Little-Known Banks Profit From Web Porn

But it's an ugly business. PRI had the unenviable task of trying to find banks that would handle Paycom's porn clientele. No sooner did PRI find a bank willing to serve then it claims the bank got fed up with the high incidence of disputed charges and dropped the Paycom account. These "chargebacks" are the bane of the porn trade: Your spouse finds a suspicious charge on the monthly Visa bill, and you deny making the purchase rather than fess up and catch hell.

In such snags, the credit card company usually just wipes off the charge and zings the bank (who zings the merchant) for an outsized processing fine. This is the crux of Paycom's suit against MasterCard, which Paycom accuses of abusing its power to unfairly penalize Internet merchants for chargebacks.

Credit Card Companies Crack Down

PRI says it first lined up Benchmark Bank of Dallas for Paycom, then landed Amtrade International Bank of Atlanta, which was shut down last fall by the Federal Deposit Insurance Corp. for other reasons. After that deal soured, PRI placed Paycom with Minotola and Banco Uno, a Costa Rican bank. Those deals flopped, too.

Paycom, "desperate to find a replacement," then hooked up with Global Payment Systems Ltd. of Britain, PRI says. And because Global did business with IBM, IBM's Danish unit found itself holding $17 million of Paycom's porn loot.

Paycom and PRI agree that IBM held Paycom's money hostage because of a "prior unresolved dispute" with Global, according to PRI. PRI in turn sued Global Payments and settled with a deal to jointly finance a separate lawsuit against IBM. An IBM spokesman declines to comment; an outside lawyer for the computer maker quips that he will "dive for cover" when this story comes out.

Even if it wins its various lawsuits, Paycom and the rest of the Internet porn industry face tough times. Chargebacks and general annoyance with the less-savory aspects of the business have prompted credit card companies to crack down on the sex trade.

They now force every individual merchant to register directly — and lay bare intimate business details. Paycom's latest bank, First Data's First Financial, recently received notice from Visa that it must identify and report on thousands of independent merchants in its portfolio, not just a porn aggregator such as Paycom.

One Paycom rival, WebsiteBilling, suddenly shut down in May, blaming the Visa crackdown. Besides First Data's bank, just two other banks are known to handle porn in the U.S.: Redwood Empire Bancorp of Santa Rosa, Calif. and Roseville, Calif.-based Humboldt Bancorp's Humboldt Merchant Services unit, which was recently sold to a privately owned bank. The rest of the pleasure underwriters operate overseas.

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