Strip clubs are a big business. In the US alone, the strip club industry is worth approximately seven billion USD, making it a financially lucrative industry nationwide. However, as with other adult entertainment businesses, strip clubs are usually denied basic, necessary merchant account services — such as credit card processing — that most other businesses take for granted.

Why are merchant accounts for strip clubs always denied approval? It’s an unfortunate fact that adult entertainment venues, retailers, and service providers are perennially categorized as “high-risk” industries by credit card processors, banks, and financial institutions. This designation automatically keeps these businesses from getting approved for essential merchant account services, and business owners who apply for merchant accounts for strip clubs are often denied approval, even if their club is enormously successful.

If you own or manage a strip club, you may have already been denied approval for a merchant account. You might have even opened a Paypal or Stripe account, only to see it immediately suspended after the first transaction. However, the good news is you can get the help your business needs thanks to Zenti. As the nation’s leading account provider for the adult industry, Zenti specializes in helping these vital businesses get essential payment processing services, plus valuable tools such as payment tracking and automated billing.

Why are merchant accounts for strip clubs considered high-risk? As with everything else in business, it all comes down to money, banking, and perceived financial risk.

Why adult entertainment is considered high-risk

The adult entertainment industry is on the high-risk list for a variety of reasons. Some of them have to do with closure rates, fraud potential, and payment behaviors, while others have to do with outdated societal stigmas that banks may still follow. Here’s a look at some of those reasons, and why they may impact your ability to get a merchant account:

High chargeback rates

The word “chargeback” refers to a refund for a credit card purchase. While these types of refunds are a common and necessary part of any business, chargebacks are especially high in the strip club industry. And in particular, a great many of these chargebacks are associated with a phenomenon called “friendly fraud.”

Friendly fraud happens when a customer makes a charge on a credit card, then later revokes the charge, claims it wasn’t authorized and demands a refund from the credit card company. Friendly fraud isn’t always malicious — sometimes it occurs simply because a customer contacts the card company directly for a refund, rather than communicating with an e-commerce merchant — but no matter why it happens, it can wreak havoc on a company’s profits. According to Nasdaq, credit card fraud (including friendly fraud) costs companies more than 32 billion USD worldwide. To put this in perspective, six out of every 10 chargebacks involve friendly fraud. Likewise, eight out of 10 merchants say they’re seeing an increase in friendly fraud chargebacks, while 31 percent say that they’ve had difficulties trying to contest them. These high-risk chargebacks cut into profits for payment processing companies too — so much so, they’ll typically either charge higher processing fees for businesses with high chargeback rates or even drop them altogether.

Why are friendly fraud chargebacks so prevalent in the strip club industry? One common scenario involves customer privacy issues. If a customer receives a bill or invoice from a strip club and it’s accidentally discovered by a spouse, significant other, or employer, the customer may deny having visited the club and immediately call the credit card company to dispute the charges. Likewise, if a customer has a bad experience in a strip club, or feels that they were overcharged for drinks or food, they might either dispute the charges or claim that they were unauthorized.

Other types of fraud, unfortunately, impact the adult entertainment industry as well, and these might have a bearing on why you can’t get essential merchant services.

How social stigmas and regulations affect merchant accounts

No matter how honest or reputable your strip club might be, you’re still in an industry that’s historically fraught with legal issues and sometimes even associated with increased criminal activity, and this can come with repercussions. For example, in 2014, the US Justice Department began investigating banks and financial institutions that worked with adult entertainment and other high-risk industries. This caused many banks to close the accounts of their adult entertainment clients as fast as possible.

While many strip clubs operate legitimately, there are always a few questionable club owners who make trouble for everyone, and they can give the entire industry a bad reputation in the eyes of banks and financial institutions. Added to that, the strip club industry is rife with regulations, including access limitations for minors, as well as laws prohibiting alcohol at certain times. Finally, there’s also the overall stigma that’s associated with the outdated societal prejudices many people still have about adult entertainment.

Because of these reasons, banking institutions are extremely reluctant to work with adult entertainment businesses, including strip clubs. And this reluctance doesn't just impact payment processing approval; it also impacts access to financial backing as well.

Speaking of financial backing, why is it an issue, and how does it affect merchant account services?

The role of underwriting in merchant accounts

“Underwriting” is a banking term for financial backing. When you get a loan, it’s underwritten by a bank, or by the financial institution that backs the lender you’re borrowing from. In much the same way, credit card processing companies are underwritten by banks and financial institutions, and they treat their merchant account clients the same as they would a loan applicant. Payment processors have to follow some of the same protocols that a bank would follow with a loan, and that’s why merchant account providers will typically deny credit card payment services to businesses in a high-risk industry.

These are the reasons why it’s so important to get the help of a payment gateway specialist. Through years of experience working with high-risk industries, Zenti is an expert at getting these valuable merchant services, including debit and credit card payment services, for exotic dance clubs and all kinds of adult businesses. And if your gentlemen’s club has an online presence as well, Zenti can help you set up online payments for your customers using all the major credit cards, including VISA, Mastercard, Discover, and American Express.

Merchant accounts for strip clubs: Getting approved

If you’re trying to get approved for a merchant account for your gentlemen’s club, there are several proactive steps you can take in the right direction — and one of these is to lower your chargeback rate.

Every business has chargebacks, but these tips can help you keep them under control:

Be clear about your services

One of the best ways to meet customer expectations is to make it clear exactly what they’re getting for their money, as well as how much it will cost. For a strip club business, this would include being upfront about all cover charges and fees as well as drinks and food pricing.

Give full disclosure on regulations and refund policies

Club rules, regulations, and refund policies should be printed where everyone can see them.

Provide good customer service

If someone wants to speak to a manager, make sure there’s always one available. By going out of your way to provide good customer service, you can diffuse potential problems that could result in expensive chargebacks.

Use privacy protocols in billing

When it comes to bills and invoices, it’s a good idea to change your letterhead, as well as your company profile, so it doesn’t reflect your connection with the adult entertainment industry. By protecting your clients’ privacy, you can avoid costly chargebacks caused by the wrong person seeing the bill.

One of the best ways to protect client privacy is to offer automated billing regularly, so your customers will know exactly when they’ll be billed. Zenti offers a variety of automated billing and invoicing tools that allow you to schedule bills according to your needs, as well as the needs of your customers.

Keep an eye on your accounts

It’s always a good idea to review activity and track payments regularly. Regular monitoring makes it easier to spot red flags such as inconsistent customer addresses or suspicious-looking contact information.

How a merchant account can benefit your gentlemen’s club

Multiple payment options

Studies show that 90 percent of consumers prefer having a variety of payment methods, including credit/debit cards, e-checks, and mobile app options. With a merchant account, you’ll be able to provide your customers with a whole range of convenient payment options.

Billing and invoicing tools

You don’t want to spend your day keeping books. With a merchant account, you’ll be able to send out automated invoices to all your customers, on a schedule that’s customized for your convenience.

Tracked payments

Tracking payments is an essential part of business, but it can also be a nightmare. With a merchant account, you’ll be able to track payments automatically, so you’ll always know exactly what’s going on in your account.

Enhanced reputation

A merchant account will make your adult business look more polished, professional, and up-to-date. Without basic credit card options for your customers, your strip club might not seem legitimate, and in the eyes of some potential clients, might even look suspicious.

Choosing the right merchant account specialist

Before choosing a high-risk merchant account specialist, it's a good idea to ask the following questions:

Will they work with adult entertainment businesses?

High-risk merchant account specialists aren’t equal. Some may only work with niche industries, such as cannabis or supplements, while others may only provide limited payment services for adult entertainment venues. Before signing on with a merchant account specialist, make sure they can provide a full line of services for adult entertainment businesses.

Are their fees reasonable?

It’s unavoidable — you’ll have to pay higher fees for high-risk merchant services. Otherwise, payment processors wouldn’t be able to afford the risks. However, a good merchant service provider will only charge what’s necessary. Zenti is committed to charging reasonable fees to its high-risk clients, making them affordable for all types of businesses. And, unlike some merchant providers, Zenti charges the same rates for each brand of credit card, which is exactly how it should be.

Do they offer multiple payment methods?

Some merchant account specialists offer only limited payment methods for high-risk accounts. Be sure to choose one that offers the entire range of credit card options, plus extras like e-check and mobile app payments.

Are payments secure?

Cyber security is a prime consideration for any business, especially if you’re in adult entertainment. One of the most important things to look for in a merchant account specialist is state-of-the-art, next-gen security protocols, so you can rest assured that you and your customers will be safe.

As the No. 1 high-risk merchant account specialist for adult entertainment, Zenti offers a full line of payment processing services, enabling you to take credit card, debit card, e-check, and mobile app payments. In addition, Zenti offers valuable payment tracking tools, plus convenient automated billing options to suit the needs of your business. And to safeguard your account, Zenti provides tools to help you track every payment from its point of sale to completion. In addition, Zenti payment processing is protected with all of the latest protocols, including encoding and encryption.

Zenti understands the unique needs of the adult entertainment industry and knows how to negotiate some of the payment processing obstacles that banks might impose on these businesses. If you’d like to learn more, contact us to find out how we can help you take your strip club business to a whole new level of success.