Escort Merchant Accounts: A Cheat Sheet for Merchants
The escort industry has seen massive changes in recent periods. These days, escort listing websites use the power of e-commerce to efficiently manage operations and boost customer experience. However, it’s important to know that escort industry legality is complex and varies from nation to nation. Thus, obtaining a reliable escort merchant account has become a significant challenge for businesses. The team at Quadra Pay, which specializes in assisting merchants from adult dating and escort industries, has created this cheat sheet to help merchants easily get approval for escort merchant accounts.
What is an Escort Merchant Account?
An escort merchant account is a specialized type of high-risk merchant account designed to accommodate the needs of businesses that offer online ads and listing services for escorts. With the right escort merchant account, businesses can accept both online and in-person payments despite the increased risk associated with the industry.
Why is Escort Credit Card Processing Considered High-Risk?
The escort services industry is classified as high-risk by banking institutions for several reasons. These key factors significantly reduce the chances of account approvals for merchants from such industries:
Legal and Regulatory Concerns. This is the most crucial challenge for banks when it comes to onboarding escort merchants. The legal status of escort services differs from country to country and sometimes state or province-wise in the same nation. This inconsistency makes it extremely challenging for credit card processors to support such businesses. The industry, wherever it is regulated, is subject to intense scrutiny and government regulations, which banks may consider excessively challenging to support.
Globally, the escort listing industry is gradually decreasing, which means that merchants are finding it extremely difficult to operate, and it’s no longer a potential industry for most acquiring banks. Compliance requirements, including age verification requirements, advertisement restrictions, and licensing obligations, make the industry a difficult one for merchant processors.
High Chargeback Rates. Escort listing websites have traditionally shown higher chargebacks than many other industries. Because of discretion concerns, clients may sometimes dispute charges primarily to maintain their privacy or deny that they actually used the services. Sometimes dissatisfaction or mismatch based on the advertised services and actual experience can also lead to chargebacks. Customers may also have regret after using the service, which may increase the chargeback ratio.
Fraudulent Transactions. The potential for fraud is high in escort listing sites. This industry is one of the very few where identity theft is very common. Both the service providers and the customers may use false identities, which complicates the verification process. Another challenge is misrepresentation, where some businesses may represent themselves as escort listing websites; however, they may be doing something else which may be prohibited.
Reputational Risks. Supporting merchants from escort listing websites attracts reputational risks for acquiring banks. Despite the legality of escort services and escort listing websites in many countries, public opinion can certainly be negative and potentially damage the institution’s image. Bigger concerns are those merchants that do not have the required resources to ensure full compliance and take steps that reduce such reputational risks. Banks may also have reservations when it comes to associating themselves with controversial industries, primarily because shareholders may not be comfortable with such initiatives. This challenge is quite common for banks and acquiring institutions which are family-friendly.
Regulatory Scrutiny. Any credit card processing company that supports escort listing or online dating businesses is subject to strict scrutiny from regulatory bodies as well as credit card companies. Many processors simply try to stay away from such difficult industries and work with merchants from regular verticals like e-commerce, clothing, and travel, etc.
Operational Volatility. Escort businesses are generally not long-term, which means the businesses and individual service providers may enter and exit the market frequently. This creates inconsistent sales projections for the merchant processor. This inconsistency can lead to highly variable cash flow for the bank. The limitation of advertising and marketing options for escort listing sites makes consistent business flow difficult.
Due to the above-discussed reasons, traditional payment processors are often hesitant to work with merchants from the escort industry. Those providers that are willing to support such merchants also follow very strict regulation and compliance requirements to ensure that merchants are not violating the approved rules and regulations of the card brands as well as local governments. Such providers implement various measures to ensure that the merchant’s risk stays under control.
Setting Up an Escort Merchant Account
Getting approval for an escort merchant account requires a careful preparation process that involves understanding the documentation and industry requirements. This entire process can be very complex if the approach taken is not right. Here is a breakdown of steps that will help you improve the chances of approval:
Identifying Escort Merchant Services Companies
As you are now well aware, there are very few payment processing companies that support escort merchants. Identifying these providers is the first step. You should look for providers that openly advertise support for escort businesses and adult entertainment companies. Checking the reviews and testimonials of existing high-risk merchants can also help in confirming that the processor supports escort businesses. Most of these payment processors support high-risk businesses and charge a little bit more than regular providers. The payment processors also charge a high-risk merchant registration fee from escort companies. Without high-risk registration, such accounts cannot be made available.
Submitting KYC Documents
After identifying the processor, the next step is to send the KYC (Know Your Customer) documents with the application for the processor to review. The regular KYC documents for any escort merchant account generally include:
- A valid business license with a permit to operate an escort listing or adult-oriented business
- 3 to 6 months of business bank statements showing consistent revenue inflow
- For startups (although approval is very difficult), a business plan for review
- Government-issued photo ID (driver’s license or passport) for all directors and stakeholders who have over a 10% stake in the business
- Website Compliance: Merchants should ensure that the website URL is active and fully functional. It should be in full compliance with industry and government requirements. Detailed information of services, including pricing structure, should be available on the website.
- A letter from the bank confirming the account to be in good standing
- Previous processing statements
- Domain purchase receipt
Application Submission
After gathering all the KYC documents, the merchant can submit these along with the merchant account application form to the payment processor. The underwriters at the escort merchant processing company will review these documents and ask for additional items or queries if needed.
Underwriting Process. For an industry like escort listing, merchants must be ready to answer several questions before getting approval. The underwriters will primarily review the business model of the merchant, check the financial standing (like the previous bank statements and processing statements), and evaluate the overall risk profile.
Approval Timeline. The overall timeline for the approval of an escort merchant account can vary depending on various factors and the workload on the underwriters. In general, a domestic escort merchant account typically takes 1 to 2 weeks for approval. On the other hand, an offshore escort merchant account may take 2 to 4 weeks for account approval.
Features of Escort Merchant Accounts
A good escort merchant account should offer a range of features that are mandatory for effective operations:
High-Volume Processing. Escort listing websites generally experience high volumes of transactions without any prior indication. This is primarily because escort listing websites list various service providers, each potentially bringing in multiple transactions each day. From very small fees for basic listings to larger transactions for featured ads and premium placements, the merchant account must handle a wide range of transaction amounts.
Multi-Currency Support. Many escort listing sites have an international presence and thus must accept multi-currency transactions. With a multi-currency processing solution, escort listing websites can accept payments from customers in their local currency. The payment gateway should have the functionality to automatically convert the currency based on the latest exchange rates.
Recurring Billing Options. Another feature that is most important for escort websites is the recurring billing capability. Many escort websites offer a subscription-based model where escorts can automatically make payments each month for the subscription and ad placement.
Advanced Fraud Protection. In the escort industry, it is extremely important to have all the essential advanced fraud protection tools in place. These should include: Identity verification, where the merchant must verify the identity of all the escorts purchasing listings on the website. Real-time monitoring to identify and block suspicious transactions. IP geolocation identification, which can be quite helpful for robust fraud defense
Reporting and Analytics. A comprehensive reporting panel should come with the capability of extracting detailed transaction reports for accounting and tax purposes
All these features help businesses easily operate the merchant account and effectively collect credit card transactions without hassle.
Fees and Pricing Structure
It is important to clearly understand the fees and pricing structure of the merchant account to effectively manage an escort listing business. Escort merchant accounts are higher risk and thus come with higher processing fees compared to low-risk merchant accounts. Let’s look at a breakdown of these fees that you should expect with your account:
Setup Fees. Some payment processors may charge a one-time setup fee to establish the merchant account. The setup fee varies based on factors such as the complexity of your business profile, the provider’s pricing structure, and mandatory high-risk registration. Generally, the setup fee is negotiable, especially if the merchant can bring in a large volume of transactions. Escort merchants should be prepared to pay a nominal setup fee.
Monthly Fees. The payment processor incurs ongoing costs that are required to maintain the account and support it. This generally ranges between 50 to 100 USD/EUR. The monthly fee includes the cost for account management, customer support, PCI compliance assistance, and monthly statements.
Transaction Fees. Escort merchants pay a fixed percentage on each transaction, which is known as the merchant discount rate. This generally ranges between 3% to 8%. Along with that, the merchant also pays a fixed fee which can be 10 to 30 cents per transaction. Most of the time, escort merchant accounts come with a fixed pricing structure; however, some payment processors may offer tiered pricing structures as well.
Chargeback Fees. In case the merchant receives a chargeback dispute and loses it, the merchant must pay a chargeback fee to the payment processor. This generally ranges between $25 to $100 per chargeback. It is important to know that the chargeback fee may increase if the chargeback ratio exceeds a certain threshold. Higher chargebacks can also lead to the termination of the escort merchant account.
Reserve Requirements. The payment processor will generally ask for a rolling reserve. This is typically 5% to 10% of monthly volume and is deducted on each transaction. The rolling reserve stays with the payment processor for a time period of 6 months.
Additional service fees associated with escort merchant processing accounts include Address Verification Service (AVS) costs as well as account updater costs. As per the latest update from card processors, escort merchant accounts must have a mandatory high-risk registration, which is done on an annual basis for each card brand. This generally ranges from $500 to $1000.
