Straight to the Bank

Dan Steinberg and Greg Berard
OK, it's actually the brave "Old World" of Europe that has embraced e-commerce the past several years and offers excellent options on individual merchant accounts for e-commerce sites. It's no surprise what's happening on the continent. Europe has always been a leader in technology in general and technology related to payment.

According to, Europe has surpassed North America in the number of homes and businesses on broadband connection, 28 percent to 24 percent. Online ad buys alone in European markets this year are projected to exceed $7.5 billion, an eyebrow raising number, for sure. Europe's online sales for the 4th quarter of '06 easily topped the estimated $29.3 billion done online in the U.S.

So it's no surprise that many of the big EU banks have put together merchant account programs that may be superior in several ways, to what is available in the U.S.

Yeah, but you need a merchant account for an online adult entertainment business, right? No problem. Just like in the U.S., there are banks in Europe that won't accept adult merchants, but there are plenty of them that do, certainly more than in the U.S. And there are some very distinct advantages to consider, if you are thinking about establishing your own merchant accounts for your online adult business.

With the few US banks that still take adult, the underwriting is very rigorous. You'd think you were buying property. But property is actually less risky for banks, because they have security. With a U.S. merchant account, the only security the bank has, other than a reserve account, is your promise that you won't ever leave the account with a negative balance. Because of this, when you obtain a U.S. merchant account, it will generally be 'capped' at a monthly processing amount based on your credit worthiness and business history. You are unable to exceed that amount without a further review by the bank and possible additional requirements.

In Europe, generally once your EU company is approved for an account (we'll address EU incorporation below), there are no caps. You are free to grow your business without any volume restrictions so long as you maintain the account in good standing subject to the card association rules for chargebacks, etc. Oh, and speaking of chargebacks, currently the limits in North America are 1 percent, while in Europe it is 2 percent for the leading card type (starts with a V and ends with an ISA). Not that EU banks encourage you to be more aggressive and have higher chargebacks. No bank wants merchants who generate high chargebacks. But if you have a spike one month, it's nice to know there is some room to address it, a distinct advantage in the EU.

Yes, you have to establish a presence within the EU. European banks can only acquire merchants (open merchant accounts for) companies that are EU based. There are many reputable accounting and corporate services groups who specialize in helping foreign companies to establish subsidiary companies in Europe.

Their services may include providing a business office, EU directors, accounting and tax preparation, and anything else you need to truly have the required 'presence' in Europe to meet the merchant rules. This can all be done at a surprisingly reasonable cost.

Even so, this is probably not the right exercise to go through if you're just getting started in the business. This strategy merits consideration for the experienced online adult company, seeking the advantages associated with an individual merchant account, and greater access to EU e-commerce opportunities in general.

If you are considering it, we strongly recommend working with an experienced agent/consultant. There are many good ones in the industry.

They can also help you to avoid the marginal deals out there. If the bank is in South Africa and some overzealous agent is telling you that you can use your U.S. or EU company to apply, it is not a direct merchant account with the bank, no matter how emphatically the agent says it is.

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