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Pratap Ravindran

There's a twist to this tale of porn merchants and credit card payments.

IT'S big. But some say that it's not as big as it looks and that pornography is an industry that exaggerates the size of everything...

Be that as it may, it's likely to get bigger than it is now with Jason Galanis, son of John Peter Galanis who is currently the guest of the US Government after having been convicted of bilking investors of $400 million, emerging as the buyer of Internet Billing or iBill, the largest processor of credit-card payments for the purchase of dirty pictures through the Internet.

iBill, not surprisingly, has an interesting history. The company had gone about its business anonymously but with great success as the "engine of Internet porn" till 2002 when InterCept picked it up for $104 million after reassuring its investors that porn constituted a small part of iBill's business. Subsequently, InterCept, which had racked up revenues of $259 million in 2003, had been compelled to admit that porn made up 85 per cent of iBill's annual credit-card transactions said to have spiked, at one point of time, to $720 million. The US being what it is, class-action lawsuits had been filed all over the place charging the company with having understated iBill's dependence on porn. Eventually, InterCept had settled at $5.3 million and had announced that it was selling the division that held iBill for a rock-bottom $37 million to a group that included management and outside investors. The company had then backed and filled a bit and had finally declared that it would sell iBill alone to an unidentified buyer.

InterCept had continued to buy coy about the identity of the buyer, described primly by it as "another entity," but the whole world had come to know that this entity comprised iBill's former chief executive, Garrett Bender, and Jason Galanis.

While everybody agreed that the sins of the father should not be visited on the heads of the sons, the problem here was that the incarcerated father had a major, if not controlling, influence on his son's business activities which included, among other things, the sinking of a Colorado bank and massive losses for Cargill, the commodity major.

Given the nature of iBill's business, it is relevant to note here that Galanis describes himself as a "part of the investment banking team" which took Robert Guccione's Penthouse magazine public in 2002 - and then helped Luis Enrique Fernando Molina, a business associate and Mexican hotel developer whose family controls Pepsi-Gemex, the biggest independent Pepsi bottler outside the US, in a deal involving the investment of another $107 million into Penthouse in a real estate/equity swap. If Galanis' claim is true, his Penthouse experience should prove of considerable value to iBill, arguably the world's leading aggregator and gatekeeper between porn sites and the banks which processes iBill's credit-card transactions but which don't want to be stuck with the hassles of dealing with a whole bunch of small businesses.

There's a twist to the tale. As it turns out, InterCept would have been mangled more than it had been if it had hung on to iBill with Visa USA, allegedly at the behest of Washington, introducing new rules under which adult content Web sites are required to pay a $750 fee and register... intimate... .financial details about their operations. The pornwallahs are peeved because they feel that Visa is trying to cash in on their business without having contributed anything to it. They are wrong, of course. Credit card outfits have, for some time now, been an integral part of the system in which `legitimate' companies have what has been called a `symbiotic relationship' with porn merchants and facilitated their business by discreetly processing their credit-card payments and, in certain cases, providing server hosting. InterCept, as a financial services firm which owned iBill, had been one of these legit companies adversely affected by Visa's new rules. In fact, prior to the sale of iBill, Visa's revised rules had gouged a good 20 per cent out of its third-party credit-card processing business.

Even worse, MasterCard had declared that iBill was in `noncompliance' with the credit-card association's chargeback rules, resulting in an assessment of almost $6 million. Charge-backs, incidentally, constitute one of the biggest hassles of processing credit cards for porn sites - and are as revealing of human nature as the porn business itself. A charge-back happens when a credit card holder gets caught buying dirty pictures or whatever on the Web - and seeks refuge in high moral indignation. He promptly gets in touch with his credit card company and insists — absolutely insists — that somebody else has been buying porn on his card and demands that the relevant charges be cancelled.

That's the downside. The upside is that charge-backs have done more to keep credit card companies honest than legal or moral considerations.

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