Digital payment methods have gained increasing traction in recent years with the introduction of tap-and-go debit cards, e-wallets (e.g., Apple Pay, PayPal and Google Pay), and the rise in wearable and mobile devices, allowing frictionless and contactless purchases at retail and online stores.
Superimposed on this trend is the Covid-19 pandemic that has highlighted the potential health risks of handling cash in spreading infections, and consequently has accelerated the transition of customers and retailers embracing digital payment methods. On the advice of health authorities, governments acted to recommend businesses and customers use contactless digital payment methods (that is, avoidance of handling cash) to minimize potential transmissions of the Covid-19 virus.
The gambling industry is one of the only industries that has a regulatory requirement to avoid the adoption of digital payments; consequently, most gambling venues internationally are heavily reliant on cash transactions, although there are distinctions between gambling and non-gambling spend.
This requirement to use cash at gaming machines and tables in venues is at odds with the increasing shift in consumer preference and technological advances supporting digital transactions. The Covid-19 crisis has accelerated existing international trends relating to the increased adoption of digital payment methods, and the reduced use of cash suggests that in the near future, gambling regulators will have to respond to the increasing demand for digital payments for gambling.
This article aims to outline the fundamental principles and guidelines informing how policies designed to enable digital payments for gambling can mitigate potential risks through effective harm-minimization components. This article comes at a critical time when the current health crisis is accelerating existing consumer preferences and influencing regulatory decisions and industry preferences, and questions are increasingly considered as to whether the use of cash will become obsolete in an increasingly digital economy.
Trends Toward Digital Transactions
Digital (also referred to as cashless or electronic) payments are typically transacted through registered or anonymous accounts. These include totally digital payments through e-wallet accounts (digital stores of personal details and payment information) and temporary or established accounts tied to dedicated physical cards (magnetic stripe or chips recording transactions linked to accounts funded by cash or through electronic transfer) or tickets (ticket-in, ticket-out). Wins are redeposited directly into the account or recorded on the ticket for subsequent redemption, again either as cash or through electronic funds transfers.
Digital payments include the ability to use a card or device to directly transfer funds from an individual’s external account to a gambling product, without the deposit of funds to a gambling- or venue-specific account—for example, tap-and-go or use of PIN numbers. Irrespective of the modality used in digital payments within venues, each poses different challenges and opportunities for consumer protection and harm minimization. Although digital gambling can use credit cards, this facility will remain outside the scope of this article, as the ability to bet with credit is currently not consistent with a harm-minimization perspective—although this may change over time as credit cards and financial institutions incorporate more consumer protection measures and consumers adapt more sustainable use of credit.
Cash is becoming a niche payment instrument, with 2.1 billion consumers worldwide expected to use a mobile wallet to make a payment or send money in 2019. Globally, preference for and use of cash varies, with some countries such as South Korea and Sweden transitioning to a digital society and other countries such as Germany demonstrating low adoption. As reported by Harvard Business Review, cash represented just 30 percent of all payments within the U.S. in 2017, although 70 percent of Americans still report using cash on a weekly basis. Within Australia, before the Covid-19 crisis, cash represented 27 percent of all consumer payments in 2019, compared to 37 percent in 2016 and 69 percent in 2007. Around one-third of consumers did not record any cash payments in a 2019 survey, compared to 18 percent in 2016.
The gambling industry should implement software to monitor and detect indicators of excessive gambling and proactive interventions to manage customers identified as being at risk of experiencing gambling harms.
Since the Covid-19 crisis, authorities, including the World Health Organization (WHO) and U.S. Center for Disease Control and Prevention, have encouraged consumers to switch from cash to contactless payments to restrict the risk of virus transmission.
Since the crisis, consumers appear to increasingly eschew cash; a U.K. survey found that 76 percent of respondents intended to reduce cash payments because of the coronavirus emergency and 54 percent were actively avoiding cash. Australian data found that the withdrawal of cash from ATMs was 32 percent lower in April than February 2020, debit card use grew 16 percent, and use of digital wallets doubled.
Studies have demonstrated cash can contain hundreds of species of microorganisms and pathogens which can lead to serious diseases. Although the WHO has indicated that cash is not a specific concern in terms of disease transmission, exchange of and access to cash between customers and venue employees, including queuing to access cash, often violates recommended social distancing guidelines.
Digital Transactions and Excessive Expenditure in Gambling
The preference for the use of cash in gambling is often predicated on physical cash being a tangible way of limiting expenditure, and the capacity for cash to impose breaks in play as a self-reappraisal harm-minimization strategy.
After initial funds are depleted, physically obtaining additional cash typically requires the customer to leave the immediate gambling activity, often moving away from the gambling floor, requiring physical movement and/or contact with venue employees and passing other activities, which provides an enforced break and opportunity for reflection. Enforced breaks may account for the reduction in gambling revenues in several jurisdictions, as demonstrated following the implementation of smoking bans in venues, and reduced gambling is evident after enforced breaks in online gambling.
Withdrawing additional funds assists individuals to mentally “pre-commit” to spend only the amount of cash that they bring to the venue and/or deliberately consider how much additional funds they will spend. Expressed concerns for digital gambling are based on the argument that immediate access to cash removes these breaks in play, which has the potential to exacerbate gambling-related harms through ready access to additional monetary funds.
Digital transactions are argued to foster the capacity for individuals losing control of urges to make impulsive decisions, to spend more than initially intended and rapidly replenish funds to chase losses when in an emotionally “hot state.” Easy access to funds, such as through close proximity to ATMs, is also correlated with increased spending by individuals with gambling problems. Conversely, bans on ATMs resulted in 50 percent of moderate- to high-risk gamblers, and 30 percent of low-risk gamblers reporting an increased level of expenditure control.
Another concern is that individuals may place a diminished value or have lower awareness of amounts spent using digital payments as compared to cash. Research outside of the gambling field consistently demonstrates that consumers tend to spend more and are less aware of their expenditure when transacting electronically compared to when using cash.
In the online gambling context, there is some evidence that the use of digital payment methods (notably including credit cards) contributes to overspending and problem gambling for some individuals. Some jurisdictions have limits on the maximum value of banknotes which can be inserted to gambling products or deposited at one time. Financial institutions are increasingly facing calls to implement consumer protection measures, and some banks (e.g., in the U.K. and Australia) have started offering customers the option to limit or block gambling transactions from their accounts.
Digital Transactions as a Harm-Minimization Strategy
Critically, to offset the potential harms which may be created by digital payment systems, strong harm-minimization features must be implemented within these systems. In contrast to cash payments, digital transactions contain features that can be effectively used to advantage as a means to prevent or detect excessive expenditure among individuals. As opposed to cash, electronic transactions can be readily tracked, and expenditure patterns made available through player activity statements.
Digital payments enable automated play monitoring, improving detection of indicators of risky gambling and real-time interventions, including customer alerts or notifications to venue employees prompting intervention. Customers should be encouraged via messages or other methods to physically leave the gambling product at set intervals, to avoid the opportunity to continuously gamble with no interruptions, including running out of funds, and to provide an opportunity for customers to reflect on whether further gambling is appropriate. Digital gambling payment systems may enable other harm-minimization interventions such as pushing or requiring educational modules to be completed.
To achieve the optimal infrastructure for digital transactions, the principles of consumer protection should focus on the following elements that include the cooperation of financial institutions, industry and government agencies, taking into account privacy protection. These principles can inform policies and identify the relevant stakeholders that can collaborate to achieve the behavioral outcome of sustainable (responsible) gambling—that is, gambling within personally affordable levels. These principles apply to the process of initial creation of accounts, protections available during play, and monitoring and tracking expenditure within and across sessions.
- The use of digital transactions should incorporate mandatory age verification requirements. Digital payment facilities must be restricted to adults age 18 (19 or 21 years subject to its jurisdiction), and account holders must be verified using accepted identification documents.
- All deposits to an account should require a set waiting delay period before they can be used for gambling. This is essential to avoid immediate access to funds to continue to gamble when in an emotionally volatile state.
- There should be default limits on the maximum that can be transferred to an account at any time. There should be no limits on the amount which can be withdrawn from an account or delays in withdrawals being processed.
- It must not be possible to access cash from accounts within venues, which may be used as a way to overcome limits on ATM and cash-withdrawal facilities.
- Accounts must be linked to a central self-exclusion registry which applies across venues. The use of digital payments should allow for easier real-time identification/detection and suspension of individuals breaching self-exclusion agreements.
- Customers must be able to set customizable limits on time and money spent over a week/month in real time and should be encouraged and ideally incentivized to use these. Applications to increase limits should be subject to appropriate delays per time period while reductions of limits should be implemented immediately. Individuals should be able to set temporary time-outs, implemented immediately.
- There should be made available through financial institutional facilities the capacity for individuals to set money limits. To minimize impulsive gambling, digital facilities can be set at default maximum limits in gambling venues as is currently the case for in-venue ATM and cash withdrawals. Increases in limits should be approved by financial institutions as is currently the case for credit and debit card withdrawals.
- All digital transactions should be recorded and summarized in player activity statements that are provided in real time, including clear graphic displays of net wins and losses. If external accounts are used, the merchant code category should be linked to expenditure, and financial institutions should be encouraged to provide clear summaries of all funds spent on gambling.
- Digital payments linked to an account allowing for real-time tracking for risk indicators and systems have the capacity to send personalized messages via SMS to mobile devices, directly to electronic gaming machine screens, to notify venue staff to initiate interactions with players, or to an individual nominated by the customer.
Applying these principles will address concerns regarding the impulsive immediate access to additional funds by requiring daily withdrawal limits and/or delays in gambling with any funds deposited. Large wins could be automatically, or optionally automatically, deposited into player accounts rather than remaining on gambling devices and quarantined from further expenditure on gambling-related merchant codes for a period of time. Systems may enable further customization, for example, enabling players to select the maximum amount stored in their accounts, with automated withdrawals of funds over a specified level back to external accounts.
We note that some of these principles are restrictive, and many are untested and lack specificity in terms of details for implementation. As such, we recommend research to trial these recommendations to ensure that they achieve the intended objective of minimizing gambling-relating harm, do not overly restrict consumers who do not experience gambling harms, or have unintended negative consequences.
We strongly encourage all stakeholders to engage in dialogue and contribute resources towards independent research trials to inform policies and to commit to acting on the emerging evidence. Although outside the scope of this article’s focus, the capacity to track transactions reduces money laundering, fraud, violence, and the involvement of criminal organizations reliant on untraceable cash movements. Reducing use of cash is one of the central strategies recommended to combat the “black economy.”
There is very limited direct evidence of the impact of payment methods on gambling harms. In Norway, the Norsk Tipping gambling monopoly created a model in which players must use a “player card” at digital terminals. This card requires age verification and enables optional behavioral tools such as personal limits on time and spending. After this change, among others, there was a reported decline in the proportion of low-risk gamblers from 10.9 percent in 2008 to 8.6 percent in 2010.
In Sweden, there are no restrictions on the use of digital payments, and longitudinal research suggests that problem gambling rates have declined. Despite the exponential increase in online gambling, which is almost entirely based on digital payments, problem gambling prevalence rates internationally have held steady or declined, although online gambling is associated with the experience of gambling problems. These findings suggest that digital payment methods are not necessarily harmful; however, the prevalence of gambling problems is influenced by numerous factors, and more specific research is needed to determine the impact of gambling payment methods.
Digital Transaction Policies: Implementation Issues
Policies for digital gambling payment systems have to consider implementation issues. Relevant stakeholders should collaborate in a timely fashion to create an appropriate scaffold in which digital payments overcome the limitations of cash. Government agencies and regulators should develop policies based on evidence or precautionary principles in anticipation of the widespread use of digital payments, and engage with researchers as well as gambling and financial/ payment industries.
Financial institutions are in an ideal position to identify individuals on welfare or whose patterns of gambling expenditure cause and/or contribute to financial difficulties, and should be involved in conversations on how to implement digital payment systems with consumer protection features. The gambling industry should implement software to monitor and detect indicators of excessive gambling and proactive interventions to manage customers identified as being at risk of experiencing gambling harms, which is an important part of a sustainable business model as well as corporate social responsibility.
Security and privacy concerns are important issues to address and elicit consumers’ confidence. An international survey found 50 percent of respondents reported using cash to make payments for the specific purpose of not leaving a record of their purchase.
For some venues, there will be considerable costs and resources required to become technically able to facilitate digital payments. Security and privacy concerns are important issues to address and elicit consumers’ confidence. An international survey found 50 percent of respondents reported using cash to make payments for the specific purpose of not leaving a record of their purchase.
Many jurisdictions now use apps for government-issued identification and to secure private and sensitive data such as medical and taxation information (e.g., Australia’s MyGov site). The Covid-19 crisis saw numerous international jurisdictions request (or mandate) that individuals download a contact-tracing app collecting geolocation information with varied success.
Additional layers of security may include two-step verification methods and biometric authentication such as facial recognition or fingerprint to prevent card swapping. Some population subgroups may be less inclined to use digital payments; for example, there appears to be a generational divide with younger generations and those in major metropolitan areas more likely to use digital payments for retail spending.
Differences between other groups, including based on culture, education and socioeconomic status, have not been studied but are important to consider. Nonetheless, consumers and businesses are increasingly adopting digital methods for retail activities—for example, with loyalty cards commonly accessed through apps. There are many issues which are beyond the scope of this article but relevant for policy considerations, such as anti-money laundering considerations and how payment systems will work across operators and gambling activities.
There is limited scope for fundamental innovations in the cash system, compared with the scope for dynamic innovation in digital payments. Steps towards digital payments within gambling venues are already being taken by several jurisdictions. This article intended to highlight basic principles to inform policymakers in making sure that any policies and practices do not exacerbate problem gambling but implement interventions likely to minimize gambling harms.
To achieve optimal frameworks for digital transactions in gambling, trials should be conducted with the collaboration of governments, financial institutions and industry to pursue effective evidence-based policies that represent best-practice consumer protection and harm-minimization strategies. What is required is greater clarification of the following questions:
- Is there a map of digital payment options available in gambling venues across international jurisdictions and their utilization rates? What strengths and weakness have been identified?
- What is the current state of technology available to enable digital payment options within land-based gambling venues?
- What are the risks of digital payment options in terms of increasing unintended gambling harms?
- What are the potential benefits and opportunities for digital payment options to minimize gambling harms?
- Which consumer subgroups may require special consideration in relation to the impact of digital payment methods on gambling-related harms?
- What regulatory issues need to be addressed in order to achieve maximum benefit from digital payment methods and minimize any harms?
It is inevitable that digital transactions will replace cash usage in the foreseeable future. It is timely that gambling regulators in collaboration with financial institutions, government, treatment providers and industry collaborate to establish the fundamental principles and policies promoting consumer protection and the minimization of gambling-related harms.
Some stakeholders are already progressing these conversations. For example, both the National Council on Problem Gambling and the American Gaming Association have released guidelines for payment processing. Some payment systems and operators are already considering ways in which digital payment systems may contribute to consumer protection efforts, and we hope that the industry will further its engagement with researchers and policymakers to promote these.
Further efforts will be needed beyond those embedded within a system—for example, efforts to raise awareness among consumers of the potential risks involved in digital payments and increasing the role of financial institutions in providing consumer protection measures.
In summary, digital payment systems for gambling should include strong harm-minimization features with evaluations carried out to determine the extent to which they are utilized and reduce gambling harms prior to and following implementation. As customer preferences and technological advances change the way in which payments can be made for gambling products, the opportunities for harm minimization must be at the forefront of innovation.
Editor’s Note: This article first ran in Gaming Law Review, Vol. 24 No.7. For a full version of the article, including footnotes, visit www.liebertpub.com.