Shopping for a Merchant Account

James Edwards
Once you have a concept for your adult website or a business plan to expand it, it is time to consider merchant accounts. Even if you already have an existing merchant account, it is a good idea to review your options every few years. The business around credit cards processed online — both from a technical and business level — is always changing. To a great degree, the merchant account arrangement that you negotiate will determine your profit margin and even the look and feel of your website and shopping cart.

Technically, a merchant account is a like a bank account: it allows you to process credit card orders, regardless of whether you own a lemonade stand or an adult website. Of course, today in both the world of brick-and-mortar and online shopping, merchant accounts are based on computer systems linked together through satellites. Once you are ready to build the shopping cart for your adult website, it is time to make a choice regarding the interface to credit card processing — so you can start making money.

There are two basic types of merchant accounts. The first type is the more traditional direct merchant account that you create, usually, with a financial institution. These direct relationships offer very low transaction fees, yet the difficulty with them for the adult webmaster — unless you already have a good relationship with a bank — is that as an online adult content provider you are automatically considered a high risk.

Not only will the high-risk status of your online content raise your transaction fees or simply end the discussion between you and your bank, the documentation requirements for a direct merchant account are more rigorous. Articles of incorporation, lists of officers and even tax receipts may be required by a financial institution as part of the application process.

One way around the difficulties of obtaining a direct merchant account in this country is to get one somewhere else. Many nations, such as Panama, Cayman Islands and Latvia, actually encourage foreign bank accounts. There are endless online packages offered that will let you open an offshore bank account, and for an extra fee will process your merchant account application to the offshore bank.

The advantage of going offshore is that you can collect revenue in Euros or other dominations without having to convert them to U.S. dollars. These accounts also provide a higher level of anonymity and legal protection, yet they can be expensive to set up unless you visit the country where your bank is located. Furthermore, many of these arrangements require an offshore incorporation, which is costly to maintain because of annual fees charged by the country you are registered with. Plan to spend $2,000 minimum if you wish to go the offshore incorporation route.

A third-party merchant account is really the easiest path to start your adult website with. With a third-party merchant account, all the effort the adult webmaster spends to get his/her own merchant account is eliminated. Instead, you let someone else deal with Visa, MasterCard and the banks they work with. Simply sign up with the friendly third-party merchant, and for a price they will process credit cards for you, using their good name.

Another advantage of third-party merchants is usually that they advertise upfront if they accept adult entertainment websites. You don't have to waste your time with rejection letters from banks. Providers like CCBill and EPOCH not only accept adult business — they cater to it. Since many third-party merchants don't accept adult-content shopping, this has created a niche for those that do. These high-risk online third-party processors make it easy for the adult webmaster to enable customers to make credit card payments. Of course, the high-risk merchant will charge you more per transaction than your traditional merchant agreement.

When a third-party merchant or a direct merchant sets up business with you, they charge you in three basic ways. The first way revenue is gained from your online transactions is the discount rate. This is the rate your merchant provider will charge you per dollar spent by your customer. If your customer spends $100 on streaming video, and your discount rate is five percent, you will be charged $5 for the transaction.

Along with the discount rate, there is a transaction fee. This is the flat fee you are charged per transaction. If you have a customer who purchased $5 or $500 worth of your content, you will be charged a flat fee for the transaction, usually under a dollar.

Other fees include monthly and setup fees. Many third-party providers snare you in with attractive discount rates but then will charge for the software you need to interface your website shopping cart to their global network, along with other incidentals. It is important to read the fine print and know exactly how your website will interface with a merchant provider before you sign up.

After American Express unceremoniously shunned the adult industry, the latest setback for traditional third-party merchants that cater to adult entertainment is Visa. Visa has thrown a monkey wrench into its fee structure with the new designation of IPSP (Internet Service Payment Provider). Visa now requires all adult content customers of third-party merchants to provide detailed applications that include company name, address and URLs along with a $750 dollar startup cost and a hefty annual maintenance fee.

This draconian control over adult credit-card processing by Visa has led to some unforeseen consequences. Online theft, such as the lifting of 17 million customers from the iBill database in 2006, is rampant. By requiring such a detailed database of customers and their URLs, Visa has opened up Pandora's Box for hackers and spam artists who seek to steal this confidential information.

CCBill offers the adult webmaster a way around the expensive fee and extensive information that Visa demands. They will process Mastercard, Discover and online checks with no setup fee or monthly fee. CCBill makes this back by charging you up to 14.5 percent on your transactions. If your volume is high, you can choose an alternative package with setup fees and a lower discount rate of between 3 and 8 percent.

One great thing about CCBill is that its technical staff will install, on your host, the software interface that will allow your website customers to process credit cards. This saves the adult webmaster software development time in setting up the shopping cart interface to your merchant. CCBill claims that "no scripting or complex programming is necessary. There is no equipment or software to buy and no setup charges."

Another third-party merchant provider is This company offers high-risk merchant accounts with discount fees as low as 5.9 percent. PSBill offers an Internet Merchant Account designed for high-risk businesses that exclusively sell their wares on the Internet. PSBill has the distinct advantage of being located in Gibraltar, a small country south of Spain that specializes in foreign corporations and banking. They bundle sophisticated fraud software that can actually track the IP address and location of all credit card transactions. This is useful because many times credit card fraud will originate from one rogue server attacking multiple merchants.

Even though PayPal bowed out of the adult industry, there are many smaller companies geared toward the adult business based on the same model of offering an online currency that can be purchased with a credit card. Once the customer has this currency, they can buy your goods and services online. With this model, you don't even have to worry about credit cards but you lose all customers that are unwilling to sign up with such a service.

A popular service like this is As an adult webmaster, you can sign up and accept their "currency." ChargeMeLater claims that since "35 percent of the U.S. population does not have a credit card," and thus adult websites can gain a customer base by offering them an alternative to credit cards. ChargeMeLater allows the adult web surfer to enjoy online content now and be billed later — by them and not you.

Because customers also have to register with ChargeMeLater, they brag of "real-time identity verification based on the customer's social security number or date of birth." People who want to buy things from your website will need a home telephone, a valid email address, and the last four digits of their social security number. This may dissuade your typical browser of explicit online material but it does help to protect you, the adult businessperson, from providing minors access to age-restricted content.

The topic of credit cards and the adult industry is paramount. If trends continue, it will become harder and harder for the adult startup to break into credit card processing. There are many moralists and politicians who would love nothing more than to stop the major credit card companies from doing any adult online business. As such, it is vital that the webmaster study all of his or her payment options and be ready to go offshore if the situation demands it.