Due to the unjustified stigma many payment processors have against the industry, adult merchant accounts are one of the hardest to open – but all hope is not lost. Whether you’re a porn merchant, a retailer of adult toys, or anything in between, this comprehensive guide will help you find the adult merchant services most suited to your business.
Table of Contents
- Types of Adult Merchants
- State of the Industry Today
- Laws (Federal & State)
- Struggles Facing Adult Merchants (and solutions)
- Industry Tips for Getting Your Adult Merchant Account
- Commonly Asked Questions
The Adult Industry is filled with many quality products and services that are in very high demand. It’s also an industry with almost limitless possibilities, thanks to the endless variety of niche markets.
The problem is, major banks and credit card processors refuse to work with adult merchants because they’re classified as “high risk”. The solution? Find a service provider that specializes in adult merchant accounts.
Motile’s team of veterans are experts at connecting any type of high risk business (as long as it’s legal) with the payment and credit card processing solutions that fits them best. We’ll help you connect with an adult payment processor that not only values your business, but understands its unique needs.
Continue reading to learn more about the current path of the industry, laws that could affect your business, struggles you may face, frequently asked questions, and the best ways to get your adult merchant account approved.
1. Types of Adult Merchants
Before getting into the main content of this article, it’s important to first understand the types of business that are classified as adult merchants. Generally speaking, anyone selling adult-oriented content, products, or services for the purpose of enhancing or stimulating sexual health and wellness would fall under this category.
As a result, the adult industry encompasses a huge array of products and services, including:
- Adult Toys & Novelties
- Escort & Dating Services
- Adult Massage
- Adult Bookstores (online or brick and mortar)
- Strip Clubs
- Adult Content Websites
- Gentleman’s Clubs
- Online Lingerie and Adult-oriented Clothing
- Live Video Streaming Services
If you belong to one of the industries above (or anything related to them), then you would be considered an adult merchant by payment processors. Make sure you read on to get the knowledge and tips needed to make your business thrive.
Industry SIC & NAICS Codes:
Since there aren’t enough adult-specific categories, most adult merchants will use the code for the non-adult version of their industry (or whichever matches their business type best). You can find a list of industry categories and the adult businesses that tend to use them below.
Standard Industrial Classification (SIC) codes were established by the U.S. government in 1937 as a means to classify businesses based on legally defined industries. Most adult businesses will use one of the following codes:
- 5945: Hobby, Toy, and Game Shops – Most common for adult toys and novelties
- 5947: Gift, Novelty, and Souvenir Shops – Alternative for adult toys and novelties
- 7375: Information Retrieval Services – Adult websites
- 729903: Dating and Escort Services – Escort and adult dating services
- 7299: Miscellaneous Personal Services – Adult massage or otherwise uncategorized adult services
- 792903: Amusement and recreation services – Adult retail locations (such as adult book stores), and strip clubs
- 5968: Direct Marketing, Continuity / Subscription Merchant – Membership websites/products, pornographic websites, and other adult-oriented continuity products
You can browse the full list of SIC categories on the U.S. Department of Labor’s website.
While SIC codes are still in use, the North American Industry Classification System (NAICS) codes have slowly become the new standard. Adult merchants will generally fall under one of the following categories:
- 451120: Hobby, Toy, and Game Stores – Most common for adult toys and novelties
- 453220: Gift, Novelty, and Souvenir Stores – Alternative for adult toys and novelties
- 517110: Wired Telecommunications Carriers – Adult content websites
- 454111: Electronic Shopping, Internet Retail Sales – Adult-oriented eCommerce sites and online adult sales.
- 812990: All Other Personal Services – Strip clubs, adult massage, escort services, and adult dating
- 451211: Book Stores – Adult DVDs, magazines, bookstores, and other adult-oriented retail products.
- 8139: Business, Professional, Labor, Political, and Similar Organizations – Adult membership sites
These are the most common NAICS codes used by adult businesses. If none of them fit your needs, you can take a look at the full list of NAICS categories to find one that more closely matches your specific company.
2. State of the Adult Industry Today
The Adult Industry has faced many ups and downs over the years (especially porn merchants), but for the most part business is better than ever. To get an idea of how the industry is changing and growing, let’s take a look at the two biggest adult industries – pornography and adult toys.
State of the porn industry and how it has changed
Traditional porn merchants have taken a huge hit since the golden years. The amount of studios producing adult videos has declined by 90%, and it’s estimated that revenue has dropped by around $25-35 billion since the advent of Tube sites.
That being said, adult video is still a colossal $97 billion industry that even outearns Hollywood. Porn studios produce over 12,000 more films than Hollywood each year and earn $5 billion more in revenue.
Despite the decline of adult video studios, porn is still the fastest growing industry in the world. This is due to some of the following factors:
- The convenience of Tube sites and other adult content and membership websites has massively increased consumption
- Invention of new technologies such as Virtual Reality (VR) continue to accelerate growth
- The enormous amount of niche markets makes it easy to for new porn merchants to enter the industry and be successful
- Increased social acceptance and public interest in sexual health and wellness has reduced the shame associated with purchasing adult content and products
All these factors lead us to believe that there has never been a better time to enter the adult industry as a porn merchant. You’ll just have to make sure that you adjust your business strategy to succeed in our current digital age.
Other Relevant Porn Industry Statistics/Information (Market Success and Demand):
- 12% of all content on the internet is pornographic, and people spend $3000 on porn every second (roughly $260 million a day)
- In 2015, PornHub, one of the biggest websites in the industry, had a total of 87.8 billion views (that’s enough for every person on earth to have 12 views each)
- MindGeek is the biggest company in porn and currently has a monopoly – owning 8 out of 10 of the world’s most visited Tube sites.
- Visa, Mastercard, and American Express will not process payments for porn merchants (more on this in the struggles section)
Looking at these statistics, it quickly becomes clear that the sheer volume and demand for adult content is staggering – and the numbers only continue to spike as new technology facilitates the development of new market opportunities.
State of the adult toys industry:
The adult toys and novelties industry is also booming. There are more highly successful adult merchants than ever, and the timing has never been more perfect for new merchants to enter the market. This is due to some of the following factors:
- Increased openness and interest in sexual health and wellness
- Exposure in mainstream media such as Sex and the City and 50 Shades of Grey
- The increased prevalence of online adult products stores, which
- Allow for anonymous purchasing
- Have lower prices
- Offer a wider variety of products than brick-and-mortar stores (plus easier access to niche products)
- Technological advances such as bluetooth and Virtual Reality (VR) compatible products
Other Relevant Adult Store Statistics/Information (market growth and success):
- In 2017, the global adult toy market was valued at $15 billion US dollars. This number is expected to surpass $29 billion by 2020
- It’s estimated that this growth will exceed $6 billion in the US alone
- According to recent statistics, the adult stores include 7,716 businesses which employ roughly 38,244 people
- From 2013 to 2018, intimacy products have grown to make up 80% of the adult stores industry
- Estimates indicate that the adult store industry’s contribution to the U.S. GDP will increase by 2.1% per year. This is roughly the same as the forecasted growth of the entire GDP (2.2%) – suggesting that the industry has matured.
What does this mean for the adult industry as a whole?
The success of these two sectors is a strong indicator for the growth of the entire adult industry. The factors that have caused this rapid expansion have also directly contributed to consumer interest in other adult services.
For instance, global interest in sexual health and wellness has not only become socially acceptable, but also highly valued. As a result, consumers have grown more and more inquisitive about a wider variety of adult products and services – further contributing to the economic success of the industry.
The adult industry’s exponential growth has led to the rise of a lot of highly successful big businesses, as well as MindGeek’s Tube site monopoly. Despite this, access to an almost limitless amount of niche markets means there is still plenty of opportunity for new and small businesses to thrive.
3. Relevant Laws
Some states have laws that restrict the ability of adult merchants to legally or easily operate their businesses. It’s important that you’re aware of the ones relevant to your specific company in order to avoid issues down the road.
If you plan on opening a brick-and-mortar location, you should be aware of the following information regarding laws and regulations:
- Different states have zoning restrictions that regulate where adult-oriented businesses can legally operate
- The location and operating hours of adult stores are also regulated in many cities, so even if you know there are no state restrictions, double check with your city or county planning commission before deciding on a location
- Certain areas may also require you to have a filming license if you plan to film adult movies
Laws Regarding Sales of Adult Products:
In some states the sale of adult toys and other intimacy products are either restricted or completely outlawed. Here are some you may need to be aware of:
- The Anti-Obscenity Enforcement Act outlaws the sale of adult toys in Alabama
- Some individual cities and towns also have laws criminalizing the purchase of adult products online – or even simply owning them within the city limits
- Other notable areas that outlaw or limit the sale, purchase, or ownership of intimacy products include parts of Texas, Maine, and New Mexico (and many others).
4. Struggles Facing Adult Merchants (and Solutions)
Opening an adult merchant account is a tough challenge in and of itself. Not only are you classified as “high risk”, but you also have to deal with the prejudice and unjustified stigma surrounding the adult industry.
Some of these pains can be assuaged by connecting with the right adult payment processor, but there are still inevitable struggles you’ll have to face if you want to ensure your business keeps thriving for years to come.
Most of the issues you’ll run into can be avoided if you know how. Take a look at the five most common struggles facing adult merchants and our expert’s solutions for each one.
Problem #1: Most large banks and credit card companies won’t work with adult merchants
Other types of high risk merchants can usually still get their payments processed by large banks and major credit card companies. Businesses in the adult industry, however, are not so lucky.
In order to approve an adult merchant, a credit card processor’s sponsor bank must include adult businesses in their underwriting guidelines. Unfortunately, the majority of large banks make a point of refusing to allow their processors to underwrite adult-oriented businesses.
In addition, American Express, Visa, and Mastercard now all refuse to process payments for porn merchants.
Get connected with a high risk merchant service provider that specializes in adult credit card processing (like we do). Motile excels at finding alternative routes to get around the roadblocks that might otherwise impede your ability to process credit card payments.
Use payment alternatives such as ACH processing. ACH transfers allow you to skirt the issues associated with adult credit card processing, as well as reap other useful benefits for adult businesses like easily facilitating subscriptions.
ACH is regarded as one of the safest online payment methods in the world, meaning the risk of fraud is massively reduced. It’s also especially useful for membership websites, because you don’t have to worry about expiring credit cards interfering with recurring payments.
All of this makes ACH processing one of the best methods to keep a reliable, steady flow of cash coming in.
Problem #2: Excessive Chargebacks
Chargebacks have long been the bane of high risk merchants, and one of the main reasons they’re considered “high risk” in the first place. It’s essential to be aware of them, because if your chargeback ratio is too high, your payment processor will close your merchant account.
While chargebacks due to regular fraud are a risk for any business, as an adult merchant your primary concern will be so-called “friendly” fraud and chargeback fraud. Both of these occur when a customer who did actually pay for a product or service disputes the charge anyway.
In the adult industry, chargeback fraud isn’t necessarily malicious – it often occurs because a customer is embarrassed by a purchase that occured in the heat of the moment, or their card statement is discovered by a friend or family member. They often justify their dispute by claiming they don’t recognize the charge.
Friendly fraud, on the other hand, occurs because the hoops that need to be jumped through for adult credit processing frequently result in your business appearing a bit suspect on credit card statements. This causes customers to question or fail to recognize the charge and dispute it – thereby accidentally committing fraud.
Fortunately, there are a number of solutions for these issues that can help you avoid getting your adult merchant account shut down due to excessive chargebacks.
Solution #1: Make it hard for customers to dispute legitimate payments
By implementing certain strategies you can make it more difficult for customers to successfully dispute a legitimate payment. Here are three best practices you can use to ensure charges stand:
1. Clear and descriptive billing:
Make it easy for your customers to recognize charges from your business by clearly including your business name, phone number, and transaction date. If you know the charge will show up under a “strange” name – such as that of your adult merchant service provider – be sure to clearly inform your customers of this on your website and in confirmation emails.
2. Send email receipts:
Sending automatic email receipts to customers for every transaction will not only help them recognize charges, but will also give you evidence that it’s a legitimate charge in the event they try to dispute it.
3. Require signatures on delivery
If you sell intimacy products or other adult paraphernalia online, make sure you require customers to sign on delivery. It’s much more difficult for customers to dispute a charge for a product if they actively signed to receive it.
Solution #2: Always give refunds
At first glance, this may seem like a counterintuitive way to stay in business – but granting refunds is an effective strategy for keeping your chargeback ratio low.
When a customer disputes a charge, the system is designed so that it’s extremely hard for the business to win the dispute. And everytime a chargeback occurs it increases your chargeback ratio. If your ratio gets too high, your payment processor will close your account.
By granting refunds, the customer has no reason to dispute a charge, and your chargeback ratio will remain healthy.
Solution #3: Take advantage of offshore banking
Some adult payment processors will set you up with an offshore merchant account. This is often a way to get around big banks’ refusal to underwrite adult businesses, but it has another hidden advantage as well.
When using an offshore merchant account, your acceptable chargeback ratio increases from below 2% to 3-4%. This means you can acceptably have a lot more chargebacks without your merchant account getting shut down.
Problem #3: Government Regulations & Laws
In the previous section regarding laws, you can see that legally operating an adult business isn’t always a walk in the park. On top of this, the U.S. government is currently making efforts to enforce age restrictions and improve filtering for adult websites.
Of course, preventing minors from accessing websites with adult content or purchasing such products is ultimately a good thing. The issue lies in the manner and severity of enforcement.
As demonstrated by the UK’s recent efforts, age enforcement can cause a threat to privacy. This makes more customers reluctant to use adult websites or purchase adult products online.
While these restrictions and regulations can be frustrating, the best course of action is to fully comply with them. You never want to operate on the wrong side of the law, especially when adult business already have so many other challenges to deal with.
Merchant service providers will immediately shut down your account if they discover you’re doing anything illegal. Keep your cash flowing by following all laws and regulations to the best of your abilities.
Problem #4: Frequency of “Malicious Behavior” on Adult Websites
Adult websites have a reputation for being a bastion of malicious behavior. In fact, one study revealed that 3.23% of pages on adult-oriented websites trigger malicious behavior. When you multiply this by the 12% of all internet content being pornographic, it amounts to a staggering number of pages.
This is a serious issue, because fear of malicious activity makes customers hesitant to purchase adult products and services online.
Solution: Create a secure, trustworthy website
Your first order of business when selling services or products online is implementing a PCI-secure payment platform. And be sure to clearly inform your customers that payments processed on your site are held to the highest security standards – having a secure platform won’t matter if your customers aren’t aware of it.
The second order of business is to create a professional, trustworthy looking website. Your goal is to craft a site that looks as legitimate as your business – customers are far more likely to trust (and open their wallets for) a website with professional aesthetics.
5. Industry Tips for Opening an Adult Merchant Account
As you’ve probably realized by now, opening an adult merchant account can be a grueling task – even when compared to other high risk industries. The following tips will help ease the process:
Tip #1: Get your affairs in order
To successfully open an adult merchant account, there are a few things you may need to take care of first:
1. Spruce up your credit:
Merchant service providers will always take a look at your credit rating before giving you an account. Increase your chances of approval by cleaning up your credit before applying.
Take care of any outstanding payments or liens you may have, and then inform one of the major credit reporting agencies of your actions so that they can update your credit score.
2. Prepare a statement to explain closed merchant accounts (if applicable):
If you’re in need a merchant account because your previous one was shutdown, then you’re going to have to explain why. Take time to think about and draft your explanation in advance, so that you can make a convincing argument when questioned by a payment processor.
Also be sure to inform them what steps you’ve taken to avoid the issues that caused your account to be closed in the first place.
3. Put aside a reserve:
Some adult payment processors will require you to open a reserve account with funds they can access at any time. This reserve functions as a kind of insurance policy for the processor in the event your business can’t deliver.
By preparing these funds before applying, you show the merchant service provider that you’re a legitimate professional who takes their business seriously – making them much more likely to grant you an account.
4. Prepare the following list of essential application documents:
- EIN (Employer Identification Number) or SSN (Social Security Number)
- Business license
- Valid photo ID (such as passport or driver’s license)
- Processing statements for the past 3-6 months
- Business’ bank statements for the past 3 months
- Business utility bill
- Voided check from your business’ bank account
- Articles of incorporation
- Your (Business Owner’s) Resume
- Merchant Account Application
Tip #2: Be prepared to face the realities of high risk processing
On average, normal businesses pay credit card processing fees of around 2%. For adult credit card processing, these fees will be significantly higher – how much higher will depend on the nature of your business.
Don’t be scared off when you hear high numbers. High fees are an unfortunate reality that must be dealt with when running a high risk business. Just remember, credit card processing makes it far easier for customers to give you their money, which makes them much more likely to purchase your goods or services.
Tip #3: Be clear, informative, and honest when describing your business
In order to get a merchant account, you’ll need to convince the MSP that your business is (or will be) profitable. You can’t do that without explaining what your business does.
The more accurately and honestly you describe your business, the more likely a merchant service provider will understand its merits and grant you an account. For adult merchants this can be somewhat intimidating – especially if you work with customers whose demands are slightly more untoward than usual.
Don’t worry about it. Honestly and directly describe all the details regarding your product or services, and explain why they appeal to your target market. As long as you can convince an adult payment processor that you’ll be running a profitable enterprise, they won’t care about the nature of your business.
Tip #4: Don’t be afraid to change processors
Every processor is different, and some may fulfill your unique processing needs better than others – even amongst those that specialize in adult payment processing solutions.
The difficulty of acquiring a high risk merchant account can cause many to settle for services that might not be ideal. Don’t fall into this trap. If you feel as though your MSP isn’t fully handling your needs, you should think about switching things up.
Tip #5: Work with an agent
Telling you to find the best payment processing solutions for your business is easier said than done. Doing so would require a tremendous amount of research, and potentially some trial and error as well. Even then, you may still be unable to find a suitable solution.
Working with an agent will enable you to quickly and easily find optimal processing for your business (and help you avoid all the headaches associated with tedious applications).
Agents are already familiar with hundreds of different payment processing options, and know which types will fit your specific company based on factors like volume, monetization strategy, location, and more.. Working with an agent-run company like Motile LLC can help you touch base with veteran agents who specialize in adult payment processing.
6. Common Questions Asked by Adult Merchants
Question #1: What’s the best adult payment processor?
There is no quintessential “best” adult payment processor.. A solution that works well for your business specifically might be unsuitable for your competitor – and vice versa.
Question #2: Can I reduce my rates?
It’s definitely possible to reduce your processing rates, but it will take some time. You need to first prove you are a stable, profitable business, and that you have the capacity to grow. Once you’ve wracked up a year or so of consistent payments, try renegotiating with your processor for lower rates.
Before you do, though, make sure you’re aware of the factors that go into determining different types of processing rates and fees.
Question #3: How do I increase my processing volume limit?
Stability, reliability, and profitability – a track record that showcases these three key business metrics will enable you to negotiate a higher processing volume.
Merchant service providers will always initially limit the volume of high risk businesses as a means of protecting themselves. But once you can prove you run a dependable company (after processing 3-6 months), they should be more than willing to boost your volume – as this means more profits for them as well.
Question #4: What if a processor isn’t willing to accept my particular type of adult business?
As long as you run a legitimate, legal business, you’ll eventually be able to find someone willing to take you on.
Thankfully, this shouldn’t be an issue when using an agent like Motile (barring any extenuating circumstances). Of those who have applied, we’ve successfully aided 95.8% of adult businesses from a wide variety of industries.
Question #5: Why can’t I use easy payment solutions such as PayPal, Square, and Stripe?
Unfortunately, these major processors and aggregators simply won’t accept adult merchants. In addition, using one can be very dangerous for your business. Unlike normal credit card processors, PayPal, Square, and Stripe don’t begin the underwriting process until a few months after you sign up.
This means it will seem like you’ve been approved, and then after processing payments for one to six months, suddenly get closed down. Not only will your merchant account get the axe, but you may also incur penalties such as having your funds frozen.
Ask your merchant service provider to connect you with adult credit card processing solutions to avoid these issues altogether.