TABLE OF CONTENTS
What Services Make up the Adult Entertainment Industry?
Adult entertainment is not simply pornography. The industry is comprised of many services, including but not limited to:
- Dating, escort, or phone sex services
- Websites featuring adult content
- Online shops selling adult toys or lingerie
- Adult content live streaming
- Gentleman’s and Strip Clubs
The adult entertainment industry also exists off the internet in the form of brick and mortar strip clubs, massage parlors, and adult bookstores.
What is an Adult Merchant Account?
In order to process credit and debit card payments, your business must have a merchant account. Merchant accounts hold all revenue for an average of 2 to 7 days before placing said money into your business’s bank account. This account signifies the agreement between your business and your bank and is subject to a risk assessment before being issued. As the business owner, you are responsible for choosing the payment service provider through which you establish your merchant account.
Why is it so Difficult to Get an Adult Payment Provider?
If you have a business in the industry that does adult credit card processing, it is considered a high risk venture for payment service providers. Not only is the industry plagued with fraudulent charges and chargebacks, but some banks and payment service providers flatly refuse to work with businesses in the industry because of reputational risk.
Breaking Down the Risks
A chargeback is essentially the return of money due to a consumer disputing a charge on their credit card. While some consumers genuinely did not use their card to access your services, many chargebacks in the adult entertainment industry occur out of embarrassment. Simply, the consumer does not want a record of his or her use of adult services, so they claim it was an unauthorized charge to their bank. The same scenario often occurs when the consumer forgets to cancel a recurring subscription service.
Other chargebacks occur due to the merchant account itself. Many merchant accounts show up as a name other than your business’s while transactions are pending. If the consumer does not recognize that name, or realize that the name will change after the 2 to 7-day holding period, they may report it to their credit card company as a fraudulent charge and a chargeback occurs. These types of chargebacks are known as “friendly fraud,” as the consumer means no harm but can still leave a negative impact on your business’ profits.
Being able to mitigate the risk of chargebacks on your account is an important part of running a healthy business.
The most prevalent type of fraud in the adult entertainment industry is the use of stolen credit cards. This is most common with internet-based companies, as they require proof of age in order to access or purchase their content. The stolen credit card can be used as proof that the user is of age.
There are a number of laws that apply to businesses in the adult entertainment industry that do not impact your average business. Having a set, legal age at which people can use your services is just one of those laws. Other laws include, but are not limited to, complete prohibition of the purchase of adult toys in certain states. These laws limit your customer base which, in the eyes of a potential payment processor, limits your ability to sell to a wide, diverse audience.
Securing Your Adult Payment Gateway
While payment service providers are hesitant to work with adult industry businesses, there are several providers who specialize in high risk credit card processing solutions. Be prepared for the application process by ensuring your credit score is as high as it can be; pay off outstanding debts and make sure your most current report reflects that action. If you are applying for a second merchant account, understand you will be asked to describe a detailed account of why the first account was closed.
Payment service providers (PSPs) working with high risk clients have the right to ask for a deposit. This deposit works as an account reserve, giving them a well of money with which to issue refunds in case your business is ever in a position where you are unable to do so from profits. Also understand that your processing fees may be as high as 2 to 10 percent per transaction. The rate may come down in time as your business proves to be stable and profitable, but the criteria for rate reduction is different with every payment service provider.
When asked to describe your business, be as honest and descriptive as possible. A payment service provider is more likely to do business with you if you are upfront about your business dealings and make every effort possible for them to understand your day to day workload.
Obtaining your adult payment gateway may be difficult, but it is not impossible. By preparing yourself to navigate higher fees and describe and defend your business, you ensure that a payment service provider will not only see your worth but take the time to invest in your business by establishing a safe, legal way for you to take payment via credit cards. By offering competitive prices, treating your customers well, and staying on the cusp of new happenings in the adult industry, your business will build a loyal customer base and thrive.