Why sex startups face uphill payments battle

Finding a suitable payments provider is a vital initial step for any startup conducting an online business. When your core product is controversial to some, however, things can get a little tricky

“Sex toy sales skyrocket during the coronavirus pandemic” is perhaps one of the lesser-spotted humorous headlines to come out of the COVID-19 lockdown. As social distancing splits up some couples, embargoes casual sex and drives people to seek respite from relentless stress or boredom, vibrator retailers are experiencing a boom.

Despite the circumstances, this rise in demand is welcome good news for startups in the sextech arena. Their path to growth has been littered with fights to market their products on Facebook, to advertise on the New York subway and to be taken seriously at tech conferences such as the Consumer Electronics Show.

They’ve also had to battle to sell their products online. Because while launching a sextech website is fairly uncomplicated, integrating a payments provider into an ecommerce platform isn’t.

PayPal, for instance, allows the sale of “certain types of adult products and content” but “prohibits the use of… services for the sale of materials that depict criminal behaviour or the sale of sexually oriented content or products to minors”. Equivocal policies such as these effectively close the door to much of the sextech world.

How sextech companies navigate the rules

Soumyadip Rakshit, co-founder of sexual health firm MysteryVibe, spent months negotiating for the services of Apple Pay. While Apple was happy to facilitate the sale of what are technically medical devices, it took issue with MysteryVibe’s “play” page, which depicted various sexual positions.

“We had three options: we could remove the page, we could adapt it or we could just not have Apple Pay,” he says. “The truth here was the ‘play’ page was illustrated with hand-drawn watercolours, so we could justify it as art. But when we launched our app on Google Play, they said we can’t put up pictures of vibrators. So, we changed them to line diagrams.”

Rakshit has spent years finding such workarounds to payments providers’ policies. He’s found the companies are generally agreeable to work with and notes they work on a case-by-case basis. He also believes their decisions don’t have anything to do with ethics or morality.

“It’s completely commercial,” he says. “If [payments providers] are saying ‘no’ to money, there has to be a really good reason. And the really good reason is they might lose a lot of audience if they didn’t say ‘no’.”

But reaching a friendly compromise with a payments provider becomes more difficult the closer a sextech company moves towards porn.

Build-it-yourself payments

Sex club Killing Kittens has been building out an app for its paid-for subscriber community for the last few years. While free from porn, the platform facilitates online dating with a chat functionality that, given the uninhibited nature of Killing Kittens’s real-life parties, invariably contains uninhibited language.

None of the big payments providers will touch the app. Stripe was interested, but only if Killing Kittens censored its entire raison d’être: sexually explicit content. Senior connections Killing Kittens’ founder Hadleigh Bolt had made at PayPal went all the way to the head office in San Francisco to debate the case, only to come back with bad news.

If [payments providers] are saying ‘no’ to money, there has to be a really good reason. And the really good reason is they might lose a lot of audience if they didn’t say ‘no’

He questioned their conclusion. Why would they work with a sex toy manufacturer but not Killing Kittens? Their response: the sale of a sex toy is fine, but if you encourage people to use it, we won’t allow it.

The brand has consequently spent a lot of time patching together a payments system that’s build around numerous providers with various clearing banks for it to operate seamlessly across multiple currencies. It’s been frustrating, but completely necessary. For Bolt, the options were either build something new or “don’t take money and lose the business”.

He sympathises with the policies of payments providers to the extent that he doesn’t believe there’s much point in arguing against them. “[Sextech] is a small part of the global economy, so why would they want to run the risk? There may be people that come through who aren’t as professional as us. If they were done [prosecuted] for human trafficking and PayPal took a payment which allowed that, PayPal are liable. It’s not worth it for them.”

Lobbying for a new ‘adult’ category

Others in the industry are less resigned to take the rules as they come. Former ad agency executive Cindy Gallop launched the “social sex” video platform Make Love Not Porn to provide a space on the internet for real-world sex. Designed through the female lens and with all films moderated by a human from beginning to end, she maintains the content is not porn. Big payments providers refuse to work with her anyway.

For now, Make Love Not Porn runs off a payments provider that caters primarily to the adult industry, but the rates are “extortionate”, Gallop says. She wants to change this not by lobbying the likes of PayPal at a micro level, but by blowing her grievances right out in the public domain.

“The three huge disruption opportunities in tech today are sex, cannabis and blockchain,” says Gallop. “Investors are flooding into the other two and what that means is these VCs and startups in cannabis and blockchain can afford to fund lobbyists, regulation change, public education initiatives and foundations. We need all of that in sextech, because we need a new legal definition of adult content.

“All the laws were written for porn, and terms and conditions are written for porn as well. Nothing has caught up with the internet, so nobody has driven a movement to re-examine that all-encompassing ‘adult’ clause in the light of sextech and sex education.”

Gallop’s more pressing aspiration is to partner with a fintech that will prove it can “process payments for legal, ethical, transparent sextech startups and make a [s***] tonne of money” in the process. Only when the cash generated becomes impossible to ignore will payments providers and clearing banks think about relaxing their sextech policies, she says.

Bolt, similarly, sees Killing Kittens as a willing groundbreaker for future sextech companies. “As society changes, we will already have shown this can be done,” he says. “Stripe will say ‘there’s actually very good revenue to be done in this industry’. And the companies that come after us, in the next five to ten years, will have it easier.”