Patreon Is Suspending Adult Content Creators Because of Its Payment Partners

[1] https://paymentcloudinc.com

I never worked in porn but I did work with payment and clearance systems from carrier companies a long time ago, think billing customers for SMS messages to specific numbers and then getting clearance for the carrier for the money. The risk of fraud or any kind of weird issue is stupidly higher for porn. Either simple "customer doesn't have the money" fraud or "the police knocks on your door because you got money from X customer" fraud. So maybe you need more people or better systems to deal with it while still being profitable. CCBill charges are huge when compared to other credit card processors.

It's easy to reduce costs and complexity until the easiest solution to keep or improve current margins is don't do porn.

You can go to a museum and see highly lauded art with nipples in it. But put a picture of that painting online and you're a pornographer.

The problem isn't really the law most of the time: It's how companies are hooked up to the financial system.

The Stripes and Paypals of the world aren't really connected to all the credit card networks directly: There's layers underneath, and one of them is banks that act as intermediaries. These kind of companies start with one bank (say, Wells Fargo), and might expand to more as they want to expand to other parts of the world. Eventually, they might have dozens of banking partners that are part of the transaction processing. Even though this online processors are carrying most of the fraud risk, they still have to adhere to what their baking partners will accept, and pretty much every bank out there will tell them things that they can't sponsor past what is legal, and that almost always includes pornography, drug paraphernalia, medicines and sex toys. The bank will come knocking to their door, and they'll have to say no. This is not just down to banks disliking the businesses for image reasons, but also has to do with risk: The number of stolen credit cards used in those sites, and the amount of disputes on the charges for other reasons is pretty high compared to other lines of business.

Therefore, what you need is to form all your banking relationships with entities that have no problem with you processing cards for porn sites. So you have to find banks that will deal with this companies at all, and then convince them that your fraud protection is good enough, and your pockets deep enough, to take the risk.

They are also willing to eat the fines that come with supporting merchants with more than 1% chargeback.

The reason why there aren’t many more of them isn’t morality it’s just very hard to maintain profits in this environment. Patreon will have to pay fines if they have high chargeback rates and those fines are intentionally huge so for them it’s a none-brainer they need to reduce chargeback rates and their adult content creators are likely one of the biggest offenders and even if they are not they are an easy sacrifice to the PCI gods.

1) Porn (crypto, gambling, etc.) transactions are significantly riskier than other transactions.

2) CC processing involves a long chain of intermediaries.

3) At every step of the chain there's strong pressure upstream for better rates, and strong pressure downstream to ensure the blended payment stream is safer.

So, eventually, someone in the chain gets told "sure, we can give you better rates, but only if you can improve the risk profile of your payment stream". And then they crunch the numbers, and decide it's worth it, knowing they'll lose some volume but hoping they can make it up with better margins. And then the people who churn find one of the remaining partners who hasn't adopted strict policies, and this repeats until all the "dodgy" payments are going through a high-fee chain that can't possibly afford to change their policies, and everyone else is going through a low-fee chain.

If you check CCBill, their "Blue" package that allows adult content runs 10.8% to 14.5%, with a $1,000 yearly "high risk registration fee". And even their normal plan (which doesn't allow adult content) seems to be 5.9% + $0.55 per transaction? Braintree is 2.9% + $0.30; Stripe is the same.

You can see why, eg, Stripe would be happy to leave CCBill to have a virtual monopily on adult transactions: There's not that many of them, they're so risky you'll need to charge absurdly high rates just to cover your costs, and just touching them at all will potentially taint your other transactions in the eyes of your upstream partners, driving up your rates. Conversely, you can see why CCBill will never kick the adult payments off their platform; it's the only thing they have to offer.

Disruptive startups work best when they can start with a niche and then grow from there, but the logic of the financial system makes that very difficult.

You're the only other person I've seen use this phrase.

If you're serious about working on this, contact me.

Apparently the chargeback rates on adult content is really high. Anecdotally, it makes sense. You buy the nude pics, your husband sees the charge on your card, "I was hacked" boom, chargeback. You buy the nude pics, do the nasty alone in your room, have some regrets once the pressure to do the nasty is gone, try to get a refund, get refused, boom chargeback.

I'm not sure that quite holds up in our post-Pornhub world, where everyone is openly admitting to using porn these days. But banks are conservative (in all the ways) and slow to change.

My biggest challenge of that time was reliable billing. That said, it wasn't quite as bad as you make it out to be. When you have a long history of low chargebacks you can make some deals, and even then there were a few options. We always had a few processors integrated at any one time because 1) any processor could pull the plug on us with minimal notice and 2) these organizations tended to be technologically inept and their platforms were not reliable.

Some payments we processed through our own merchant account. We tried to get more merchant accounts and were unsuccessful. It's difficult because (IIRC) banks only allow a certain percentage of their total volume to be "high risk" and porn is in that bucket no matter how low your chargeback rate is and how long you've been established. It's something you could probably arbitrage profitably if you were a bank, but by the time you get to be a big enough bank you are bound into the stodgy culture of banking ("ewww porn").

That ship has sailed however; there's not much money in porn anymore. The tube sites have killed the content business; this is a shrinking industry. I agree, the content is better than it ever has been before, and you can get it free... uploaded to tube sites by the very producers themselves, hoping to get exposure.

It's the "custodian of record" you MAY see at the beginning of a FakeTaxi or Hospital.

It's really pretty absurd how a handful of companies who do nothing but shuffle numbers from one place to another not only charge steep fees for the service, but also manage to charge a percentage of the transaction - as if transferring a bigger number down a wire cost more! In the past there was some sense in that there were liabilities involved, but most all of that has been eliminated and only the fees remain.

In a weird way, I think China does this right.

Winnie the Pooh is no longer allowed in China [1]. So they turn it off at the firewall. This is better than say, trying to force all the other companies in the world to comply with some stupid law that China makes up.

While I disagree with China on their use of the firewall to block speech, it's a far better way to do it than to sue Disney to prevent Winnie the Pooh products from coming over into China.

[1] https://www.bbc.com/news/blogs-china-blog-40627855

That is hardly true. We do not follow the rules of Saudi Arabia and Iran. What happens is that the laws of the US and the intersection of local laws are what needs to be followed.

The US is aghast that the EU is a large enough market to actually impact the rules of the global internet, and the laws are different enough that they will hurt the major US players. Now all of a sudden people are seeing why applying national laws to pure cyberspace is a bad idea.

I'm moving into using tor because it feels more like the internet I knew from 1998-2006, slow-ish, unreliable, unpolished, anonymous, ephemeral and private, with all the warts there to see. In short a new network that takes A Declaration of the Independence of Cyberspace seriously.

-high speed -prevents this nonsense

They tried accepting BTC. Noone used it, even while they were struggling with Visa. They pulled the support citing lack of use.

I use VPS from several providers that accept Bitcoin etc. And I can maintain a cash balance to recover recurring charges. That's OK, for providers that I use routinely.

So as you say, it'd be cool to have third-party payment processors, which are privacy-friendly and content-agnostic. But it's a nontrivial problem. I suppose that it could pay via direct transfer, with site/service/creator-specific accounts to protect against theft, and funding from Bitcoin etc. However, I suspect that only banks can do direct transfers, and starting banks is itself nontrivial.

oh please, stop making it sound like one artisanal widget maker's livlihood is being destroyed by The System. the truth is that they're producing and selling adult content, which (among other things) is riskier to transact than artisnal beads. the "mainstream" payment processors simply do not want to deal with the hassle, pure and simple. as other commenters have mentioned, there are payment processors that cater to such "high risk" businesses, but they don't come cheap.

In fact, the farther you push the boundaries, the better chance you will have at making money, assuming there still is an audience for it. There's a platform for almost anything.

Patreon just isn't the place for it and it never was. Patreon isn't even on the radar.

That's not to say you will never run into issues with payment, but your ultimate problem isn't going to be the platforms, it's finding customers.

In fact, high risk is just another way in which VISA and MC will squeeze merchants, it doesn't matter to VISA because they pass all of the risk to the merchant anyway.

Some cards can offer 3-5% of the transaction back, on top of a slew of benefits including extended warranty, 90 day accidental damage or theft reimbursement, price protection (a refund if the price changes), return protection (a refund if the store doesn’t accept a return).

Even going back in time (Graphtreon keeps historical data), there's less porn there than you suggest.

Interestingly, 3D Secure (verified by visa etc) was created to solve the issue of friendly fraud, but whats mystifying is it applies for all categories except for Adult.

Of course, this isn't the whole story, there's other factors like aggressive affiliate marketers - but it's a big part of it.

The mirror version of "distributed costs and concentrated benefits" is working against what progressively minded people would think of as simple personal freedoms: Most progressives are not avid consumers of adult services, so they won't throw their full political weight against such actions. But those who are against adult services _will_.

I hope that voting and patience in explaining to political outgroups does help, but I admit it's more hope than anything else, strangely. This should be a bipartisan priority, but either party thinks they can "win" the though-police race.