Adult entertainment is a lucrative industry in the U.S. Gentlemen’s clubs alone are a $7 billion industry, not to mention other adult entertainment businesses such as adult novelty stores, pornography merchants, lingerie stores, live camera models, adult dating, and more. Even though the adult entertainment industry is a thriving industry, many of the businesses within this industry are considered “high-risk” which makes it difficult for these businesses to open a merchant account.
There are several reasons that the adult entertainment industry is considered high-risk, including age restrictions, taboo content, reputational risks, and increased risk of fraud and chargebacks. For gentlemen’s clubs in particular, there is a high rate of closure which also puts these types of businesses in the high-risk category. However, these businesses still need merchant accounts and a payment processing solution in place to ensure safe and efficient payment processing. While traditional banks and financial institutions may be hesitant to open a merchant account with an adult entertainment business, there are merchant service providers who are willing to work with businesses of this industry.
In this guide, we will discuss why gentlemen’s clubs, adult stores, and other businesses in the adult entertainment industry are considered high-risk as well as how you can find a merchant account for your business. Our professionals at First MCS provide merchant account services for hard to place businesses including adult entertainment businesses in the Chicago, IL area.
Why is the Adult Entertainment Industry a High-Risk Industry?
It may be possible for some businesses within the adult entertainment industry, such as lingerie and adult novelty stores, to get a merchant account from a traditional bank or financial institution. However, this is unlikely to happen as these institutions generally avoid working with high-risk businesses and industries.
There are several reasons why gentlemen’s clubs and adult entertainment businesses are considered high-risk. Most of these reasons are related to the financial aspect of these businesses including fraud and chargeback risks. The other major obstacle for adult entertainment businesses when looking for a merchant account is the reputational risk. While adult entertainment businesses are perfectly legal, the taboo content poses a risk to the reputation of banks and processors that they would rather avoid.
It is best for businesses in the adult entertainment industry to work with a merchant services provider willing to take on hard to place merchant accounts.
Businesses of the adult entertainment industry are considered high-risk for the following reasons:
- Age restrictions: While adult entertainment businesses are legal, it is illegal for anyone under the age of 18 to purchase, create, or participate in the content, products, and entertainment provided within this industry. If a business violates this law in any way, this creates a major legal issue for the business and their merchant services provider.
- Reputational risk: Adult content is considered taboo and many of the major banks and processors do not want to risk their reputation by working with adult businesses. However, not all adult businesses are viewed the same in this regard. Major banks and credit cards may work with a lingerie store but hesitate to work with an adult website or gentlemen’s club. If you do get a merchant account from a traditional bank or processor for your adult business, you should expect to pay higher processing fees to cover the risks and make sure to follow all the terms of your account or it can be terminated due to “reputational risks.”
- Increased risk of fraud: There are two types of fraud that are common in the adult entertainment industry. Confirmed, or true fraud is when a credit card is stolen and knowingly processed fraudulently by customers or merchants. Friendly fraud is when a customer files a chargeback for a legitimate purpose and the payment processor refunds the charge believing it to be real fraud. Adult businesses that are proactively fighting to reduce fraud will have an easier time finding a payment processor.
- Increased chargebacks: The adult entertainment industry has a much higher number of chargebacks than other industries. Chargebacks are when a customer goes directly to the bank or payment processor to reverse a credit card payment. This industry often deals with high chargeback ratios because of customers who make legitimate purchases for adult website subscriptions or gentlemen’s club tabs and file chargebacks when caught and confronted by a spouse (friendly fraud). Even though many of these chargeback claims are illegitimate, they still cut into the profits of the business which makes them too high risk for many banks and payment processors.
Finding Merchant Accounts for Adult Entertainment Businesses
While it is difficult for businesses in the adult entertainment industry to get merchant accounts with traditional banking institutions and payment processors, they can open merchant accounts with businesses that specialize in working with hard to place accounts. Merchant services like First MCS have experience working with businesses in the adult entertainment industry and can offer services specifically catered to the industry at a reasonable price.
One thing to keep in mind is that the high chargeback ratio of the adult entertainment industry is a risk even for payment processors willing to work with businesses of this industry. You have a better chance of getting approved for a merchant account if you take the following steps to prevent chargebacks:
- Communication: Your business must provide full disclosure on your products, services, costs, and fees and make your customers aware of your return policies. Providing this information can help reduce refunds and chargeback rates.
- Review accounts: Make sure to regularly review your transactions and look for incorrect contact information, shipping addresses, and other red flags.
- Cyber security software: Implement quality cyber security software and follow the right protocols for every transaction. This will help reduce fraud and other criminal activity.
- Billing discretion: Many chargebacks in the adult entertainment industry occur when a charge is discovered by someone else, and the customer demands a refund or files a chargeback instead of admitting what they did. Using discreet billing invoices will protect the privacy of your customers and reduce chargebacks.
The Benefits of an Adult Entertainment Merchant Account
Working with a merchant services provider that has experience with adult businesses can benefit your business in the following ways:
- Multiple payment processing options: Customers prefer to have multiple payment options and merchants that work with adult entertainment businesses can provide payment processing for credit and debit cards as well as e-checks.
- Tools for efficient billing and payment processing: Merchant accounts include the tools needed for you to create and automate invoices and billing.
- Payment tracking: Merchant service providers will track every payment automatically from the beginning to the end of the transaction.
- Fraud prevention: Merchant accounts feature PCI compliant security that ensures secure payments and helps protect against fraud including fraudulent charges and bounced checks.
- Professional reputation: Cash only gentlemen’s clubs and adult entertainment businesses are off putting to customers because less people pay with cash than with other means and being a cash only business comes with a negative reputation of being illegitimate. A merchant account will allow you to offer multiple forms of payment, including credit card payments, which will give your business legitimacy and improve your reputation.
How to Find Merchant Services for Hard to Place Accounts
It is important for businesses in the adult entertainment industry to find a merchant service provider that not only has experience working with businesses within this industry, but also suits the specific needs of your business within your budget. Asking the following questions will help you find a merchant account that is right for your business:
- Do they work with adult businesses? – Some payment processors who provide hard to place merchant accounts may only work with certain high-risk businesses. Make sure the payment processor has experience with adult businesses.
- Do they have affordable rates? – You should expect higher rates even from high-risk merchant service providers to account for risks such as chargebacks, fraud, and high closure rates. However, you should be able to find a payment processor that still offers reasonable rates.
- Are they transparent with their fees? – Payment processors should be fully transparent with their fees upfront. They should also charge the same fees for each major credit card.
- Do they support multiple payment options? – Customers prefer to have multiple payment options and offering different payment options adds legitimacy to an adult entertainment business. It is best to work with a payment processor that offers multiple payment options.
- Do they provide security? – Security is very important in the adult entertainment industry to prevent fraud and protect customer privacy. Make sure a payment processor offers top-tier security protections.
Hard to Place Merchant Account Services from First MCS
Adult entertainment is a lucrative industry which makes it important for businesses in this industry to have efficient and secure payment processing. However, reputational risks and the high risk of chargebacks and fraud make traditional banking institutions and payment processors hesitant to work with businesses within this industry. Businesses in the adult entertainment industry can work with merchant service providers who provide hard to place merchant accounts like First MCS.
Our professionals are willing to open merchant accounts with businesses in the adult entertainment industry that allow them to effectively manage their payment processing and offer multiple payment options. We provide point-of-sale systems that include the software and hardware needed to process payments and you can also expect excellent customer support.
Call First MCS at (866) 673-3099 for more about our merchant services for adult entertainment businesses in the Chicago, IL area.