The adult entertainment industry has been growing considerably. Based on the findings of IBISWorld.com, in 2022, the market size of the Adult and Pornographic website industry was worth $856.2 million. It is also expected to grow by 6.5% in the same year.
The biggest opportunity for this industry is “mobile consumption.” As internet penetration continues to soar worldwide, more consumers have the opportunity to access adult websites “on-demand”. This leads to a boost in demand for more products and services, thereby increasing profit margins.
What Is An Adult Merchant Account?
An adult merchant account serves as a sort of intermediary between your customer’s bank account and your business bank account. They are connected to your website’s shopping cart via a secure, online payment gateway.
When it comes to an electronic payment transaction, a business transmits card information through an electronic terminal to the merchant acquiring bank. The merchant acquiring bank then contacts the branded card processor, who then gets in contact with the card issuer. The card issuer then validates the transaction through many means, verifying the availability of funds as well as security.
Once approved, the merchant acquiring bank green-lights the transaction and begins the process of settling the funds into the merchant’s bank account.
The aforementioned is the typical way a merchant account functions to process all electronic payments. However, acquiring a traditional merchant account will not be within reach if you are a high-risk merchant. Being in the adult industry will almost guarantee that you will not be approved for a traditional merchant account.
Adult Merchant Accounts Are High Risk
Regardless of just how lucrative the adult industry has become, especially since the advent and growth of the Internet, most traditional payment processes will not approve an adult business for a merchant account.
There are many reasons for that. Although the adult industry encompasses a wide range of products and services, some are riskier than others. The most common categories in the adult entertainment industry include sex toys, lingerie, online dating websites, adult-themed video games, and telephone sex operators, just to name a few.
Some providers are keener to accept certain categories mentioned above, but a vast majority will not. It is best to consult the provider directly to determine which categories they will accept and work with.
The most common reasons that providers will not work with merchants in the adult entertainment industry include the following:
- High chargeback rates: If the chargeback ratio exceeds 1% of total sales, this automatically disqualifies a business to get a traditional merchant account and it receives the high-risk designation. The adult entertainment industry is well-known for its higher-than-normal rate of chargebacks.
- High regulatory compliance requirements: Adult businesses are the most heavily regulated than any other business. There are minimum legal age requirements in every jurisdiction. Some states outright prohibit the sale of sex toys. Staying in compliance with every regulation and requirement makes things more complex and therefore processors prefer to not get involved.
- Reputational risk: Most adult content is considered a taboo subject. This has the potential of damaging the reputation of the processor or bank. For some processors that do accept certain categories within the adult industry, this reputational risk could spell higher rates and processing fees for merchants.
How To Protect Yourself From Fraud And Chargebacks
The unfortunate truth is that there is no way to completely avoid chargebacks. This is simply the reality in the high-risk industry, even more so in the adult entertainment industry.
However, there are a few strategies you can implement in your business today so that you don’t find yourself in hot water with an overwhelming number of chargebacks. Having too many could spell trouble for you and your processor. Here are a few tips that you can include in your business:
- Once your customers have made a purchase, make sure you feature a page that highlights what it is your customer just purchased. Ensure that there is a complete description as well as the price they paid. If they purchased a subscription, send a notification a few days prior to their next bill date.
- Ensure that you keep detailed records of all customer interactions in case you need to refer back to them for any issues that may arise in the future.
- If a customer is dissatisfied and has requested a refund, provide one right away.
- Implement anti-fraud tools within your business such as Verifi and Ethoca to eradicate disputes before chargebacks have a chance to get filed.
How To Apply For An Adult Merchant Account
In order to apply for an adult merchant account, you will need to make sure that you are in good standing and increase your chances of getting approved. To do that, consider doing the following:
- Ensure you have a good personal credit score
- Be honest while filling out your application. Do not over exaggerate your processing volumes on your adult merchant account application. These inconsistencies will come to light.
- Avoid getting on the MATCH list. This basically means that you have had a previous merchant account terminated.
- Pay your taxes on time. Any delinquent taxes will mean automatic rejection of your account.
After all of this is in place, it’s simply a matter of gathering up any official documents as required by the processor. An application form can be filled out online on the provider’s website and they will alert you, if approved, within a few days.
Although the adult entertainment industry is highly lucrative, do be aware that finding a trustworthy adult merchant account provider can be a bit of a challenge and even slightly more costly.
However, by doing your homework and due diligence ahead of time, you will be well on your way to securing a solid partnership that can help grow and sustain your business for years to come.