Hi all, I thought I'd add a couple comments...
1. Can't Smashwords simply change service providers? Yes. Although it would be difficult for us to decouple our payment systems from them (PayPal runs our credit card processing, and we also pay our authors via PayPal), it wasn't possible on such short notice but it's not impossible for the future. The problem with such a move is that it's not a permanent, reliable long term solution. PayPal tells us their policy is necessary to remain in compliance with the banks and credit card companies that power their services. This means that even if we were to switch to another provider, there's nothing stopping other providers from unplugging us when they take heat from the credit card companies. The long term solution is for consumers to speak out against those financial service providers who use their power to tell us what we can and cannot read. Sign petitions. Contact your bank. Call your members of congress. Tell these folks fiction is not real, it's fantasy and you want their hands out of your head. Erotica authors are being discriminated against. Topics that are okay in mainstream fiction aren't allowed in erotica. It's a bad precedent.
2. Chargebacks. I've seen the excuse out there from financial institutions that "obscene" content carries a risk of higher chargebacks. I don't know, that may be true with escort services and pornographic videos, but we're not seeing that with erotica. Our charge backs are negligible. Erotica customers at Smashwords have shown themselves to be responsible customers who pay for what they order. The biggest theft we've experienced over the last 6 months was from a customer (I think he/she is from India) who was using stolen credit cards to purchase books on self-help and spiritual enlightenment. Ironic, I know.
3. For anyone interested to read my letter, here's the link:
Smashwords Modifies Terms of Service Regarding Incest, Bestiality and Rape