Read our interview with Verena Angerbauer, Head of Payment at Travian Games.
The online business sector is one of the most lucrative sectors of the steadily growing adult entertainment industry. Nevertheless, it is hard for dealers to determine the most suitable payment service providers. This can be attributed to high chargeback rates and the many disputes that PSPs face. Many payment providers be scared off by these risks.
Companies in the adult entertainment industry are struggling with chargebacks. However, many other reasons make this industry at "high risk". On the one hand, the large number of transactions generally increases the risk of fraud. On the other hand, the strict regulations and legal restrictions applying to the industry cause many banks to refuse to cooperate with payment service providers (PSP) active in this area. Which, in turns, reduces the attractiveness of the industry for them and reduces the selection for retailers. Some payment service providers and banks do not wish to be associated with the industry because of its controversial content, which cannot be reconciled with other business segments. In general, traders and payment providers must adapt themselves to a large number of cancellations, rebooking, charges of fees and frauds, and therefore prepare an excellent fraud management system (see below).
The dealer is responsible for choosing which PSP to select, and thus also the kinds of payment offered. However, as mentioned above, Adult Entertainment belongs to the "high risk" payment industries. Payments should therefore be fast, liquid and safe, and the chargeback ratio should be minimized. As users usually wish to remain anonymous, the most common payment methods besides the credit card are e-wallets and prepaid cards.
In order to start accepting credit and debit card payments, businesses need to have a special type of bank account, known as merchant account. It retains the revenue made from sales, usually for 2 to 7 days, before transferring it to the merchant’s actual bank account.
A merchant account is created under an agreement between a vendor and an acquiring bank. The acceptation process includes a credit risk assessment.
High-risk merchants will undergo a more extensive verification. To avoid additional difficulties when opening a merchant account, it is recommended to work with payment providers specialized in high-risk industries. Merchant category codes (MCC) associated with high-risk merchants of the adult industry include 7273 dating and escort services and 7841 video tape rental stores (adult content).
Dynamic pricing (or dynamic price management) is a price strategy in which companies constantly adjust the prices of products and services based on current demand requirements. This strategy is essential in adult entertainment and particularly for dating sites. The erotic industry is very time-dependent. This can result in significant price fluctuations in very short time periods, which can be adjusted through dynamic pricing.
Widespread in adult entertainment are also pay-per-minute payments. As the name suggests, the customer pays a certain price per minute of usage, either of the website or of a specific video. Since video-on-demand portals form the major part of the online erotic sector, this method is optimal. This type of figures is often referred to as micro-billing, since these are usually small amounts, which, however, are often debited.
Memberships are also a popular monetization method. In most cases, the customer transfers a fixed amount to the merchant monthly, thus gaining access to web content. Many adult entertainment providers also offer the purchase of a VIP membership. Premium content is then offered at an extra cost.
Lesser known options often used in Adult Entertainment include one-click and per unit billing. The one-click method allows customers to quickly pay with a single click. For this, however, all payment data must be pre-registered by the customer. Per unit payment allows the user to pay each video watched, individually. All inclusive and package solutions are also popular. Often there is also the possibility to book different packages.
For companies, Chargebacks are always costly and complex. These occur far more often in the Adult Entertainment than in other branches. Adult entertainment customers often contact their credit card provider to refuse fees due to non-filling or the like. Known as friendly fraud, these deceitful refund requests can quickly surpass the profits of the company.
When it comes to card-not-present transactions, merchants should always choose reliable, proven payment providers. However, the limited range of payment providers in adult entertainment, due to strict market regulations, sometimes forces traders to rely on inferior payment solutions. This naturally increases the risk of fraud.
Most users wish to remain as anonymous as possible, especially on dating websites. This can lead them to dispute certain payments in order to hide their activities.
The use of stolen credit cards, or of a false identity, to register on adult entertainment sites. While some fraudulent users aim to steal private data, some will also contact other users to persuade them to send money.
This seemingly harmless point is the most common reason for a chargeback. Often, users forget to cancel their subscription in time and then request a reimbursement.
Adult entertainment merchants should only cooperate with trusted payment service providers with verified payment methods. Chargebacks occurrence must be minimized, and fraud should be detected in time. Therefore, the expertise of a competent payment provider is very valuable. Here are a few examples of processors specialized in working with merchants of the adult entertainment industry.
The American processor CCBill works with over 30 000 merchants worldwide. The company provides an all-in-one solution, along with strong fraud protection and risk management services. Many tools essential to a successful adult entertainment business are offered by CCBill. For example, dynamic pricing, especially important for dating websites, quick checkout, essential to live entertainment and pay-per-minute monetization models, and large portfolio of international payment methods.
Emerchantbroker’s works with legally-run adult businesses of various sectors, including toys and novelty, adult bookstores, adult content memberships websites, lingerie and adult clothing online shops, strip clubs, adult massage businesses and escort services. Its gateway is equipped with extensive fraud control tools, notably a protection against chargebacks. Furthermore, it allows merchants to accept payment in multiple currencies.
Epoch processes payments in various global payment methods including credit cards, through recurring billing, per unit billing, one-time billing, or one click billing. Adult websites can therefore charge customers for all types of content formats from monthly memberships to live-chat or video. Epoch’s pricing constitutes of all-inclusive rates, meaning that merchants know exactly what fees to expect.
Zombaio processes payments for all types of online content, with a special focus on the online entertainment industry. This payment gateway supports memberships, live charges and basket charges, or “pay-per”, monetization models. Merchants can set parameters for dynamic pricing on their products. Zombaio also offers daily payout, rare for the adult entertainment industry.
Read our interview with Verena Angerbauer, Head of Payment at Travian Games.
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