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PayPal Makes It Official: Adios, Adult
>> By Charles Farrar
 March 14, 2003
MOUNTAIN VIEW, Calif. -
In the same week a news link Website that opposes a U.S.-Iraq war
accused PayPal of selective censorship in closing its account, the
online payment system announced formally what's been rumored for at
least a few weeks: It's saying goodbye to the adult Internet.
In
a new series of guidelines governing "mature audiences," PayPal said it
will process transactions for pre-1980 adult-oriented items bought at
online auctions and the like, but it will no longer process memberships
to adult Websites or payments for sexually oriented videos, magazines,
or photographs made after 1980.
PayPal will continue to process
payments for a number of adult novelties, "include[ing], but ... not
limited to: items which are intended for use in a sexual setting (such
as "bondage" and "fetish" items), items which display sexual activity
or portray human genitalia in a "life-like" or realistic fashion, and
vibrators intended for use in sexual activity (as opposed to ordinary
massagers)" – but they have to be auctioned in the "mature audiences"
section of eBay, with which PayPal merged last year.
Adult sites
will have to remove PayPal from their payment alternatives by May 13,
according to Kevin Pursglove, eBay's public information spokesman. He
said accounts will be allowed to stay open long enough for the users to
remove any of their funds still in the accounts. People who want adult
materials and are willing to obtain them from eBay and some other
auction marketplaces can still use PayPal, he said.
Why is
PayPal pulling back from the adult Net? Pursglove said it was mostly a
question of financial risk. "Like any company, PayPal has to find the
right balance between serving the needs of a large, diverse group of
customers and minimizing financial risk," he said. "Over the last
several months or years, there's higher financial risk associated with
adult. And [adult's] actually a very small part of PayPal's business."
First
Amendment attorney Lawrence G. Walters said he figured PayPal was
pulling away from the adult Net when several of his clients, whom he
would not name, received short notices from PayPal canceling their
accounts as of mid-May. "They said to one client that after reviewing
financial factors, they concluded this change is the best course of
business," Walters said by telephone from his Florida offices. "They
didn't say what those factors are, and I don't know if that can be
taken at face value."
Walters said there was plentiful
speculation among adult businesses who'd received similar
notifications, ranging from potential government prosecutions to PayPal
deciding adult is as much a potential liability as online gaming, from
which PayPal backed away after merging with eBay.
"At the point
of the eBay merger, it didn't have an effect on adult," Walters says.
"But something may have happened between then and now to cause them to
re-evaluate that. And it's very disconcerting. When you take this in
combination with what happened with Visa, the little guy is having a
difficult time competing. PayPal was a viable alternative for people
who didn't want to set up a corporation and registration fee that Visa
imposed. Now, that apparently is not an option."
PayPal's
adios-adult move arose in a week that was already somewhat aggravating
for the company. Barely having announced its initial public offering,
PayPal was slapped with a class-action lawsuit accusing it of
illegitimate restriction of customers' access to their own money. The
suit accuses PayPal of locking customer accounts if fraud is suspected,
whether the amount in question is small or large, meaning customers
can't work any more PayPal-conducted payments or withdraw any of their
money until PayPal clears a transaction, according to the lawsuit's
filing attorney, Gail Koff.
This came in the same week as WhatReallyHappened.com
accused PayPal of deciding that doing business with controversial
politics was less acceptable than doing business with porn sites – even
porn sites, the news-link site charged, that "abet" child porn and
pedophilia.
WhatReallyHHappened.com's Website includes a
singular link to a page devoted entirely to PayPal and its recent news
and problems. The page features the following note that
WhatReallyHappened.com received from PayPal canceling their user
agreement: "As you know, the PayPal User Agreement states that PayPal,
at its sole discretion, reserves the right to close an account at any
time for any reason. We write to inform you that, after a review of
your site, and in accordance with the User Agreement, your account has
been closed. Your funds will be held for 180 days from the date of the
last transaction on the account. After 180 days have expired, we will
refund your funds by mailing a check to the address linked to your
account."
A correspondent's comment on politechbot.com – the
message and correspondence board run by noted Web journalist Declan
McCullagh – suggested PayPal was getting dangerously close to setting
itself up as a selective censor. "While Paypal as a private company
certainly has the right to choose with whom it does business," the
comment said, "tying up donations people have made to support a
political cause for half a year does seem a tad dishonest."
A
tad dishonest isn't exactly the way WhatReallyHappened.com puts it. "As
an experiment, type the words 'PayPal' and 'Porno' into any search
engine," the site noted on its PayPal information and links page. "[We]
used Google and got a list of hundreds of pornography web sites that
PayPal does not seem to have any qualms about doing business with!"
Among
other stories to which WhatReallyHappened.com has links is one one
GuluFuture.com, another "alternative" news site, which slammed PayPal
in an alliterative headline: "PayPal Porn Promotes Pedophilia." The
story accused PayPal of "enabling sex offers which can lead to
increased incidence of pedophile acts – despite a campaign by the porn
industry itself to outlaw services which glorify or legitimize sexual
acts with minors."
The accusation didn't seem to bother
Pursglove when he was asked about it. "Oh, we get slammed by everybody
every day," he said. "That's the price you pay for being as large and
successful as [PayPal and eBay] have become."
But attorney
Walters said PayPal's withdrawal from adult amounts to a "further
censorship of the adult industry, although it's not direct government
censorship. It will impede access to adult material."
Walters
said the withdrawal could cause "a lot of people" to reverse course
with adult while causing others to look at other options. "PayPal
didn't have a large share of the market," he said, "so the direct
effect won't be big. Small Webmasters will be hurt, but we'll see the
rise of alternative payment processors, and they'll be benefited. But
the real question could be what will the credit card companies do?
"You
hate to think there's something going on behind the scenes," Walters
continued. "I don't share a lot of the conspiracy theorists' ideas. But
it sure is getting more and more difficult for an adult Webmaster to
get paid. What are we going to have to do, start accepting cash in the
mail?"
There's only one problem facing any rise of alternative
payment processors and it's a conundrum, according to
VirtualSexMachine.com Chief Executive Officer Eric J. White: Until a
new company cements its own reputation, it's likely to face an uneasy
time trying to accumulate clients.
"People are automatically
suspicious of the adult industry, everybody in the adult industry,"
White said. "Anybody that slaps up an adultpay-dot-com kind of thing is
going to be suspect, until they get a consensus of the online adult
merchants to go along with them and have a good base, like Adult Check
does. They already have a trusted customer base, and a successful
product. If they were smart, they'd jump right in with a new payment
scheme now."
White said he thinks PayPal's withdrawal from the
adult Internet is more eBay's doing than PayPal's itself. "Now, it
looks like eBay doesn't have to deal with adult," he said. "They don't
need us, so why deal with the hassle? I don't think the PayPal
management had anything to do with this. They weren't concerned about
the material more than the risky sales."
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