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Banned by PayPal: X-Rated Merchants

The EBay unit cites greater fraud. Some Web businesses say firm is enforcing morality.

May 08, 2003|Hanah Cho | Times Staff Writer

PayPal Inc. will soon be PG.

Citing high instances of fraud, the popular online payment service said Wednesday that it would soon stop doing business with Web merchants that sell adult-themed merchandise.

Beginning June 12, consumers who want to buy sex videos, toys and photos on the Internet won't be able to use PayPal. They'll still get their merchandise, but they will lose the layer of anonymity that PayPal provides as a middleman for transactions.

Other electronic payment services have strict policies regarding online purchases of sexually explicit merchandise.

Visa USA Inc., for instance, requires some online merchants of adult products to register directly with the credit card company, instead of using third-party billers, in order to reduce fraud.

PayPal drew the ire of some in the adult entertainment industry, who said the service's move amounted to morality policing by PayPal owner EBay Inc., the widely used online auction house. The PayPal announcement came just days after Wal-Mart Stores Inc. stopped selling three racy magazines -- FHM, Maxim and Stuff -- because they made some shoppers uncomfortable.

"My knee-jerk reaction was that another public company was falling to the hands of the shareholders and their views and expressed opinions on pornography," said Kevin Blatt, marketing director for a Northridge company that runs sexually explicit Web sites.

But Blatt and others in the adult entertainment industry said PayPal's decision was unlikely to make much of a dent in sales of products in one of the most lucrative categories on the Internet.

"It's not going to put anyone out of business," said Tom Hymes, editor in chief of AVN Online, a trade publication that follows the adult entertainment industry's exploits in cyberspace.

PayPal said the decision had nothing to do with morality and everything to do with money.

There is simply too much fraud associated with adult-themed Web merchants for PayPal to keep them as customers, according to EBay spokesman Chris Donlay.

Sales of adult merchandise result in higher instances of transactions that can't be completed, he said.

Often, the people whose credit cards are charged complain that they didn't make the purchase, forcing merchants to reverse the charges.

PayPal, which has 25 million customers, will stop processing payments for sex-related downloads Monday. The company will ban payments for videos, photos and books beginning June 12.

The ban includes EBay, which hosts auctions for adult products in its "mature audience" category but prohibits pornographic downloads.

EBay shares on Wednesday fell $1.06 to $94.28 on Nasdaq.

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