Adult content websites are often considered high-risk entities for the payments industry due to several inherent characteristics and the complex legal and ethical landscape in which they operate.
It is essential for payment processors considering merchants in the adult content industry to carefully assess all these risks, implement robust compliance measures, and continually monitor the regulatory environment to ensure they can operate responsibly in this sector.
What are the most common risks for adult content?
Here are six types of risks you should be aware of when working with merchants in the adult content industry:
- Regulatory and legal compliance: Adult content transactions are subject to complex and evolving laws and regulations. Non-compliance with age verification requirements, obscenity laws, or other relevant legislation can result in severe legal repercussions, including fines, penalties, and potential criminal charges.
- Reputation and brand risk: Being associated with adult content websites can have an adverse impact on the reputation and brand of payment processors. There is a risk of alienating other clients, stakeholders, or partners who may not wish to be associated with the adult content industry. This could potentially lead to loss of business and damage to your company's public image.
- Payment disputes and chargebacks: Adult content websites can be susceptible to a higher rate of payment disputes and chargebacks. Dissatisfied customers or those who dispute the nature of the content may request chargebacks, resulting in financial losses and additional operational burdens for the payment processor.
- Fraud and Scams: The adult content industry can be susceptible to fraudulent activities, such as phishing schemes or unauthorized use of payment methods.
- Recurring billing and subscription models: Many adult content websites employ recurring billing and subscription models. Managing these complex payment structures can involve increased risk of customer dissatisfaction, legal disputes, and potential issues related to billing transparency.
- Third-party relationships: Payment processors often rely on third-party vendors and service providers to support their operations. These partnerships introduce risks related to the security and compliance practices of these third parties, which can ultimately affect your company’s performance and reputation.
How is adult content regulated?
In the U.S., obscenity laws regulate adult content exist at both the federal and state level, although new state laws are constantly evolving and often challenged by First Amendment proponents. In June of 2023, Virginia became the latest in a long list of states requiring age verification for online adult websites. These laws are aimed at protecting children from exposure to sexually-explicit material.
In addition to laws, card brands also have standards concerning adult content that apply to payment providers and platforms in their networks. In 2021, for instance, Mastercard enhanced its standards requiring financial institutions connecting merchants to its card network “to certify that the seller of adult content has effective controls in place to monitor, block and, where necessary, take down all illegal content.”
Adult content, sextortion, and deepfakes
In June 2023, the Federal Bureau of Investigation (FBI) issued a warning about “deepfake” scams involving adult content. In these scams, malicious actors use photos or videos taken from a victim’s social media account or elsewhere on the internet and then use AI technology to convert the photos into sexually-explicit content which they circulate on the internet on social media, public forums, or adult websites.
The victims, who are unaware that their photos have been used, are then contacted by the bad actors, who try to harass the victims or coerce them into paying them or providing them with real sexual imagery of themselves (sextortion) by threatening to send the fake content to family and friends or publishing it on the open internet.
In an article published last month, the FBI called attention to the especial risks that sextortion poses for minors, stating, “From October 2021 to March 2023, the FBI and Homeland Security Investigations received over 13,000 reports of online financial sextortion of minors. The sextortion involved at least 12,600 victims—primarily boys—and led to at least 20 suicides.” The article also contained several resources on the topic.
As fraud expert Frank McKenna has pointed out, deepfakes don’t even have to be that good to work. And as AI becomes gets smarter and more widely available, we can expect them to become more pervasive -- with alarming efficacy. This will also escalate the risks involved in adult content.
Mitigating risks associated with adult content
Offering adult content can expose payment providers to many types of risk. These include legal and compliance and reputational risk, fraud and scams, payment disputes and chargebacks, third-party issues, and problems related to recurring billing and subscriptions. To mitigate these risks before damage can be done, payment providers need the tools to quickly detect and assess merchants as well as monitor them on an ongoing basis.
EverC can help to identify merchants that are potentially involved in suspicious or criminal activity, even when their activity is purposely hidden. Our technology leverages AI for increased speed and precision in detection rates, enhancements to features and tools, and unmatched customization capability, for solutions that allow you to meet your business goals while aligning with your RBA and industry priorities.
