Valued at $30.5 billion USD, experts anticipate the adult products and sex toys industry to double in value over the next eight years. And with people becoming more and more willing to explore what was once considered taboo, the adult products market promises lucrative returns for those who join the industry.
Today, adult product vendors don’t operate in covert, seedy alleyways. You can find them everywhere — and that includes online. But for these vendors to be able to sell their products on the web, they would have to have merchant accounts. The only problem is that banks don’t always hand out approval to high-risk merchants.
So you step into a store, shop around, choose your items, and then pay. As you get to the register, you hand over your credit card, they swipe it through the terminal, and you’re all set. It’s all seamless and convenient, and that’s part of the appeal of paying cashless.
But there’s so much that happens behind the scenes that are hidden from the buyer’s perspective. Merchants communicate with banks who in turn communicate with card issuers all in order to take payments from credit and debit cards and disburse them into merchant accounts.
Without a merchant account, it would be impossible for businesses to facilitate cashless payments. These specialized business bank accounts allow merchants to accept credit and debit cards, eChecks, and ACH payments to give customers a wider selection of payment options.
The only problem is that adult product merchants fall into the high-risk category. And that being the reality, merchant acquirers who provide merchant accounts tend to avoid doing business to escape potential risk.
In order to calculate the potential risk of a business, banks need to first asses a number of factors. Depending on how many a merchant ticks off of the list, a merchant account provider could get a better perspective of the possible risk associated with granting that business a merchant account.
| FACTOR | LOW RISK | HIGH RISK |
|---|---|---|
| Location | Within the US, EU, Canada, Japan, or Australia | Everywhere else |
| Average transaction cost | Under $500 | More than $500 |
| Average monthly revenue | Under $20,000 | Over $20,000 |
| Transaction type | Card present | Card not present |
| Currency | Domestic | International |
| Customers | Domestic | International |
| Payment scheme | One-time | Subscription or recurring |
| Credit rating | Poor | High |
| Industry | Low risk industries include furniture, apparel, groceries, food, etc. | High risk industries include cannabis, hemp, online casinos, adult products and services, etc. |
Some of these factors fall within the merchant’s control. These include currencies accepted, payment schemes, and of course, location. Unfortunately, being in a high-risk industry like adult products might not be quite as easy to resolve.
But exactly what is it about adult product merchants that make it high risk? Here are a few possible explanations.
Financial service providers need to appear professional and trustworthy in order to gain the confidence of their clients. So they go to great lengths to protect their reputation and to keep it clean from anything that could negatively affect the way people perceive them.
Although the general public is becoming more open to the idea of exploring sex toys and adult products, there’s still that stigma. And because of this negative connotation, traditional, conservative banks try to distance themselves from adult merchants and the reputation risk they bring.
It’s rare that you’ll find an adult toy merchant that’s willing to accept returns for opened products. Health and sanitation remain major concerns among those who sell these products. And because they don’t want to potentially re-sell products that have been used, most sex toy merchants impose strict refund and return policies.
So much so that they might seem rigid to their customers. And when a customer opens a package only to find that it doesn’t meet expectations, what’s the only other alternative? Filing a chargeback, of course.
Chargebacks let customers get their payments reversed with no questions asked. The problem is that these processes cost money for card issuers and banks, so they don’t want to pair with businesses that risk an increased incidence of chargebacks.
Surrounded by controversy, sex toys remain something of a forbidden fruit. So customers who indulge in the products tend to avoid having them reflected on their accounts. The solution? Using fake names and accounts.
This form of fraud goes much further, with people actually using stolen information to complete their transactions. And when these unauthorized transactions finally make their way to the cardholder’s consciousness, they initiate a chargeback to reverse the fraudulent payment.
In some cases, they might even feign fraud. For instance, it’s nothing new for cardholders to initiate a chargeback saying they never paid for the products only to hide their actions from a disgruntled spouse or partner.
With a traditional bank, it might be impossible. Remember that these financial institutions are conservative by nature. That means they’ll do whatever they can to avoid working with a high-risk merchant.
Interestingly, they’ll still accommodate your application albeit without VIP treatment. Often, they’ll have you submitting dozens of documents and waiting long periods of time between responses, only to have your application sealed with a big fat no.
In some cases, they might approve a high-risk adult products merchant for a merchant account, although with strings attached. Rigid contract terms and steep fees trap merchants in unforgiving contracts that could stunt growth and success.
Some unfortunate clients even report that their contracts with traditional financial service providers completely eradicate any chances of making more than breakeven.
On the upside, conservative, traditional, conventional merchant acquirers aren’t you’re only option. And that’s where Shark Processing enters the picture.
Struggling to get approval from your local bank? We’ve got you covered. Here at Shark Processing, we work closely with high-risk, hard-to-place merchants that might have a hard time setting up a merchant account through the traditional route.
We offer fast, easy, and effective solutions that get you guaranteed placement in as little as 24 hours.
When you work with Shark Processing, a high-risk adult products merchant account is just a few clicks away. Contact Shark Processing today to learn more about our services or send in your pre-application form to get started on your high-risk merchant account.
