expenses. If I did put a pony on a filly, I don’t think I’d be overly concerned about it being discovered. If I wanted to put dodgy web site charges on a card, I’m spoilt for choice. And some of the sites offered alternative payment mechanisms (e.g., Ukash) for people without credit cards, so it seems they were on top of things. I don’t know what the fraud levels are and couldn’t hazard a guess at rules and rates, but these people are in business. Nevertheless, I suspect that a pseudonymous card-based product would boost business. While I was thinking about this, it did lead to an embarrassing incident. My wife came into the study late at night and found me looking at all of my different cards, spread for a picture that I was going to take to illustrate this blog. I explained that I wasn’t using them, just looking at them, but she said that this was payments of the mind and just as bad.

The second category were essentially directories of women operating as freelancers where the transaction was with the individual woman. I thought it would be interesting to talk to some of them (this was all done by text chat or instant messaging, by the way) and ask her about payment choices (partly because I thought it would be interesting input anyway and partly, I have to admit, because I thought it might make for a cracking blog post). So I clicked on one. She wouldn’t even talk to me without upfront payment. I said that I only wanted to ask her a couple of questions . She said that if I paid, I could ask her whatever I liked. I said I’d think about it.

While I was wondering what expenses category I would book it to, and staring at the screen, she asked me to tell her my fantasies! But that wasn’t very much fun. It took ages to explain what a “flat bed” was and she’d never heard of British Airways “Golden Tickets“, used to reward cabin crew for exceptionally good service. It turned out she was Moldovan and the little US flag next to her name didn’t mean that she was American, as I’d thought, but that she spoke English (which wasn’t entirely true, to be honest, although she was pretty good on parts of the body). I didn’t realise what an export business this is for Eastern Europe. Several of the girls I tried to talk to were Romanian, Ukrainian, Bulgarian and Russian. A couple of them asked me for payment via Webmoney, but I don’t have a Webmoney account so I’ll have to ask our good friends there to set one up for me for scientific purposes!

Anyway, it took a while longer to go up and down the list to find British or American woman to talk to. But I persevered on behalf of the truth and in the end I did have a few conversations via different channels. The detailed contents of which are, naturally, not relevant to this particular blog post. But guess what. As far as I could tell, and I know that this was a small and unscientific survey, I think I saw a window into the future of payments as well as into a Basingstoke back bedroom. The women by and large didn’t take credit cards — I mean come on, if you can configure a Bitcoin wallet surely you can sign up for Square — and many didn’t take PayPal (although a few did). By far the most common form of payment that I came across was… Amazon gift certificates.

I’m serious. Some of the women even had Amazon wish lists set up so that you could pay them by selecting items from their wish lists! And here, I swear, is the start of real wish list copied from one of these sites not more than a week ago: I’ve converted it to text so as not to risk giving away any clues to the woman’s name:

• Franca Luca 4311_4750 women “Terra” jacket, £155.00

You couldn’t, as they say, make it up. Not all of the women blanked me. I had a nice chat with a lady called Carole from Indiana, for example, who explained that Amazon gift certificates are quick and convenient (and, although I didn’t dare say it to her, not declared as taxable income). Amazon’s scale means that their gift certificates are a liquid asset that trades at par. It wouldn’t bother me to have part of my salary paid as Amazon credit and I’m sure it wouldn’t bother a lot of other people either.

A Forrester survey found that nearly a third of US consumers had a credit card on file with Amazon, compared with 18 per cent who use Apple services and 5 per cent for Google.

[From Amazon to sell Kindle Fire tablets in the UK – Telegraph]

Since most of Carole’s customers were American, they almost all had Amazon accounts and if they didn’t it took five minutes to set one up using a webmail address. So Carole’s customer logs in as “sergiolionelkunaguero@hotmail.com” (for example) and sends a gift certificate to her at “maradonnasdaughter@hotmail.com” (I made these up – I sincerely apologise if they are real e-mail addresses). It arrives in a couple of seconds. Transaction complete. He never knows her real name, she never knows his real name, but a trusted intermediary makes the transaction happen. Carole explained that she only works mornings because she has stuff to do in the afternoons, and that since she does all of her online shopping with Amazon anyway, it’s pretty convenient to stack up the gift certificates and then order stuff and that it saves her time going out shopping too. At this point, I made my excuses and left.

Later on I realised I hadn’t asked her about chargebacks. It occurred to me that she might renege on the deal and then he’d have a problem charging it back (I guess – I’m not sure entirely how that would work, so if a US reader has cancelled an Amazon gift certificate perhaps they could tell us how it worked). Amazon wasn’t the only option by the way, but it was certainly a common one. Other gift cards did crop up a few times though. Here’s an extract from another woman’s “payment instructions” section on her web site.

• Amazon egift card – Amazon offers almost everything. One of my favorite online stores.
• Victoria’s Secret egift card. I am a regular.
• Agent Provocateur evoucher – I am so addicted to it.

Just to give you a snapshot of some of the other comments I saw, here are a few snippets. I’ve copied them in as text rather than links but I can assure that they were taken directly from the women’s web sites:

• Don’t ever offer me PayPal or you will be blocked right away as scammers or time wasters.
• Choose from my wish lift http://www.amazon.com/gp/registry/XXXXXXXXXX but I prefer an Amazon gift certificate.
• Gift cards only please – they are very easy and gives you multiple payment options.
• I accept credit cards through [name of specialist processor here] and I promise you it is safe and secure.
• I accept Interac email payment, just ask me eh?

OK, not completely verbatim. I did add a one word of my own in one of them, which I leave as an exercise for the reader to guess. There were, I note, none asking for Bitcoin again. Still, after my experiment, I realised that clicking on that one link in the original e-mail had taken me on a payments journey that I would never otherwise have started and it told me, at least, that some of my assumptions about the phase of evolution in the retail payments space were validated in the most unusual way. These were that…

First of all retailer payment systems are a major factor in that next phase of payment evolution, and I would have said that even before the announcement of MCX in the USA. But it’s not just the retailer payment systems. It’s about retailer money. I remember writing several years ago about this after a friend told me that she had paid at a market with a Marks & Spencer voucher which was accepted at par. In middle England, a Waitrose voucher is wonga. The big retailers such as Tesco and Sainsbury account for such a fraction of retail payments that promises against future delivery of their goods and services can easily function as a circulating medium of exchange. (This comes very close to Edward de Bono’s “IBM Dollar”.) Remember, their business case does not depend on transactions fees. If Tesco can persuade me to load value into their wallet/app/whatever then they can surround that value with data (offers, loyalty deals, coupons and all the rest of it) that makes it worth even more to them.

Secondly, p2p transfers will stimulate new business. As was observed in Kenya with M-PESA, if you give people a simple P2P mechanism that works, then they will develop new businesses on the top of it. We (i.e., payments persons) don’t need to figure out what these business will be, we just need to enable them. The layer on top of the P2P transfers need not be generic: decent APIs mean that various organisations (retailers, again, being an obvious category) can develop their own application layers geared to specific markets. I showed an early draft of this post to a trusted non-wife opposite person of the contradictory gender, and she said that P2P means disintermediation of the pimp, which hadn’t occurred to me, so the women get to keep all of their earnings. (And she also said that she would prefer e-gift certificates in all circumstances, because paper ones are a hassle — a bit like cheques — and often get lost before you get a chance to use them.)

And thirdly, anonymity isn’t all that. People clearly do buy adult services with credit cards, and if they are sensitive about identification then a trusted intermediary can manage two-sided pseudonymity to achieve a sort-of-anonymity that is not merely adequate for commerce but beneficial to it. Nevertheless, creating controlled pseudonymity is a means to stimulate commerce in places where it otherwise would not have occurred but with an infrastructure that can reconcile that transactional pseudonymity with the legitimate requirements of society. There’s a “smash the glass” option, so that it law enforcement officials with the appropriate warrants need to find out who it was who sent money to Carole in Indiana, they can find out that it was me. I don’t want to live in a society where they could not do so.

In summary: if it is true that the adult business is a leading indicator of change, or perhaps even focusing device for weak signals for change elsewhere, then it seems to me that the role of retailers will be pivotal in determining the direction for the next generation of payment products. And I’ve got to say that the e-gift certificate business looks strong.

Please note that to protect the modesty of subjects, some of the names given in this post have been changed, as indeed have some of the facts..

These are personal opinions and should not be misunderstood as representing the opinions of 
Consult Hyperion or any of its clients or suppliers