Payment Processing for Adult Sex Toys Merchant Accounts

The adult sex toy industry is a tremendously lucrative one, with an estimated US market value of $33.64 billion in 2020. From 2021 to 2028, it’s expected to increase at an annual growth rate of more than eight percent, making it a booming business for savvy business owners everywhere.

With numbers like these, it may seem surprising that adult sex novelties merchant accounts are considered “high-risk” for most US payment processors. According to the nation’s major financial institutions, merchant accounts for adult sex products provide such a tremendous financial risk, it’s not economically viable to provide them with credit card payment processing services.

If you’re the owner or manager of an adult sex toys business, you’re probably already aware that you’re in a high-risk industry. And you’re not alone. Across the nation, dozens of industries are denied access to convenient online payment methods and merchant services. Just a few of these industries include:

• Adult sex toys and novelties.
• Adult websites.
• Adult entertainment merchants and venues.
• Subscription billing.
• Nutraceutical products.
• Cannabis.
• Property management.
• Online dating sites.
• Fantasy sports.
• Guns and ammunition.
• Pay-day lending.
• Independent health and beauty.
• Collectibles/antiques.
• Online gambling.
• Pawnshops.

These are all businesses with a giant economic presence globally, yet because they’re considered to be high-risk accounts, they’re denied access to even the most basic online payment services by banks and credit card processors.

If you have an adult sex toys website or business, Zenti can help you get the merchant account services you need for success. As a high-risk merchant account specialist, Zenti enables you to offer your customers credit card, e-check, mobile app, and online payment options. Plus, Zenti can give you a wealth of convenient, automated payment processing tools to help with tracking, invoicing, and billing. These tools will not only eliminate hours of bookkeeping and paperwork every month, but they’ll also help you boost profits and increase customer satisfaction.

Before we talk about payment solutions, you’re probably asking, why is the adult sex toys industry considered high-risk? Here’s a look at what this high-risk account designation means to adult toys merchants, and how you can get approved for convenient, streamlined gateway payment services across a variety of platforms for your adult merchant account.

Why Are Adult Sex Toy Merchants High-Risk?

Whether you sell sex toys and novelties, own an adult video store, or manage a strip club, you’re in the adult entertainment industry — an industry that is traditionally considered to be a high financial risk. If you’ve owned or managed adult entertainment businesses for a while, you’ve probably already tried to get gateway payment processing services and been denied. You may have even been accepted for a Stripe, Paypal, or Square account, only to see it quickly closed as soon as you tried to process your first credit card transaction. It’s nothing personal against you. It has to do with finances — and it’s all about financial backing and underwriting.

Merchant account providers are financed and backed by banks and credit card companies. This enables them to facilitate a variety of payment methods for consumers in a wide range of industries. However, as with every type of financing, payment processing approval comes down to whether or not a business is a good financial risk. In this way, it’s similar to a bank loan, because if the bank refuses to provide financial backing, then the loan won’t be made. Similarly, if banks and credit card companies refuse to underwrite certain industries, then gateway payment processors can’t accept merchant accounts within those industries.

What makes an account high-risk? Or more specifically, why is your adult sex toy business in that category? One of the primary reasons is chargebacks.

Chargeback Rates: Why They Matter

Chargebacks occur when a credit card holder disputes a credit card charge and asks for a refund. Among financial institutions, the adult industry is notorious for having a higher-than-average chargeback ratio. It’s normal for businesses to have chargebacks that approximately one percent of their revenues, but every facet of adult entertainment — from websites and video/bookstores to strip clubs, gentleman's clubs, and sex toy companies — experiences a higher chargeback rate. Here’s why this happens so much in adult entertainment:

Fraud, Both Friendly and Not-So-Friendly

The term “friendly fraud” refers to transactions where the customer knew the charge, but denies this knowledge and reports the charge as unauthorized. This isn’t always done with fraudulent intent — sometimes it happens because customers decide to go straight to the credit card company for a refund, instead of going to the merchant first. Whatever the reason, friendly fraud is a major headache for every industry, with studies showing that, by 2023, one in every 10 chargebacks will be a case of friendly fraud. In recent years, it’s become an epidemic, with eight out of every 10 merchants seeing an increase in friendly fraud chargebacks. To make it worse, 31 percent of merchants say that they’ve encountered problems in trying to contest these fraudulent chargebacks.

In the adult sex toy industry, friendly fraud can happen when a customer makes a purchase and it’s discovered by a spouse or significant other. The customer might then disavow any knowledge of the purchase, call the credit card company, and claim that the charge is fraudulent.

The adult entertainment industry also attracts its share of bad actors in the form of people who are trying to get something for nothing. This can also lead to chargebacks, defaulted payments, and several fraudulent behaviors that can significantly impact adult novelties merchants. As we’ll discuss later, Zenti can help you greatly mitigate your chargeback ratio each month, with tools that can prevent these excessive refunds from occurring.

Adult sex novelties merchant accounts are prone to other financial risks as well, including card-not-present transactions and security/regulatory issues.

Card-Not-Present Transactions

A card-not-present (CNP) transaction refers to credit card transactions that aren’t done in person but are done remotely through eCommerce sites or over the phone. With CNP transactions, none of the physical actions are performed — the card isn’t swiped and the EMV chip isn’t inserted. Instead, the information is typed in manually. CNP transactions are especially prevalent in online businesses, where it’s impossible to process credit cards in person.

CNP transactions are considered high-risk and more vulnerable to fraud because they don’t involve personal, physical verification of a credit card. And there’s good reason for these fears because around 45 percent of US credit card fraud cases involve CNP transactions.

Zenti can also help you decrease the risk of fraud in CNP transactions, through tools that can track and match payment addresses and points of location.

Regulations

Like the cannabis industry, the adult entertainment industry is heavily regulated. With so many regulations, merchant account processors don’t want to spend the time and due diligence that it takes to ensure they’re compliant.

Cybersecurity Threats

Historically, the adult entertainment industry has been rife with cybersecurity issues, primarily in the form of hacks and security breaches. One reason cybercriminals target adult websites is that, given the underground nature of the industry, they’re banking on not getting reported to the authorities. For honest vendors and entrepreneurs, however, these cyberattacks wreak havoc on the industry and also play a major part in why adult entertainment accounts can’t get credit card processing. To take adult accounts, gateway payment processors have to add several layers of extra security, making it less cost-effective and more work-intensive for them to accept these high-risk businesses.

Social Reputation

Even though we’ve reached the 21st century, many financial institutions are still afraid to associate their organizations with the adult entertainment industry. This is primarily due to societal stigmas that remain in place. It's also unfortunate because the adult industry has its share of bad apples — including adult entertainment businesses with a less-than-stellar reputation for honesty. Just as one bad apple can spoil the entire basket, these dishonest vendors can make the entire industry look bad and are a major reason why banks and merchant account providers shy away from doing business with the adult entertainment industry as a whole.

Payment Gateway Approval for Sex Toy Businesses

The good news is, businesses in high-risk industries actually can get approved for payment processing. If you’re an adult entertainment merchant, you can be proactive in making this happen, but you can speed things up considerably by working with a high-risk merchant account company.

Zenti specializes in working with high-risk merchant accounts in all types of industries, including the adult sex toys industry. Whether you’re running a brick-and-mortar or online business, Zenti can help you provide credit card, debit card, e-check, and mobile app payments so you can better serve your customers. In addition, Zenti offers a wide range of payment processing tools to help you streamline your business.

Before we look at the benefits of payment processing, here’s how you can work towards getting processing approval:

Save Every Scrap of Paperwork

Whether it’s an invoice or a receipt, you need to save all your paperwork and documents. When you apply for merchant account processing services, you typically have to provide bank statements with credit card processing history going back six months or more, as well as tax returns going back several years. This information will give banks an idea of how successful and stable your company is.

Decrease Chargeback Rates

It may not seem possible, but you might be able to decrease your chargeback rate by trying a few strategies. For example, make sure to provide full disclosure about all your sex toy and novelty products, with detailed descriptions so that customers understand exactly what they’re getting and aren’t disappointed. The more that customers know about a product, the least likely they are to return it. Likewise, make your return policy crystal clear. Many sex toys aren’t returnable, and your customers need to know this before they make a purchase. Also, be willing to communicate with your customers and if there’s a problem, see if they’ll accept an exchange or store credit instead.

Zenti offers several tools that will help you decrease damaging chargebacks. These tools include Address Verification Service, which matches billing addresses in every transaction, credit card security code tracking, and 3D Secure Protocol, a tool that validates identity across a variety of platforms.

Use Discretion in Billing

There’s a reason why sex products are typically mailed in plain packaging. Customers typically don’t want their private lives to become public knowledge. For that reason, many adult entertainment companies use a different name on their billing and invoicing. For example, if your business has the words “sex toys”— or anything related to adult entertainment — in its name, consider using a discrete name for your billing that has no association with your industry. This adds an extra layer of privacy for your customers, so they won’t be “caught out” and embarrassed by a spouse, friend, or employer. Customers who are caught out are often the ones who commit friendly fraud chargebacks.

Benefits of Merchant Accounts for Adult Sex Products

Automated Payments

You probably already know how convenient it would be to offer your customers credit card payment options. With payment processing services, your customers can pay via credit card, debit card, mobile app or even e-check, making payment easier and more convenient for them. Plus, a payment processor enables you to take payments in other currencies, so you can sell internationally.

Payment Tracking and Tools

If you’re running a business, you don’t have time to manually track payments. A payment processing account provides real-time payment tracking, from point of sale through payment acceptance.

Billing and Invoicing Tools

A merchant account will give you access to automated billing and invoicing tools, so you can eliminate tedious bookkeeping and paperwork.

Payment Security

There’s nothing worse than chasing down customers because of bad checks — but you can solve this problem by offering convenient credit card or e-check processing options for your customers. Plus, all automated payments are fully protected against fraud and cybercrime.

Finding a High-Risk Payment Processing Specialist

Several high-risk payment processing companies specialize in working with merchant accounts for adult sex products. These companies provide the know-how that it takes for high-risk companies to get approval and to keep their merchant accounts active. Before choosing one, however, be aware that some of these companies offer limited services and may not offer all the payment options that you need. In addition, they might not work with the adult entertainment industry — or if they do, they might only work with certain sectors of it. Toward that end, be sure to choose a company that specifically works with adult sex novelties merchant accounts.

Here’s what you should look for in a high-risk payment gateway specialist:

Consistent, Fair Pricing

It’s unavoidable. As a high-risk merchant, you’ll be charged higher fees than merchants in traditional industries. But these fees should still be reasonable and should not significantly impact your revenues. A reputable high-risk merchant account specialist will charge acceptable rates and will disclose all fees upfront, so there’s no sticker shock.

Zenti offers affordable rates for its services, as well as full disclosure so you know exactly how much you're paying, and why. Plus, we charge the same fees for Mastercard, VISA, Discover, and American Express, unlike some companies that charge varying rates for each card.

Multiple Payment Options

A good high-risk merchant account specialist will provide you with a variety of automated payment options for your customers, including credit cards, e-checks, mobile app, and other types of online payment methods. And the more options you offer your customers, the more satisfied they’ll be.

If you’re interested in boosting your business and increasing customer satisfaction by offering a full roster of payment options, Zenti can help. Zenti is the number-one merchant payment processing specialist for all types of adult businesses, including the adult toy industry and adult novelties merchants, strip clubs, gentleman's clubs, bookstores, adult cam sites, and adult eCommerce sites. Zenti was one of the first payment processors to work with the adult entertainment industry and we understand the unique payment solutions that work best for your business.

If you’re ready to boost sales and streamline your business with secure, up-to-date automated payment options, contact Zenti to find out how we can take your business to the next level of success.