Dirty money: Sex and the payments industry

December 21, 2020 11:00 AM

When Mastercard and Visa cut ties with Pornhub in December, it was abrupt but unsurprising. The banking and payments industries have had a long and conflicted history with adult content.

In some cases, the payments industry is supportive of adult content, as long as it is legal and the risks are known. In other cases, the payments industry has aided law enforcement — or acted preemptively — to cut off the flow of cash for companies that may expose their banks to legal repercussions.

And in still other cases, the relationships between payment companies and the sex trade were spontaneous and unexpected.

This story was compiled from reporting by PaymentsSource writers including John Adams, Kate Fitzgerald, David Heun, Michael Moeser and Daniel Wolfe.

Sexting on payment apps

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In 2016, China's Alipay introduced a social media feed called Circles in late November. The launch quickly went awry, with users sending racy photos in exchange for money within hours of the app's debut. The company hurriedly took down pictures and blocked related accounts permanently.

Alipay, part of Ant Group, could have seen this coming if it had looked at other attempts to combine social media and payments. The social image-sharing app Snapchat launched Snapcash — an adaptation of Square Cash — in 2014, and it was immediately adopted by adult performers despite Snapchat's prohibition of monetizing porn via its service.

Big attention for short loans

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Nothing grabs attention quite like hiring an adult actress as a spokesperson.

In 2011, Blue Global Media, the company behind LittlePayday (a lead generator for short-term loans) hired the porn star Bridget Powers — known to her fans as Bridget the Midget — for its advertising.

Chris Kay, who was then chief executive of Blue Global Media, told American Banker, "we wanted to do something a little crazy, to be honest with you, so we partnered with Bridget the Midget."

Payday lending is "a very competitive landscape," Kay added. "To be on the first page of Google for the searches for payday loans, these marketers have to know what they're doing."

But Blue Global attracted the wrong kind of attention; in 2017, the FTC halted Blue Global's operations, stating that the company promised to match applicants with a network of 100 or more lenders, but instead sold applicant data "to a variety of entities without regard for how the information would be used or whether it would remain secure." Very few of those buyers were actual lenders, according to the FTC.

Facing a judgment of $104 million from the FTC, Kay and Blue Global fled for Chapter 7 bankruptcy, VentureBeat reported at the time.

Pornhub's problems

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Mastercard and Visa's prompt shunning of Pornhub illustrates just how delicate the mainstream payments industry's ties to adult entertainment can be.

After a New York Times story accused Pornhub of hosting child abuse and nonconsensual videos, the card brands investigated on their own — and didn't like what they saw.

“Our investigation over the past several days has confirmed violations of our standards prohibiting unlawful content on their site,” Mastercard said in a statement. “We instructed the financial institutions that connect the site to our network to terminate acceptance.”

And while Pornhub acted swiftly to protest the card brands' decision, it also took drastic action of its own. It enacted a blanket rule that if a video's uploader wasn't verified to Pornhub, the video would be taken down — a move that cut Pornub's video count from 13.5 million to 3 million, CNN reported.

Backing off of Backpage

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In 2015, the major card brands discontinued acceptance of payments generated through the adult section of the Backpage.com online classifieds.

Mastercard, Visa and American Express all terminated payment acceptance from the website after the start of an investigation by Cook County Sheriff Tom Dart over the site's alleged promotion of sexual services.

Dart asked the major card brands to consider terminating any relationship with the Texas-based, Dutch-owned company that operates Backpage.

"Mastercard has rules that prohibit our cards from being used for illegal or brand-damaging activities," Mastercard spokesman Seth Eisen told PaymentsSource at the time. "In this case, we contacted Backpage's acquiring bank about the Cook County sheriff's claims of Backpage's activities in the U.S., as well as separate violations of Mastercard rules." The acquirer advised Mastercard that it was terminating acceptance at this time, Eisen added.

This left only one way to transact on Backpage's adult section: bBitcoin. But even that would be short-lived, as U.S. law enforcement agencies seized Backpage.com in early 2018, shutting it down.

Getting personal

The U.S. Department of Justice (DOJ) headquarters

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It's no secret that major banks are averse to providing accounts to risky business categories such as porn, given the likelihood of chargeback fraud and other issues. But things went even further during Operation Choke Point, the Justice Department's crackdown on online consumer fraud.

In 2014, JPMorgan Chase had closed accounts of individuals or businesses associated with the adult entertainment industry, several media outlets reported at the time. In one case, the adult film actress Teagan Presley posted on her Twitter site a copy of the alleged letter from Chase saying her account would be closed on May 11. Presley's husband, film producer Joshua Lehman, told Business Insider "it was because of our industry."

Presley later tweeted, "So @chase are you going to close my kids savings acct now cause my name is on there too just like you did my personal acct."

JPMorgan declined to discuss these reports at the time, or answer how widespread the account closures are.

In the Penthouse

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The pornography industry and the payments industry aren't always at odds — sometimes they're one and the same, as was the case when Penthouse bought Internet Billing Co., or iBill, for $23.5 million, including the assumption of $22 million in debt in 2004.

iBill was already known for strong ties to adult websites, so it was a natural fit for Penthouse, but the pairing didn't last. The same year Penthouse bought iBill, it sold it to Care Concepts I Inc., a media marketing holding company, for $55 million in stock. Care Concepts operated at least one online auction site through a subsidiary, and described the deal as akin to the pairing of eBay and PayPal (another merger that eventually split up).

Cracking down

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The payments and banking industry don't always keep the adult industry at arm's length; in some cases they proactively pool their resources to spot and report illegal content such as child pornography.

One example is the news that 14 financial organizations joined the National Center for Missing & Exploited Children and its sister organization, the International Centre for Missing & Exploited Children, in 2006 with the lofty goal of wiping out commercial child pornography on the internet by 2008.

The participants at launch included American Express, Bank of America, JPMorgan Chase, Citigroup, Discover Financial Services, e-gold, First Data, First National Bank of Omaha, Mastercard, PayPal, First Premier Bank/Premier Bankcard, Standard Chartered Bank, Visa and Wells Fargo.