BitPay scored another big victory in the adult entertainment market Friday, when adult payment services firm Verotel announced a pilot program to accept bitcoin. The Amsterdam-based firm, which services 50,000 companies, is using BitPay to service its high-risk clients.

Tony Gallippi, CEO of BitPay, said that the deal would significantly increase his company’s order volume. The specialist bitcoin payment processor currently has over 10,000 merchants. Verotel is a privately held company that doesn’t publish revenues, but industry estimates put its total net worth at around EUR25m ($34m).

Verotel has been in operation since 1998. It has experimented with alternative payment mechanisms in the past including quick-entry ‘pay by password’ systems. The big advantage for Bitpay is that the Verotel deal unlocks the porn payment firm’s entire merchant portfolio. That won’t happen until March 15th, however, when Verotel opens up the current limited beta test to the rest of its customers.

This is BitPay’s second big adult industry client this month, after signing Porn.com a week ago. The difference with Verotel is that it doesn’t sell the content itself. Instead, it provides payment services for adult entertainment merchants. Given that Verotel is itself a payment processor, why would it need BitPay?

“They could do it themselves,” admitted Gallippi. “BitPay has three years of experience in processing bitcoin payments, which is the most in the world. So a payment provider could add BitPay to their menu and make it available to their customers without reinventing the wheel.”

A risky business

The payments industry in the adult entertainment market is particularly challenging, thanks to the relatively high rate of fraud. Stolen credit cards are often used on adult sites by thieves eager to verify their usability by making small purchases. However, this isn’t the only threat; chargebacks, issued by adult website users with buyer’s remorse who cancel their payments, are another challenge.

Bitcoin can help payment processors to avoid chargeback problems, because it doesn’t allow users to renege on payments. Once bitcoins have been sent, it is impossible to retrieve them without the recipient’s consent.

Bitcoin may also reduce a customer’s motivation to revert a credit card payment, because unlike credit card payments, information about the purchase is not sent to a customer’s house on a statement. This increases the privacy for adult entertainment customers paying with the digital currency.

However, bitcoin also lacks a key feature traditionally valued by the adult entertainment industry: recurring billing. Many adult entertainment providers make their money by offering memberships, which are charged regularly to credit cards. “Recurring payments are currently not possible with bitcoin, because you can’t pull money from someone’s bitcoin address,” said Gallippi. This means that customers would have to pay manually for the content.

Estimates of the porn industry’s size vary, but Juniper Research figures have suggested that the global market for adult material on mobile devices alone would reach $2.8bn by next year, with subscriptions accounting for $1bn.

Adult search image via Shutterstock