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.

The OnlyFans website on a laptop screen.

OnlyFans is dropping depictions of sexual conduct, and not everyone's a fan of the move.

Photo: Gabby Jones/Bloomberg via Getty Images

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!"

Protocol | Enterprise

How Cloudflare thinks it can become ‘the fourth major public cloud’

With its new low-cost R2 cloud storage service, Cloudflare is jumping into direct competition with the AWS service that launched the cloud computing revolution.

Cloudflare will not charge data-egress fees for customers using R2, taking direct aim at the fees AWS charges developers to move data out of its widely popular S3 storage service.

Photo: Martina Albertazzi/Bloomberg via Getty Images

Cloudflare is ready to launch a new cloud object storage service that promises to be cheaper than the established alternatives, a step the company believes will catapult it into direct competition with AWS and other cloud providers.

The service will be called R2 — "one less than S3," quipped Cloudflare CEO Matthew Prince in an interview with Protocol ahead of Cloudflare's announcement Tuesday morning. Cloudflare will not charge data-egress fees for customers using R2, taking direct aim at the fees AWS charges developers to move data out of its widely popular S3 storage service.

Keep Reading Show less
Tom Krazit

Tom Krazit ( @tomkrazit) is Protocol's enterprise editor, covering cloud computing and enterprise technology out of the Pacific Northwest. He has written and edited stories about the technology industry for almost two decades for publications such as IDG, CNET, paidContent, and GeekWire, and served as executive editor of Gigaom and Structure.

The pandemic won't be over until the economy recovers. While cities, states and regions across the U.S. are grappling with new variants, shifting mask policies and other factors that directly impact businesses large and small, it is nevertheless time for brands and enterprises to jumpstart COVID-19 recovery strategies.

Data will undoubtedly be critical to such strategies, but there is one type of data in particular that is poised to yield greater impact than ever in the COVID-19 Recovery Era: location data.

Keep Reading Show less
Michele Morelli, Foursquare
As SVP of Marketing, Michele is responsible for overseeing the brand strategy, communications, and product and performance marketing of Foursquare’s apps and enterprise products. Prior to joining Foursquare, Michele held several senior leadership positions with wide-ranging responsibilities at AOL, Toluna, Citibank and Yahoo!.
Power

VR pioneer The Void is plotting a comeback

Assets of the location-based VR startup have been acquired by a former investor, who plans a relaunch with key former team members.

The Void's New York outpost closed during the pandemic. Now, the company is planning a comeback under new ownership.

Photo: The Void

Location-based VR pioneer The Void may rise from the ashes next year: A former investor has acquired key assets of the defunct startup and is now looking to relaunch it with key team members, Protocol has learned. The company is said to be actively fundraising, and is getting ready to start hiring additional talent soon.

The Void's patents and trademarks were recently acquired by Hyper Reality Partners, a company headed by former OneWeb CEO Adrian Steckel, who also used to be an investor in and board member of The Void. Hyper Reality Partners is actively fundraising for a relaunch of the VR startup, and is said to have raised as much as $20 million already, according to an industry insider.

Keep Reading Show less
Janko Roettgers

Janko Roettgers (@jank0) is a senior reporter at Protocol, reporting on the shifting power dynamics between tech, media, and entertainment, including the impact of new technologies. Previously, Janko was Variety's first-ever technology writer in San Francisco, where he covered big tech and emerging technologies. He has reported for Gigaom, Frankfurter Rundschau, Berliner Zeitung, and ORF, among others. He has written three books on consumer cord-cutting and online music and co-edited an anthology on internet subcultures. He lives with his family in Oakland.

Protocol | Workplace

A new McKinsey study shows that women do more emotional labor at work

The 2021 Women in the Workplace report from McKinsey found that women are far more likely than men to help their teams manage time and work-life balance and provide emotional support.

Senior leaders who identify as women were 60% more likely to provide emotional support to their teams and 26% more likely to help team members navigate work/life challenges, according to the report.

Photo: Luis Alvarez via Getty Images

Over the last year, emotional support, time management skills and work-life balance have become drastically more important and difficult in the workplace — and women leaders were far more likely than men to step in and do that work for their teams, according to the latest iteration of McKinsey and LeanIn.org's annual Women in the Workplace report.

Senior leaders who identify as women were 60% more likely to provide emotional support to their teams, 24% more likely to ensure their teams' workload is manageable and 26% more likely to help team members navigate work/life challenges, according to the report. In addition, about one in five women senior leaders spend a substantial amount of time on DEI work that is not central to their job, compared to less than one in 10 male senior leaders.

Keep Reading Show less
Anna Kramer

Anna Kramer is a reporter at Protocol (Twitter: @ anna_c_kramer, email: akramer@protocol.com), where she writes about labor and workplace issues. Prior to joining the team, she covered tech and small business for the San Francisco Chronicle and privacy for Bloomberg Law. She is a recent graduate of Brown University, where she studied International Relations and Arabic and wrote her senior thesis about surveillance tools and technological development in the Middle East.

Amazon needs New World’s launch to be a success

New World arrives Tuesday. Whether it flops could determine the future of Amazon Games.

New World launches on Tuesday, after four delays. It could be Amazon's first big hit.

Image: Amazon

Amazon's New World launches on Tuesday, marking the end of a long and bumpy road to release day for the company's most pivotal video game release to date. There's a lot riding on New World, a massively multiplayer online game in the vein of iconic successes like Blizzard's long-running World of Warcraft and Square Enix's immensely popular Final Fantasy XIV.

If the game succeeds, New World will mark a rare success for a technology company in the gaming space. With the exception of Microsoft, which entered the console game industry nearly two decades ago, tech firms have tried time and again to use their engineering talent and resources to crack the code behind making successful video games. Almost every attempt has failed, but Amazon is the closest to having a hit on its hands. If it flops, we could see Amazon's gaming ambitions go the way of Google's.

Keep Reading Show less
Nick Statt
Nick Statt is Protocol's video game reporter. Prior to joining Protocol, he was news editor at The Verge covering the gaming industry, mobile apps and antitrust out of San Francisco, in addition to managing coverage of Silicon Valley tech giants and startups. He now resides in Rochester, New York, home of the garbage plate and, completely coincidentally, the World Video Game Hall of Fame. He can be reached at nstatt@protocol.com.
Latest Stories