Comment by sudokent | Hacker News Reader

Comment by sudokent | Hacker News Reader

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As someone who is trying to a create a new, unique, non-janky, adult website I have learned a lot in the last 10 months. And I have never worked in this industry so it has been a serious learning experience.

The biggest issue for me has been the banks. My assumption is that Stripe and other players would be "ok" accepting payments from "High Risk" merchants. But they cannot, their partner bank will not allow it.

I later found an article by Cindy Gallop raging against this.

http://www.inc.com/welcome.html?destination=http://www.inc.c...

"A whole range of banks turned us down, including the startup banks, Silicon Valley Bank, Square 1 Bank. We finally got a banking account at CHASE, and we were extremely relieved, thrilled to get a check book that said Make Love Not Porn on it. And so, when... I began encountering enormous problems putting a payments infrastructure into place, because we are what the world deems adult content, we couldn't work with PayPal, couldn't work with Amazon, couldn't work with Google Checkout, couldn't work with any of the main merchant partner gateways. So, we thought, let's go back to CHASE, we have a business banking account there, let's apply for a commercial account. Unfortunately, that application surfaced the nature of our business within higher levels at CHASE. And it resulted in a meeting with a more senior guy, who essentially said to us, not only can we not give you a commercial account, but you now need to close your business bank account and take your business away, because we can't handle it."

I had a conversation about this over on Reddit that was fairly interesting.

https://www.reddit.com/r/Entrepreneur/comments/2co0r6/anyone...

I know you've probably learned this already from your experience, but for other readers:

The (possibly) surprising thing here is that banks aren't moralizing here. You can walk into any adult bookstore and pay with a regular old credit card just fine, thank you. Visa and Mastercard are not averse to allowing you to pay for porn.

The reason why banks and credit card companies don't want to be involved with online porn because there's an incredibly high rate of chargebacks. People pay with stolen cards, and people pay with their own cards and then claim that they were "hacked" when their wife wonders why there's porn on their credit card bill.

All of this creates a certain amount of work for them, and it's unprofitable.

So in a sad way, the banks' distaste for dealing with online porn payments is a just sad reflection of our society's attitudes about porn. If we weren't a bunch of weirdos who caused a lot of chargebacks and, instead, paid for porn like actual grownups... banks would have no problem servicing this industry.

You're absolutely right there. You can purchase adult DVDs with Mastercard/Visa at brick and mortars. Once it's online, that's when you get hit with not only the higher rates but the strict yet frustratingly vague content restrictions. Which are applied inconsistently across industries and companies, might I add. For example, as an adult app store, my company can't sell any apps that reference drugs, but you can buy GTA on Play.

Banks are quick to penalize merchants for CB fraud. I wish they would take more action against the individuals who commit it.

yep--ditto for online gaming (eg, online poker, casino, sportsbook). The chargeback rate is outrageous--thought i put the decimal in the wrong place first time i prepared a monthly report. The credit card owner of course claims fraud--ie, someone stole his credit card data & played online poker and lost a fortune all on an account liked to the poor guy's visa. As anyone can guess, a large fraction of this cases are 'remorse fraud'--ie, the card holder had began losing, kept playing and kept losing and panicked at what his wife will do when she sees the $5,000 partypoker charge on his card, he does some research, learns that a "CNP" transaction has certain protections, and in this case means the he can blame someone else and the merchant has to prove otherwise.

A startup idea: create a "dynamic pricing" adult payment processor that would try to undercut the competition by adjusting the amount they charge merchants depending on their chargeback history. You know, sort of like the insurance companies do (insurance is cheaper for those without claims). This way you differentiate between the true high risk merchants and those that are labeled as such just because they are adult.

Undercut the competition which charges upwards of 15%, using that process. Make a killing.

As per my commment below, we get virtually no chargebacks at http://makelovenotporn.com/ because we are a different kind of business operating in a different kind of way - out in the open, socially acceptable/shareable - but the financial institutions' compliance departments won't even have that conversation. :(

The banks LOVE adult high risk. The discount rates, the volume, the transaction fees are very seductive. If the banks could wholly control their own destinies, they’d all be processing adult online transactions—with joy and abandon.

The big BUT is that they fear retribution from the card schemes (Visa & Mastercard). Either of them can and do impose enormous penalties on the banks when they exceed the card schemes’ chargeback thressholds. Worse, they can ban the banks from issuing cards with their logos. This would be catastrophic for any bank.

Parenthetically, I was contacted by a bank recently, requesting that I remove a hentai scene that referenced 'pointy ears' (think Mr. Spock) in the meta data. Pointy ears, they said, was a feature of a 'hybrid human'. Hybrid humans having sex with humans, they said, was bestiality. And Visa would not process payments for anything promoting bestiality. This is just one illustration of how paranoid they are.

So that’s the rub on the processing side, but there are many, many banks that will board adult online merchants, in both the US and the EU. As well, there are numerous IPSPs (Internet Payment Service Providers) for adult merchants, ideal for companies just starting out, or companies not interested in sacrificing time and energy managing a private merchant account.

On the settlement side, that’s a new issue.

Banks are less and less keen to open business checking accounts for adult online merchants. They’re nervous about these transactions settling to one of their accounts.

This is largely the result of paranoia about new banking regulations in the wake of the mortgage-backed securities debacle. They are now (rightfully) under a great deal of scrutiny from regulators which translates to onerous judgement calls from banks.

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