Thursday, May 8, 2003

Third-party bill payers won't cover sex items, cite fraud risk

By Rachel Konrad
The Associated Press

SAN JOSE, Calif. - It could soon be easier to buy adult videos at your local sex shop than through the Internet.

PayPal, a subsidiary of eBay Inc. that processes payments anywhere in cyberspace, will stop taking payments for most adult-themed merchandise in the next five weeks. Other electronic payment services, including Yahoo and Visa USA, have also tightened restrictions on sexually explicit items.

That means people who want to buy sex toys or digital photos will have to send a check or money order or submit credit card information directly to the merchant - removing a layer of anonymity.

The clampdown is drawing complaints from vendors in one of the oldest, most lucrative and recession-proof sectors of e-commerce. They say San Jose-based eBay is enforcing morality at the expense of small businesses.

The world's largest online auctioneer says the restrictions aren't about morals, but money.

There's too much fraud in online sex merchants' transactions, said eBay spokesman Chris Donlay.

EBay's move comes half a year after Visa USA quietly changed some rules for sex merchants.

In November, San Francisco-based Visa USA added to its "high risk merchant" classification any seller of digital images. Such merchants must register directly with Visa rather than use third parties for billing.

Visa's policy shift aimed to help reduce "chargebacks," transactions that cannot be completed, often because of fraud from the vendor or buyer.

Roughly 7 cents per $100 charged on Visa cards in the United States are chargebacks. The rate is far higher for adult-oriented purchases, Visa USA director Rosetta Jones said, declining to offer specifics.

"For many years, we've required high-risk brick-and-mortar merchants to be registered, and this is really an extension of an existing policy," said Jones.

Although Visa now requires some sex merchants to pay a $500 initial registration fee and $50 a year afterward, PayPal restrictions could sting even more.

PayPal allows customers to put money into a secure account so they don't have to provide confidential bank information to online retailers, whom they might not know or trust.

More than 50 percent of all sales on eBay involve PayPal, which has 25 million registered users and is growing at a rate of 28,000 transactions a day.

When PayPal stops processing payments of adult-themed downloads May 12, customers who want to purchase pornographic streaming video or photographs must send money orders or checks to vendors, or use credit cards, which some porn sellers don't accept directly.

June 12, PayPal will extend its ban from downloads to tangible products, such as magazines, books, DVDs, videotapes and sex toys.

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