The OnlyFans website on a laptop screen.
OnlyFans is dropping depictions of sexual conduct, and not everyone's a fan of the move.
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Protocol | Fintech

No, OnlyFans can’t just build its own payments system and solve all its problems

Regulatory, technical and customer service challenges await — and it still might not be able to sell porn after all of that.

Update: OnlyFans founder Tim Stokely has detailed his company's struggles with the banking system in an interview with the Financial Times. Read on for why payouts to creators, not just taking payments from customers, is a crucial and difficult issue for adult content businesses like OnlyFans.

OnlyFans, reportedly under pressure from banking and payments partners, is banishing porn. In response, a bunch of purportedly intelligent people on Twitter have all come up with the same purportedly brilliant idea: Why doesn't OnlyFans just build its own payments system?

There are a host of reasons why not — cost, time, difficulty and regulations among them. And there's a strong chance that an OnlyFans with an in-house payment system would arrive at the exact same conclusion that OnlyFans without one has: It can't safely host and charge for sex videos while participating in the modern financial system at scale.

Build versus buy

The kind of payments system OnlyFans requires is particularly challenging to replicate. The site offers adult entertainers (and anyone, really) a system for delivering videos, posts and other content to paying subscribers, which means it has two payment problems to solve: It must first collect money from those subscribers and then deliver it, minus a cut, to the creators. That's a more complicated proposition than the basic ecommerce scenario where you sell goods and get paid for them.

PayPal has a full-fledged, spend-and-send payment network; it's worth about $319 billion. Stripe, which is privately held, recently raised $600 million at a $95 billion valuation; Adyen, a European payments company, is worth about the same. OnlyFans is reportedly seeking a valuation of around $1 billion from investors. It's not playing in nearly the same ballpark.

Building a high-scale payments system from scratch would take months, after first hiring dozens if not hundreds of engineers — those same scarce, specialized engineers that PayPal, Stripe, Adyen and others are competing to recruit. Glassdoor reports there are more than 8,000 open jobs for payments engineers now. There's little chance OnlyFans could offer competitive equity packages with its relatively meager valuation — plus those new hires would then have to explain to their parents, significant others and future bosses who they're working for.

That's why OnlyFans, like most startups, turned to Stripe and, later, vendors like SecurionPay and CCBill. This stuff is hard, expensive and time-consuming to build. And OnlyFans would have to amortize that development expense against its in-house payments volume, rather than a vast number of outside sellers (PayPal serves 29 million merchants, for example).

The customer conundrum

So let's say OnlyFans goes to the bother of replicating and launching a commercial, high-volume payments system.

Along come the fraudsters.

Because OnlyFans is only seeing its own transactions, in this scenario, it's inherently more vulnerable to fraud. It can't track patterns across multiple retailers.

And then there's the "friendly fraud" problem in porn. Many people who buy porn come to regret the purchase, chiefly when a spouse discovers the charge on a credit card bill. That — and the fact that no physical goods are changing hands — explains why adult content has a uniquely high chargeback rate.

Why do banks and payment networks have a problem with porn? Trust me, they like making money. The problem is that when you have a high rate of chargebacks, which are expensive to process, you stop making money and start losing money. In finance, that's generally viewed as bad.

Chargebacks are already a problem for OnlyFans artists, who view them as customers stealing their naked images and say the company doesn't do enough to protect creators from scammers. It's not clear how OnlyFans handling payments in-house would improve things.

Regulate this

Because of OnlyFans' role as a middleman, any payment system it created would have to comply with a host of rules. Specifically, it would have to register as a money transmitter in most states, because it's collecting money from one party and promising to deliver it, at a later date, to another party. Using Stripe or other payment processors gets around this, because those entities have already jumped through the right regulatory hoops.

Imagine OnlyFans Payments Inc. going to regulators in Arkansas, Louisiana, Utah and other conservative states, and you can imagine the state-level challenges it would face. An OnlyFans payments system would also have to comply with anti-money laundering and know your customer requirements, which would likely require an intrusive level of inquiry into the lives of performers whose similar work offline might well be illegal in a given jurisdiction.

What about crypto?

Hahahaha tell me another one!

Cryptocurrency, for all its promise, is too hard to use, too slow and too expensive to use for most everyday transactions. The Ethereum network is working on a major upgrade that would reduce transaction fees, but as of June, the average transaction cost was $4.50, according to the Block. (That's down from $45 per transaction in May, to give you an idea of how volatile costs are. That's just what businesses love — unpredictable costs!)

Even if you got transaction costs down, you would still have to deal with customer service, refunds and other problems. Visa and Mastercard, for all their downsides, have that stuff down. A consumer-friendly crypto-based payment system would have to invent it from scratch.

Crypto certainly would deal with the "friendly fraud" problem, but then instead of chargebacks you'd have outraged customers vehemently denying they'd purchased porn and demanding that consumer-protection agencies take action. That would bring a whole different regulatory hammer down on OnlyFans.

And what if creators and employees want to get paid in local currencies, not crypto? OnlyFans would still need to interact with the existing financial system, and so it would just add the complexity of blockchain engineering on top of its other costs.

So who's the villain here?

It's easy to paint banks and payment processors as the bad guy. But they're trying to keep up with regulatory requirements to keep an eye out for criminal activity on their networks.

Mastercard in April put out a new set of rules requiring adult content businesses to verify the identities and ages of participants in sexual activity, and to make sellers take steps to review content and block depictions of illegal or non-consensual activity. It's not that Mastercard suddenly wants to enact a puritanical ban on revenue-generating content. It's that Mastercard — along with every other market participant — has to operate around the same legal framework underpinning all adult content online since SESTA/FOSTA became law in 2018.

Let's say OnlyFans creates a system that takes credit cards; it would still have to comply with Visa and Mastercard's rules. And even if it created a parallel system that only used ACH bank transfers or (ha!) crypto, it would still be liable for any illegal material it sold.

Safe to say the problem is much more complex than a bunch of people on Twitter coming together and saying "Let's build a payments system!"