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 PayPal. 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.
WhatReallyHappened.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."
