Online Gambling is Big… Why are Payments so Hard?
The global legal framework for Internet gambling is a complicated mix of laws and regulations. Around the world, countries have taken a variety of approaches to regulating on-line gambling that include legalization, regulatory limits and prohibiting it entirely.
In the United States, gambling is generally regulated at the state level, with federal law supporting state laws and to ensure that interstate and foreign commerce do not circumvent them. Historically the credit card associations have frowned upon the use of their cards for Internet gambling. And Issuers have established use codes to deny authorization for Internet gambling transactions while acquirers would not accept gambling Web sites as merchants.
Fast forward to 2021 and online gaming is one of the fastest growing industries in the world. The pandemic served as a boost and in-person gaming was closed for month around the world. But government’s needs for tax revenue and changing society perception has been propelling online gambling/gaming for the last few years.
However, payments companies are lagging behind and the industry is still risk averse when it comes to gambling. So what are the main concerns?
Fraud
Most payment providers limit their gambling operations due to the high-risk nature of gambling transactions. Experts estimate that 1 in every 20 new sign ups is a fraudulent one, and that at peak times fraudsters, bots and users trying to outsmart the gambling sites can account for as much as half of their page traffic. This has opened the door for specialized payment providers that customize their solutions to address the industry. Several providers run up to 120 risk checks and have advanced fraud protection built into their services.
Chargebacks
Regardless of industry, chargebacks have always been an issue that is amplified online. Gambling takes this concern to a new level when a player at an online games table takes a huge loss, telephones his credit card issuer and denies the charge. In this scenario the online gaming merchant often loses, and it places additional burdens that payment providers prefer to avoid.
Regulation
As stated from the outset, regulation continues to be one of the largest concerns for payment providers. The EU is the largest online gambling market and it’s open market approach makes it appealing for the industry. However, there is no one EU policy that regulates online gambling. Each member state has taken it upon themselves to regulate online gaming. That means the merchants and providers need to keep a close eye on any recent developments and changes within their targeted markets. The US is even more decentralized.
This complexity requires robust compliance programs and opens a payment processor to substantial financial risk. This significantly impacts profitability and often discourage payments companies from playing in the gambling space.
How can Payment Processors capitalize on Online Gambling?
Hassle-free payments & payouts.
Gambling implies both payments from the players and payouts — their winnings. So, smooth pay-ins and payouts are the basis. If you can minimize the friction for players you can provide value to the gambling company
Range of payment methods.
Whether it is cash, digital wallets, cards, crypto or bank account, players have their own preference. As far as both merchants and players (payouts and pay-ins) can be different, it’s paramount for a payment solution to provide various methods.
Recurring billing.
Subscriptions are the holy grail for many industries. Supporting recurring payments is a must.
We are witnessing a seismic shift in governmental and societal views on on-line gambling and progressive payments providers are poised to reap the benefits. Regulation will continue to be a key driver, however solutions that provide a good user experience with flexible payment options can successfully adapt to the regulatory landscape. If you develop a cohesive, coherent, and contextually-relevant plan to address the UX, local regulations and industry risks, your payments company will be well positioned. Good Luck!
