In the US, the adult nightclub industry is worth approximately seven billion USD. Yet despite these impressive revenues, gentlemen’s clubs are part of the growing list of “high-risk” industries that are prohibited from using payment processing services. Many of these services, including credit card and debit card processing, are essential to the success of any business.

If you’re the owner or manager of a gentlemen’s club, you may have already applied for — and been denied — a merchant account. If this has happened to you, you’re not alone. Scores of high-revenue industries are also considered high-risk by banks and financial institutions, making it nearly impossible for them to get payment processing services. However, the good news is that one leading payment processing provider, Zenti, specializes in providing a full roster of merchant account services for gentlemen's clubs and other businesses in the adult entertainment industry. With Zenti, you can get a credit card and e-check processing as well as a variety of tools to help you streamline your business accounts and transactions.

Why is it so difficult to get merchant accounts for gentlemen’s clubs? As with any type of financing scenario, the answer lies in the ratio of risk, as perceived by the bank. But exactly how are banks involved, and why should they impose these limitations? The answers might surprise you.

Why are certain industries considered high-risk?

For financial underwriters and merchant account providers, nightclubs and bars are considered high-risk when it comes to credit card processing. This is especially true of any type of entertainment venue that serves alcohol and/or provides adult entertainment. And while some of the reasons may seem archaic by 21st-century standards, others are based on standard assessments used for evaluating loan risks.

Essentially, adult entertainment venues, like some bars and nightclubs, have a high closure rate, and this automatically puts the entire industry in the high-risk category for financial services. However, this is only one of several issues. If you’re operating a highly successful gentlemen’s club with a great track record in business, yet you’re still denied a merchant account, you need to know that other factors are involved as well. And one of those prime factors has to do with chargebacks.

Why are chargebacks such a big problem?

A chargeback is an industry term for a credit card refund. Every time someone makes a purchase and then asks for a refund to their credit card, it’s a chargeback. In many cases, chargebacks are completely legit and made with good intentions, but sometimes criminals use chargebacks as a way to scam businesses and payment processing companies.

Another problematic component is “friendly fraud” which occurs when customers make a credit card payment and later claim it was unauthorized. Then they demand a refund. Customers often do this because something ends up being more expensive than they bargained for such as a magazine subscription that starts at a special rate, then skyrockets a few months later. Customers can inadvertently commit “friendly fraud” with the best intentions in the world, but the results still lead to unsustainable profit loss for banks, credit card processors, and businesses.

In the case of gentlemen’s clubs, one common reason for friendly fraud is accidental detection. In cases like these, a customer is billed and their spouse, significant other, or employer sees the bill. In some cases, the customer will deny the charges, call the credit card company, and claim that the charges are fraudulent rather than admit they actually visited the club. Friendly fraud is prevalent. In fact, eight out of every 10 merchants say they’ve seen a significant increase in friendly fraud chargebacks, while 31 percent say they’ve had trouble contesting them.

Why are chargebacks such a big deal? According to Nasdaq, losses due to credit card fraud rose above 32 billion USD in 2021. And surprisingly, a whopping 86 percent of reversed transactions aren’t even legitimate claims. Likewise, some experts predict that by the next year or so, six out of ten chargebacks will involve friendly fraud.

Regardless of the reasons for them, chargebacks cut into merchant profits as well as the profits for payment processors. Because of this, merchant account providers typically charge higher fees for businesses with high chargeback rates. However, as a leader in high-risk payment processing, Zenti charges processing rates that are not only reasonable but affordable as well.

How social stigmas impact payment services

Although we've reached the 21st-century, when it comes to banking circles, certain industries are still considered unsavory and controversial. And this attitude leads to something called “reputational risk.”

As industry operators admit, even if you have a strong credit history, banks are extremely wary of providing merchant accounts for gentlemen’s clubs or giving any type of financial backing to adult entertainment businesses. As one example, in 2014 the US Justice Department cracked down on banks and lenders that worked with industries deemed high-risk for money laundering and fraud. Right after this, many banks immediately closed the accounts of their adult entertainment industry clients.

Gentlemen’s clubs often have an unsavory reputation, even when it’s undeserved. While a few bad actors in the industry may run their clubs with criminal intent, there are also plenty of honest business owners who are simply trying to make a decent living. However, these reputable operators are often stigmatized because of the industry they’re in. Likewise, many financial institutions fear their reputations will be sullied if they work with businesses in these industries. Added to the mix, adult entertainment venues have to jump through a lot of legal hoops to remain operational. These include imposing age restrictions on clientele and keeping security on hand in case of troublemakers. This all adds to the perception of a shady underground industry and further prejudices financial institutions against these businesses.

To recap: Gateway payment processors, backed by banks and credit card companies, are reluctant to accept merchant accounts for gentlemen’s clubs and other high-risk industries because of high chargeback rates, the potential for fraudulent transactions, high closure rates, and social stigma. Now that you know why you’re being denied a merchant account, is there anything you can do to reverse the situation?

Getting merchant account approval for gentlemen’s clubs

The good news is yes. In spite of all these obstacles, you can still successfully apply for a gentlemen’s club merchant account. But before you do, it pays to get expert help from a high-risk merchant account specialist. As the nation’s leading merchant account specialist for the adult entertainment industry, Zenti provides payment options and business streamlining tools and solutions geared specifically for gentlemen’s clubs and adult entertainment venues. By getting help from an industry professional like Zenti, you can avoid wasting valuable time on strategies that won’t work.

For example, have you ever applied for a Stripe or Paypal account, only to have it mysteriously closed as soon as you made your first transaction? You may not have realized it at the time, but when you made that transaction, the payment processor detected that your industry was high-risk and acted accordingly. With Zenti, you'll be able to get the processing services you need without being subjected to sudden, unexplained account closures.

Practically speaking, you can be proactive in several ways to increase your chances of getting merchant account approval. One of these ways is to lower your chargeback rate.

Steps for preventing chargebacks

Communicate with your customers

Providing full disclosure on products, services, costs, and fees can dramatically decrease your refund rate. For online sales and services, the more information, photos, and videos you can offer your customers, the more informed their purchases will be. In addition, let your customers know upfront what your return policies are.

Monitor your accounts

This includes regular reviews of all transactions and activity as well as paying close attention to anything that looks like a red flag. Incorrect shipping addresses or inaccurate contact information are two of the most common warning signs.

Use cyber security protocols

Cyber security is vital for any adult entertainment business because the industry is already highly prone to increased criminal activity and hacking. Be sure to use top-tier cyber security software protection, and follow safety protocols for every transaction.

Use billing discretion

Adult entertainment customers may deny a charge because it was accidentally discovered by someone else and demand a refund to cover their tracks. You can protect your customers’ privacy by printing invoices with a discreet name that doesn’t tie your business in with adult entertainment.

How will a merchant account benefit my gentlemen’s club?

Payment processing options

Studies show that 90 percent of consumers prefer having multiple payment options, and with a merchant account from Zenti, you can offer your customers the convenience of credit card and debit card payments as well as e-check transactions.

Easy billing and payment processing tools

Bookkeeping is one of the most tedious — and difficult — aspects of owning a business. With a merchant account, you’ll have the tools you need to create automated invoices and billing with a click of the mouse.

Payment tracking

Keeping track of payments manually is a headache, but a merchant account service provider will automatically track everything, from the point of sale through payment approval and transfer.

Fraud prevention

A merchant account system like Zenti's uses top-tier security protocols such as coding and encryption, so you can rest assured that your payments are secure. Plus, your customers will be able to use e-checks which decreases the risk of bounced checks.

Professional reputation

In today’s global economy, a cash-only business is a dinosaur. And operating on a cash-only basis can actually affect your reputation by making your company look like a shady, hole-in-the-corner business that’s not honest enough for legitimate financial services. By offering a full roster of legitimate, bank-approved payment options, you’ll enhance the reputation of your gentlemen’s club and reassure customers that it’s a legit and honest business.

What to look for in a high-risk merchant account specialist

Will they work with adult industries?

Some high-risk merchant accounts will only work with niche industries such as cannabis or e-cigarettes. Before signing on, make sure the merchant account specialist works with adult entertainment businesses.

Are their rates affordable?

High-risk merchant payment processors charge more for their services because they need to cover the cost of risks such as chargebacks, fraud potential, and high closure rates. These fees, however, should still be within reason. If they seem too high, shop somewhere else.

Do they disclose their fees?

Payment processors give full and fair disclosure of all fees upfront. Also, make sure they charge the same fee for different credit cards. If they’re charging different fees for Mastercard, VISA, Discover, or American Express, find out why, and be prepared to go elsewhere.

Do they provide multiple payment options?

Some high-risk payment processors might provide debit card services but not e-check transactions. Try to find a high-risk processor that offers multiple payment options for your customers.

Are they secure?

A high-risk payment processor should offer top-tier cyber security protections including coding and encryption to protect each transaction.

The best merchant account specialist for gentlemen’s clubs

As one of the first payment processing specialists to take on adult industry clients, Zenti is the No. 1 high-risk merchant account specialist for gentlemen’s clubs, strip clubs, and other adult entertainment venues. With years of experience in the adult entertainment industry, Zenti offers resources and solutions that are custom-tailored to the unique needs of adult entertainment businesses. With Zenti, you can get the merchant account approval you need to boost your sales and streamline your business.

If you’re the owner or manager of a gentlemen’s club, and you’re ready to take your business to the next level, contact us to learn how Zenti can help. We provide convenient payment processing services for your customers plus easy management tools to help you succeed.