Adult Merchant Accounts
A common problem among businesses in the adult industry has been with the stigma associated with merchants and the difficulty it can cause merchants, making the simplest of tasks a complicated and expensive endeavor, not to mention finding an adult merchant account provider. Nowhere else is this problem more pronounced than in the financial industry where most payment processors and other banking institutions have tried to distance themselves as much as possible from businesses operating in the adult arena, even making checking accounts and merchant accounts difficult to set up.
Not a small industry by any means, adult businesses have continued to grow and become a $100billion dollar a year industry with estimates that it reaches over 1/3 of internet users while being watched for about 5 billion hours viewed per year. Banks and the payment card networks do not want to risk losing nor cannot ignore the profits generated by this industry but have set up strict guidelines along with yearly registrations for content providers to ensure full compliance by all merchants, avoiding any potential fines or legal problems that might be caused by any violations.
With over 10 years of experience in the adult industry, Adult Merchant Services has become a leading adult payment processor capable of helping merchants from all aspects of the adult industry. With no application fees, fast approvals and low transaction fees; adult merchants partnering with payment systems are able to start processing credit cards quickly and inexpensively through our high-risk banking network. Our direct bank integrations offer many adult businesses the opportunity to establish merchant accounts with flexible monthly volume caps, daily settlements, and no payment reserve – giving merchants the keys to grow their businesses.
Adult Merchant Account Table of Contents
What are Merchant Accounts?
How do Merchant Accounts work?
Online Adult Merchant Accounts
Merchant Account Requirements
Merchant Account Compliance
History of Pornography
The first documented piece of art that is considered to be pornographic is about 4.3″ (11cm) tall and aptly named the Venus of Willendorf statue, found near Willendorf Austria over 100 years ago, the origin of the statue dates back between 30,000 and 25,000 BC. Sexual imagery continued to become more and more present with each society moving forward, especially with the Greek and Roman Empires that created statues and countless pieces of artwork depicting everything from brothels to phalluses to bestiality. Pornography was not limited to European cultures, as far back at the 200 AD the Hindu of present-day India wrote the Kama Sutra, a book that is commonly considered to be the first study of human sexual behavior.
Pornography remained outside away from much of the public view for the next 1,500 years until the book Memoirs of a Woman of Pleasure was published in England by John Cleland, creating quite the stir throughout society and resulting in the jailing of Cleland and the book’s publisher. Literature was the main format of widely distributed pornography up until the middle of the 19th century, but even then literature has remained a large portion of the commercially available pornography, even becoming the first forms of pornography found on the internet, predating images or videos offered online.
By the mid-1850’s, increasingly realistic images were able to be produced and the era of photography began and revolutionized the pornography industry. As technology improved, the distribution of photographs became more widespread and the underground industry pornographic pictures began. As technology evolved, the invention of moving pictures, commonly known as movies, in the late 1880’s quickly opened the door for the first pornographic movie Le Coucher de la Mariée soon after 1896, ultimately starting a wave of increasingly risque movies through the 1920’s.
During the next few decades, pornography was in a suppressed state with government regulations limiting the ability for materials to be distributed, it wasn’t until Playboy was published that the taboo surrounding pornography began to crumble and the industry was slowly able to come out from the shadows. In 1969, Andy Warhol released Blue Movie, the first wide release, fully erotic movie in the United States, beginning a streak for the next 25 years with movies such as Deep Throat in 1972 that has been commonly referred to as the Golden Age of Porn.
Today, the internet is the place with the most types of adult content readily available to users; offering almost anything imaginable for little to no cost. Business can be started and stars made from almost anywhere, by simply loading content onto a website and accepting payments from customers, companies can enter the adult industry with limited resources, unlike the production studios from years past. The number of customers logging in online to view different types of pornography today has fueled the millions of websites offering hundreds of millions of images and videos, creating a multi-billion dollar industry that has become widely accepted by mainstream corporate America as a legitimate industry, a far cry from pornographies modern roots only 60 years ago as a small, fledgeling porno magazine.
Businesses classified as Adult Entertainment
Payment processors operating in the medium to high-risk industry work with many different types of companies that are classified as adult, encompassing a wide range of businesses the adult industry is one of the largest segments of high-risk credit card processing. Some of the most common types of adult businesses today are:
• Adult Membership Websites
• Adult Dating Services
• Adult Toy Store
• Adult Video Services
• Bath Houses
• Escort Directories
• Massage Parlors
• Massage Therapists
• Penis Enlargement Products
• Phone Sex Services
• Sexual Enhancement Products
• Strip Clubs
• Swingers Clubs
Partnering with an experienced and specialized adult payment processor will help merchants secure long-term, reliable payment processing solutions for their adult business, offering debit card and credit card processing along with a variety of echeck processing solutions.
What are Adult Merchant Accounts?
An adult merchant account is a form of bank account offered by an acquiring bank that allows for the acceptance of credit card and debit card payments into a designated business account at the merchant acquiring bank, and while there are many different types of merchant accounts for specific industries, they are all established using the same bank and payment processing format.
The adult businesses that are using a merchant account to accept payments will use one of a few different types of payment terminals to ensure security and prompt authorization responses. Merchants operating in a retail storefront will generally use a credit card terminal, and for more advanced businesses, a point of sale system could be used as credit card terminal equipment. Online merchants will use a payment gateway application that will integrate directly into a website shopping cart and provide a similar level of transaction security through encryption of customer data between the customer’s web browser and the payment processor.
Card acceptance can also be accomplished through a virtual terminal that is integrated into a payment gateway, allowing for merchants to accept MOTO (mail order/telephone order) transactions by entering cardholder account information through the payment gateway into the virtual terminal. Another method of payment for a merchant account is through an ARU, or Automated Response Unit, that allows merchants to accept payments made by customers through their telephone, a method that is commonly used in the adult industry.
The pricing used for merchant accounts can vary, mainly depending on the industry of the business and the financial stability of both the business and the merchant. The 2 most common pricing methods that are used by payment processors are tiered or interchange pricing models, while the tiered was the most commonly used by the merchant services industry, the interchange plus pricing method has been gaining traction due to its simplicity and lower costs.
Tiered pricing establishes either 3 or 6 different predetermined pricing groups that transactions will fall into, otherwise known as qualify, depending on a number of different factors that are figured into the transaction, including what kind of card was used, how the card account information was accepted and how the card information was handled after acceptance. A tiered pricing structure using 6 groups will give merchants more options versus a 3 group structure, allowing for better pricing on low-cost transactions.
The more favorable pricing structure has been the interchange plus model, a simplified system that tacks on a set fee on top of all interchange fees established by Visa, Mastercard and other networks for every transaction. Merchants generally prefer this pricing structure since it ensures that every transaction is charged the same amount and that the base fee is passed through from the card networks, eliminating any excess fees.
In addition to the transaction and discount rates that are accessed on every transaction, merchant accounts generally carry other costs, including network dues, additional network fees or charges, monthly bank fees, and other service charges. While some merchant services companies or payment processors might advertise no monthly fees or flat fee processing, these costs are usually wrapped into another fee or recouped through higher merchant account pricing.
Benefits of using Adult Merchant Accounts
Businesses operating in the adult industry that are looking for payment processing services are recommended to apply for an adult merchant account instead of working with a sponsored payment processing service. In some instances working with a 3rd party processing company is the only solution available for accepting credit cards, but in other scenarios, merchants should weight the benefits of using a merchant account through a bank. An adult merchant account can provide merchants:
• Higher Monthly Volume limits and Daily Settlements. More funds per month without any holdbacks.
• Fast Authorizations and Higher Approvals. A problem with many sponsored accounts that costs merchants.
• Lower Rates and Fees. Fixed fees and lowers costs on every transaction.
• Complete Customer Control. Merchants have full control of customer data and information.
• Better Customer Service. Full transaction management and account reporting available to merchants.
• Enhanced Security. Fully PCI Compliant gateway and merchant account for improved security.
Many sponsored payment processing service impose limitations on merchants including placing reserves on sales volume, limiting the monthly sales volume of the account or delaying the funding that is sent out. Working with a direct merchant account, merchants will receive daily payouts without reserves or other limitations placed on the account, allowing the merchant to grow their adult business.
Fees charged to businesses with a direct merchant account can be below 1%, while many of the sponsored payment processing services will charge merchants upwards of 15% to process transactions. Using a direct merchant account will offer merchants better terms for handling their funding; including faster access to their money while keeping their costs for processing transactions to a minimum.
One of the most popular features of Adult Merchant Services has been our award-winning payment gateway, designed for use by higher risk adult businesses of all sizes, from startup to thousands of transactions a day. The payment gateway provides merchants with full Level 1 PCI Compliance along with proprietary fraud prevention programs to help lower costs associated with fraud or theft of services.
The payment gateway also offers a robust catalog of transaction and customer management functions to help business owners manage many of the aspects of their business. Our advanced reporting systems make management of your merchant account and business accurate, fast and simple and with the ability to integrate into nearly any shopping cart, merchants find the gateway not only simple to operate, but simple to set up.
Utilizing the services of an adult merchant account can give merchants in the adult industry many more cost-saving options and services that are not generally available through a sponsored payment processor. In cases where a sponsored payment processing solution is the only option, merchants should consider that; but for all other types of merchants, comparing a direct merchant account might provide the best solution for their needs.
How do Adult Merchant Accounts work?
Once a merchant has applied with a financial institution or payment processor for a merchant account, the application will be reviewed by the underwriting department to determine if a merchant account can be issued in the name of the merchant. Once an account can be approved, the merchant will receive the approval along with information about the credit card terminal or payment gateway they will need to start processing transactions.
Customers shopping at a merchant location or website will want to check out with the items desired, either using a credit card machine with a cashier in the store or through a shopping cart on the website. Once a total has been determined, the customer can either swipe the card at the store or enter their card information online into the payment gateway portion of the merchant website. At this point, the customer card information is captured into a secure environment for authorization of the transaction.
The customer’s card account information is to the payment processor who either transfers the card account information to the payment card association or sends it to the merchant acquiring bank who would also submit the card account details to the payment card association. Customer card account information is encrypted from either the credit card terminal or payment gateway, allowing for the secure transfer of information between the merchant and the payment card association.
At the payment card association’s network, the customer card account file is deciphered to determine the issuing bank of the credit card so the authorization request can be sent. Visa and MasterCard do not issue credit cards rather allow different banks to access the network and pay fees for card usage. The companies of American Express and Discover operate their own closed loop networks, meaning that they issue credit card direct to customers and merchants have to contract with each provider individually.
At the card issuing bank, a check of the customer’s account including available balance along with a check for any potential fraud will be performed before rendering a decision as to the payment authorization request. Once a decision to the authorization is determined, a reply we will be sent back through the payment card network to the merchant location, informing both the customer and the merchant as the answer.
This complete process from initial swipe or keyed entry of the credit card information into the merchant terminal can take only seconds, allowing for faster service and results for both the customers and the merchants. Settlements of funds from the transaction generally take between 24-48 hours, relying on the different banks involved to receive and send out funds between customers and merchants.
Types of Adult Merchant Accounts
As banks and payment processors have become increasingly conservative on the types of businesses they will accept, the kinds of businesses that have been classified as adult have also increased, encompassing most businesses having anything remotely to do with sex.
Businesses using Adult Merchant Accounts
Adult Membership Websites
Adult Video Services
Phone Sex Services
Adult Content Merchant Accounts
Webmasters and producers of adult content can find setting up a merchant account difficult if they are not working with the right payment processing service. Contracting with an adult credit card processor will help expedite the application and integration process and help ensure that the merchant account is not shut down unexpectedly.
Adult Dating Services Merchant Accounts
Most adult dating websites offer an introductory period, whether it’s free or for a very nominal price followed by a subscription at a regular monthly fee. Terms for payments are explained to customers prior to signing up, but merchants still have to deal with friendly fraud and other similar problems.
Adult Membership Website Merchant Accounts
One of the largest parts of the adult industry, membership websites commonly operate with free trials followed by monthly memberships or offer paid memberships to begin, adult websites require reliable and affordable merchant services to grow their businesses.
Adult Toy Store Merchant Accounts
Businesses that operate adult toy stores fall into a category of adult that can occasionally be considered as general e-commerce due to the fact that images on the websites do not contain any nudity and all products are delivered with confirmation of customer receipt. Merchants working with an adult merchant account provider can generally be set up with minimal fees and limited restrictions due to the low risk of chargebacks associated with these accounts.
Adult Video Services Merchant Accounts
Producers of adult content videos along with the webmasters that operate the websites will have trouble being approved for credit card processing services when using a payment processor that is unable to set up high risk or adult merchants accounts. Higher than average chargebacks can be a problem with this type of business making it very important to work with an adult payment processor that understands how the industry works
Adult Web Cam Merchant Accounts
Webmasters with webcam businesses that stream live video to customers can be victims of chargebacks or excessive refunds due to unhappy customers or technical problems causing services to be disrupted. Using an adult merchant account can help merchants defend against fraud and offer better transaction management to keep chargebacks to a minimum.
Bath House Merchant Accounts
Similar to massage parlors, bath houses cater to a specific clientele that places these businesses into a higher risk category. Many bathhouse operators will have trouble using a local payment processor, even though they operate out of a physical location, forcing them to search out payment processing services from a high-risk adult merchant services provider.
Escort Merchant Accounts
Merchants in the escort industry have always struggled to find reliable merchant services as many banks and financial institutions view this segment of the industry as an extremely high risk. Though difficult, there are payment processors still able to accept clients from this industry with proper documents and financials.
Escort Directory Merchant Accounts
Webmasters that have started online directory for escorts have experienced trouble establishing merchant services. A number of problems combined with bad publicity changed this business model into an excessively high-risk business with many banks dropping these merchants and making it very hard to establish a new merchant account without using an adult payment processor.
Massage Parlor Merchant Accounts
Owners of massage parlors can experience trouble finding credit card processing services for their businesses on account of the industry. With concerns from many banks as to the legitimacy of the massage business, it has become a restricted business type at many payment processors, requiring merchants to seek the services of an adult credit card processor.
Massage Therapist Merchant Accounts
Many massage therapists operate their businesses at their client’s location that can cause banks to question the legitimacy of the company and make finding a merchant account more difficult. Adult payment processors are familiar with this industry of work and normally work with banks that understand how these businesses operate and have available solutions for applicants.
Penis Enlargement Products Merchant Accounts
Businesses selling penis enlargement products often operate with a rebilling payment system, meaning customers sign up one time for products and receive them on a regular schedule, being billed for every shipment. This type of negative option business model can lead to higher than average chargebacks and can result in these types of businesses needing a high risk merchant account.
Phone Sex Merchant Accounts
Similar to live streaming video operators, phone sex lines have to provide immediate services and ensure that clients are happy at the end of their allotted time. Failure to do so, whether for technical or other reasons, can result in customer’s demanding refunds or charging back on transactions.
Sexual Enhancement Products Merchant Accounts
Strip Club Merchant Accounts
Operating a bar can have its challenges, but many times businesses applying for a gentlemen’s club merchant account might face restrictions or stiff regulations from the payment processors or acquiring banks handling the underwriting. Many times strip club owners will seek the services of a higher risk payment processor for more reliable merchant services in the event chargebacks or returns become higher than normal.
Swingers Club Merchant Accounts
Most clubs catering to swingers operate in a state of anonymity or very close to it using non-descript or generic company names. Instances of chargebacks or other payment problems can plague these types of businesses when buyers remorse or friendly fraud start becoming more prevalent. Working with a payment processor in the adult industry can help businesses prepare for these problems and continue working through times when these occurrences spike.
Online Adult Merchant Accounts
How are Adult Merchant Account fees determined?
Payment processing services are generally priced with one of 3 of the most common billing models; tiered pricing, interchange plus pricing or through a flat fee pricing system. The difference in the type of pricing model depends on the payment processor, some can offer all three types of programs while some are designed to operate using one of the fee schedules.
The tiered pricing system was one of the original methods used by payment processors to bill merchants, set up by establishing a variety of different cost levels, credit cards and debit cards charged by the merchant had to qualify for one of the pricing tiers which was determined by finding the lowest level the card could qualify for. Many times payment processors placed the first tier at a very low rate at or below 1%, but most credit cards could not qualify for that and thus were downgraded to a lower, more costly tier that could end up costing merchants a lot in unnecessary fees.
The most common pricing model that is in use today is the interchange plus system, also known as cost-plus pricing, that establishes a set fee per transaction that is tacked on top of the interchange price of the card. Every credit card and debit card has an interchange cost and traditionally payment processors add on a large fee on top of this card whether through a tiered or flat fee system, but the interchange plus pricing model uses the interchange, or true card cost, and tacking on the payment processor fee in addition to that.
One of the newer systems used to bill merchants has become the flat fee model, that charges merchants the same price for every transaction regardless of the type of card, including if its debit or credit. Though the most simple to understand, this model can be very costly to most merchants due to excessive fees charged for otherwise cheap transactions, most notably debit card transactions. Many of the sponsored payment processors use this system for their high-risk merchants and is why it is recommended to shop around for alternative methods before using this expensive type of solution.
While there are many different types of ways to charge merchants for their payment processing, the best method remains using an interchange plus model. The simple nature of this billing system has been in use by larger merchants for years and has quickly caught on with smaller merchants due to the large savings that many of these businesses realized after making the switch.
What is required for an Adult Merchant Account
Businesses that are trying to set up merchant accounts will need to go through the underwriting process at a bank or payment processor to perform all the KYC (know your client) details along with verifying the authenticity of the business. Due to the higher risk nature of adult businesses, underwriters might require additional documents or perform extensive website check to ensure that the business is not violating any laws and operating within the financial institution’s merchant requirements.
Some of the most commonly required information that should be submitted to the underwriters during the application process include:
• Completed application with signatures
• Valid social security number
• Copy of the passport or drivers license from every owner
• Copy of a voided check from the business settlement bank account
• Current 2257 Regulations visible and accessible on the website (for sites offering content)
• Last 3-6 months of business bank statements
• Last 3-6 months of credit card processing statements
Underwriters for the payment processors or banking institutions will need to verify that the owners and the business are legitimate and operating in a legal manner. With a completed application including the merchant’s personal information, background checks and other KYC scans can be performed to confirm the identity and ensure that the merchant does not have a criminal history. Having a completed application will expedite the process by allowing the underwriters to complete their due diligence the first time they begin working on the application.
Adult businesses that are selling products or offering services that could otherwise be illegal for underage individuals to view will need to demonstrate that the business website takes all proper precautions to prevent underage users from viewing the site. Websites providing content will also need to show that they are in compliance with adult regulation 2257 to ensure underwriters that all models are of age and consenting to their involvement on the website.
Adult businesses that are currently operating will usually need to supply previous statements to show how the financial health of the business and how it operates. Underwriters will usually request to see a copy of the bank statements and the credit card processing statements for the last 3-6 months, usually depending on the size of the account. Larger businesses will usually have to supply more information as the checks are more in-depth.
Once all the documents required by the payment processor have been submitted and the underwriters have begun their due diligence process, an adult merchant account will take about 2-5 days to be approved and the MID (merchant ID) issued to the merchant. When the MID is issued, the account is ready to start accepting payments and merchants can begin processing transactions through a credit card terminal or payment gateway.
Do Adult Merchant Accounts require Registration?
Businesses in the adult industry that accept credit cards must register with the card associations as an adult provider with MasterCard. This registration process involves paying an annual registration fee to the acquiring bank or the payment processor for using their services as an adult business. The fee is assessed by MasterCard at the time the account is approved on their network and is also billed to the merchants every year on the anniversary of the account approval.
The fee is a type of insurance that is charged to the merchant for higher risk businesses that could potentially face a government fine for any type of violation or ignorance to the government regulations involving the industry. This fee is mandatory for merchants using MasterCard North America, and while it is not charged to merchants operating out of Europe, the other costs involved with using a payment processor from outside the USA can easily eat away at any potential savings a merchant might have.
Are Adult Merchant Accounts PCI Compliant?
For an adult to be PCI Compliant, they will need to partner with organizations that can provide the necessary services with the required security levels. PCI Compliance, known as Payment Card Industry compliance, is a set of guidelines established by the card association of Visa, MasterCard, American Express and Discover that requires service providers to follow and be tested on a regular basis to verify their continued compliance.
In addition to working with verified service providers, merchants will usually have to take a self-examination on a yearly or more frequent basis to determine if the practices of the business are within the parameters of the PCI standards. Failure to take the test or a merchants inability to pass the test can result in fines along with the possibility of termination of services if there are no attempts to pass the test. Non-compliant merchants are potentially liable for all costs associated with losses and damages stemming from any theft that might occur as a result from practices.
Operating as a PCI Compliant merchant is a relatively easy process that is mandatory from all the payment card networks. Merchants with any problems or misunderstandings about becoming or remaining compliant are encouraged to contact their merchant services provider as they can help merchants get set up correctly.
The Benefits of an Adult Merchant Services
When applying for an adult merchant account at Adult Merchant Services, our merchants are placed with direct banking relationships through acquiring banks allowing for many different types of benefits including faster payment authorizations, higher volume caps and fewer restrictions than merchant accounts operated through other types of sponsored payment services.
The payment processing fees charged by a direct merchant account are usually lower to start and over time as the volume of the merchant increases, these lower rates will help save the merchants thousands of dollars verse using a sponsor payment service that has little incentive to lower fees once a merchant has built a business.
Merchant accounts direct from a bank can also offer better settlement times and give merchants more capital to work with than sponsored accounts. Direct bank accounts settle on a daily basis while other types of sponsored accounts normally settle on a weekly basis (and likely delayed a week to 2 weeks) and retain 10% of the revenues as a rolling reserve for 6 months.
Merchants that partner with Adult Merchant Service will also be working with payment processing professionals that understand the adult industry and understand the importance of properly handling every merchant account and working to prevent any problems that can cause delays or lost revenues.
Get Started with an Adult Merchant Account Today!
Merchants shopping for a new merchant account or with questions about an existing payment processing service are encouraged to contact one of our merchant services professionals. At Adult Merchant Services, we look forward to speaking with merchants and we are always willing to help clients answer any questions or provide insight into the various segments of the credit card processing industry.