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In 2002, Visa and Mastercard changed their policies regarding payments to “high risk” websites, imposing special fees on credit card issuers for those payments. These fees seemed targeted toward and had enormous negative consequences for adult websites. This is just one episode in a decades-long pattern of the payment industry holding significantly more stringent standards for the adult entertainment industry than for the average merchant.

It is an unfortunate fact that the adult entertainment industry faces systematic challenges with regards to payment. But these challenges do not have to be fatal to these businesses. This article will explain the payment industry obstacles and risks that adult entertainment businesses face as well as how to prevent those issues from shutting off access to a merchant account, even if it may be a high risk merchant account.

What Are the Merchant Account Challenges for Adult Entertainment?

Adult entertainment merchants face a number of specific challenges with regards to their merchant accounts. Among the more difficult are as follows:

• Industry-leading payment providers such as PayPal and Stripe tend to not work with adult entertainment merchants.
• Card brands and issuers impose additional fees and requirements—such as those discussed in the introduction—for payments to adult entertainment merchants.
• The adult entertainment industry has a higher than average risk for fraud and chargebacks.
• Generally the only merchant accounts available to businesses with the adult entertainment merchants are special “high risk” merchant accounts. These accounts have higher fees, lower limits, and longer payment processing times.

Some of these challenges are justifiable—adult entertainment really does receive a higher than average volume of chargebacks—while others are due to simple discrimination based on a desire on the part of payment providers to retain distance from industries that they find to be somehow uncouth or unsavory. Justified or not, though, these challenges are unavoidable for adult entertainment businesses.

Why Is Adult Entertainment at Higher Risk for Fraud and Chargebacks?

Certain aspects of the adult entertainment industry carry necessarily higher risks of chargebacks. This is reflected in the fact that many adult entertainment merchants have chargeback ratios higher than 1%. The reasons behind this high rate of chargebacks are:

• Consumers will sometimes purchase adult entertainment products and subscriptions only to have those purchases discovered by spouses or other relatives. Too embarrassed to admit to the purchase, those consumers claim fraud and request a chargeback—which is, somewhat ironically, itself an act of chargeback fraud.
• A related phenomenon is consumers wanting to make an adult entertainment purchase but, for reasons such as embarrassment or being underage, choosing to do so under fraudulent circumstances, including using stolen payment card information. When the cardholder discovers the fraudulent charge, they file a chargeback.
• Many adult entertainment merchants, in an effort to maintain discretion for their customers, use circumspect language in their billing descriptors. Some consumers may not realize this and, failing to recognize their intentional and legitimate purchase, request a chargeback. These sorts of billing techniques were actually a factor in Visa and Mastercard’s 2002 policy changes.
• Certain unscrupulous consumers may see the adult entertainment industry as an enticing mark for fraud due to some ill conceived notions about morality or legitimacy.
• Relatedly, because of the same sorts of notions as well as fears of connection to various sorts of activities of indeterminate legality, banks and payment processors may be reluctant to side with adult entertainment businesses in payment disputes.
• Many adult entertainment businesses make use of a subscription model for payment. This billing method brings a number of benefits but it carries its own inherent risks of chargebacks. 

What About Cryptocurrency?

Some in the adult entertainment industry have turned to accepting cryptocurrency for payment as a way of mitigating these sorts of difficulties. Some sex workers have even worked to develop a cryptocurrency, named Spank, specifically geared toward use in the industry.

Cryptocurrency certainly provides a number of benefits to high risk merchants such as those in the adult entertainment industry. As a peer-to-peer digital currency, it circumvents the sorts of intermediary payment processors who have shown themselves to have stricter regulations for the adult entertainment industry. Similarly, the direct nature of crypto transactions necessarily eliminates most—but not all—chargebacks. After all, in a crypto transaction, there is no bank from whom the consumer can request a chargeback. However, cryptocurrency also presents unique risks and limitations of its own.

Cryptocurrency is a volatile and largely unregulated form of payment. For an industry that is already prey to the precarity associated with legal gray areas, this can be an additional source of uncertainty. Additionally, accepting cryptocurrency payments often requires partnering with another payment processor who can turn cryptocurrency back into other forms of currency. This can produce complications for businesses in a high risk industry such as adult entertainment. And perhaps most importantly, the vast majority of consumers do not use cryptocurrency. Until and unless cryptocurrency gains more widespread adoption among the public, it is unlikely to be anything more than a novelty for merchants.

Best Practices

Just because adult entertainment businesses find themselves restricted to high risk merchant accounts does not mean they have to accept the consequences of high rates of chargebacks. There are a number of business practices that these merchants can adopt to protect their merchant accounts and their businesses, including:

• Clearly Explaining Your Billing Descriptors to Consumers
  If you choose to use circumspect terminology to protect consumer discretion, communicate that with your consumers in order to reduce instances of friendly fraud. If you deliberately choose not to use this strategy, communicate that decision with your consumers in order to reduce instances of embarrassment-related chargeback fraud.

• Choosing Your Business Partners Carefully
  Unfortunately, payment industry-wide standards ensure that adult entertainment businesses will be restricted to high risk merchant accounts. Fortunately, there are payment processors who specialize in high risk accounts, including some that have accounts geared specifically toward the adult entertainment industry. Having a high risk merchant account is unavoidable but having an untrustworthy payment processor isn’t. Do your research and choose your partners well.

• Emphasizing Customer Service and Communication
  Every business has cancellations, unsatisfied customers, and other similar sorts of conflicts. Do not let these inevitable issues turn into a bevy of chargebacks. A refund is always preferable to a chargeback and well trained, easily accessible customer service representatives can help reduce the rate at which consumer issues become chargebacks.

• Making Cancellations Easy to Process
  No business wants to lose a customer. But a cancellation costs less and produces significantly fewer headaches than a chargeback. Let your customers know how to request a cancellation, particularly if you operate on a subscription model. And do not impose onerous requirements about returning unused merchandise in the event of cancellation.

• Making Use of Chargeback Management Tools
  There are a number of tools and services available to merchants who want to monitor their payment and chargeback trends. A certain number of chargebacks is inevitable, but you do not have to let those chargebacks ruin your business. Software tools and dashboards can help you monitor payment disputes and chargebacks as they come in, allowing you to implement changes to cut off frequent sources of chargebacks before they become a huge problem.