Updated September 19, 2024

The worldwide adult industry is now measured in hundreds of billions of dollars. The Internet, virtual reality, mobile communications, and other technological developments provide the industry with various new ways to continue growing. The types of business in the industry vary as well, and range from one-man businesses to large corporations. Especially considering some of the unique characteristics and challenges of doing business in the adult industry, an important first step in starting is determining how to take payments for your adult business. This usually means finding adult payment processing services.

What is an Adult Business?

What, specifically, are we talking about when we say “adult business?” What types of businesses are considered to be part of the adult industry?

The answer is not always clear-cut or consistent. Many of the applicable laws and regulations are determined by state or local governments, meaning that not only the rules but also the definitions, may change once you step into another town or state.

There are, however, some general characteristics that tend to be common. The International Encyclopedia of Human Sexuality states that “adult industry generally refers to the sale of sexually explicit material or services, including legal and illegal exchanges, for profit in commercial marketplaces.” For example, the municipal code of Corona, California defines “adult business” as any business where employees or patrons expose specified anatomical areas or engage in specified sexual activities, or any business that offers to its patrons services or entertainment characterized by an emphasis on matter depicting, exposing, describing, discussing or relating to specified sexual activities or specified anatomical areas.

This does not include “bona fide medical establishments operated by properly licensed and registered medical personnel with appropriate medical credentials for the treatment of patients.”

Some of the most common types of legally operated businesses that would be categorized as belonging to the adult entertainment industry include:

• Adult Entertainment Content Websites
• Dating Sites
• Adult Toys and Novelties Merchants
• Adult Content Webcam Sites

There are also commercial establishments that have a main business not related to the sale or rental of descriptions or depictions of “specified anatomical areas or engage in specified sexual activities.” These include live strip clubs and any other adult entertainment business, as well as adult motels that rent rooms in hourly units rather than in day units.

If you run any of these types of adult businesses, you'll be considered high-risk and will have a hard time finding a merchant account. You should look into adult merchant accounts and payment processing.

Why are Adult Merchant Accounts High-Risk?

Banks and credit card companies, etc., use merchant category codes (MCCs) to classify businesses by the types of goods or services that they sell. An MCC can be used for tax purposes, collection of information, and analyzing purchasing behavior, but they can also be used to restrict transactions or flag high-risk businesses.

Certain MCCs are used by banks to identify adult businesses. One of the most common is MCC 5967, which identifies businesses that provide adult chat and entertainment, among other businesses.

What is it that makes banks and other financial institutions view the adult industry as high-risk when it comes to payment processing? The two most common reasons that a company is labeled “high-risk business” are a high chargeback rate and a high frequency of fraud. These both apply to the adult industry overall, so having your business categorized as MCC 5967 alone could result in the bank rejecting your application for an adult merchant account.

Because of the high risk of rejection by traditional banks and payment processors, if you're looking to obtain an adult merchant account, it is important to work with a high-risk merchant account provider. Adult payment processors are familiar with the risks associated with an adult business. Because of that, they are typically experienced with adult payment processing and will know how to help you find adult merchant account solutions.

Chargebacks and Fraud in the Adult Industry

Chargebacks are an issue for just about every business, whether high-risk or low-risk. However, there are aspects of the adult entertainment industry that can lead to a higher rate of chargebacks than other industries. One is that customers of adult merchants usually don't want others to know about their purchases. If the purchase is discovered, they might deny purchasing to save face. That can result in a chargeback. This type of situation is unique to adult credit card processing and is a key reason traditional payment processors and merchant services providers will reject applications from adult entertainment businesses.

In some cases, credit card information is stolen and used to buy goods or services from an adult business. If the cardholder doesn't notice the charge soon, the loss can be significant. There are also cases in which a family member has used the card without permission, and not wanting to get in trouble, denies it when asked. The cardholder assumes that the card information has been stolen, and might initiate a chargeback. This type of unintentional fraud is called “friendly fraud”.

“Friendly” or not, it can cause a lot of problems and loss for everyone involved, from adult merchants themselves to the host merchant services. It's not exclusive to the adult industry, of course, but the higher likelihood that the guilty family member, etc., will be extra secretive means that there is a higher degree of motivation to deny making the purchase in the case of the adult industry.

Laws and Regulations for Adult Businesses

The adult industry also has a more challenging legal standing. One of these is the lack of uniformity in applicable laws and regulations between states and municipalities that was mentioned earlier. Another is that there are often legal requirements and restrictions placed on businesses in the industry that are not placed on businesses in other industries. Compliance with laws, regulations, and industry standards has become a pressing issue in every industry, and the United States is especially strict toward the adult industry.

Some of the requirements may even be somewhat unexpected. For example, the U.S. Code includes requirements for record-keeping related to simulated sexual conduct ( U.S. Code § 2257A ).

Be sure to look into the relevant laws and regulations thoroughly and make compliance a priority in your business. This is especially true as you look into high-risk merchant accounts. Your high-risk payment processor should be able to help you with this, so if you are unsure, don't hesitate to ask. Our team at Zen Payments will be glad to help you. We have years of experience providing adult merchant accounts and helping adult merchant services companies accept credit cards.

It's Difficult for Adult Businesses to Take Payments

Taken together, these and other factors can make it very difficult for adult businesses to accomplish one of the fundamental acts of operating a business: getting paid. Even with customers ready to spend hundreds of billions of dollars on your products and services, you're not going to see any of it if you can't even open a merchant account, let alone process payments.

Even if you are able to convince a bank to open a merchant account for your business, a tiny increase in the number of chargebacks could get your account shut down without warning. The complex, inconsistent, and frequently changing laws and regulations in the adult industry could even get your business itself shut down.

There is certainly a high degree of potential for your business to prosper in the industry, but in a sense, you have to cross a minefield to get to it. That's why you'll see many adult entertainment merchants choose an offshore adult merchant account. However, adult entertainment businesses typically need to be established to be accepted for these offshore adult merchant accounts. New businesses should look domestically for adult merchant account providers and payment processing.

Why Choose Zen Payments as Your Adult Merchant Account Provider?

That's where an expert in navigating that minefield can come in handy. A high-risk payment processor such as Zen Payments can be a highly effective resource in helping you get things set up in a way that your business will be in compliance with laws and regulations from the start. We specialize in helping high-risk businesses and other businesses that may have a difficult time opening a merchant account at a traditional bank. Whatever payment processor you choose, the ideal is to find a high-risk payment processor that has a good level of experience in payment processing, etc., for the adult industry.

Often, finding adult payment processing services includes obtaining an adult payment gateway as well. A gateway allows you to securely accept credit card payments. A high-risk merchant account provider is the best place to go for both an adult merchant account and a gateway.

Wherever you are in the process of starting and operating your business, Zen Payments can answer your questions and provide solutions that meet your specific needs. Our team specializes in helping you ensure that your business fully complies with the relevant laws and regulations so that your adult merchant account is always ready to accept your customers' payments. Talk to one of our specialists today and get started with an adult merchant account from Zen Payments!