The overall success of legalized, U.S.-regulated iGaming will be largely measured by how much money it is shown to generate. Considering the pressure is on, much of this judgment is likely to be passed in the short term following launches in early key states.
The technology may be stellar, the players may be satisfied and entertained, but the promise of jobs and revenue is what got so many parties in the legal and business space to go along with this in the first place. A lackluster early showing may demoralize at least some investors, especially if the promise of the iGaming market was ever oversold.
The problem is that all too often, when discussing the projected success of online gaming in the U.S., it is presupposed that Americans who have the desire to gamble online are simply going to, legality permitting. This would be the same as saying that a new brick-and-mortar casino will be patronized by all nearby residents who want to gamble, even those who have no car and no other means to reach the facility. In the case of U.S. online gaming, the car in question, the vehicle that allows the player to begin gambling at all, is the ease with which the player will be able to fund his online account.
Michael Kaplan, senior vice president of business development at PayNearMe, saw this coming. “The payment processing issue in U.S. online gaming is potentially a big problem. At the risk of stating the obvious, if players cannot fund their accounts, they cannot play.” As obvious as it may seem, the short-term payment challenges that are likely to characterize U.S. iGaming’s early beginnings aren’t that clear to everyone.
Cards, Banks And Transactions
The U.S. banking industry’s relationship with online gambling remains spotty at best. “Without the top banks supporting iGaming, we cannot be successful as an industry,” says Tim Richards, manager of interactive solutions at Global Cash Access.
GCA is a publicly listed company that provides the casino industry with a variety of payment solutions, including ATM services, debit and credit card cash advances, check cashing and ticket redemption kiosks. As the next logical step in their business, the company is preparing to enter the iGaming payments space.
“It’s not easy to navigate,” Richards says, “and we’ve spent a lot of time understanding it. There are folks who have not done this before in the U.S. and maybe didn’t quite understand what was required. It’s something that was wholly underestimated by a lot of folks coming into the space.”
In an ideal world, American gamblers would be able to fund their online accounts via either debit or credit card, the most common payment methods in practically all of today’s e-commerce. Most online users can be expected to have either type of card, and be familiar with the process of using it. In addition, funds deposited via debit card usually clear almost immediately, enabling the player to begin gambling as soon as he wishes. (By contrast, automated clearinghouse and echeck deposits take longer to clear. It would still be possible for the operator to immediately credit the player’s account in the meantime, but this is usually not optimal and leaves the operator exposed to fraud.)
Unfortunately, the use of debit or credit cards to fund online gambling accounts continues to yield a high incidence of failure in states like Nevada, where online poker for real money has been unquestionably legal for over six months. Although the major card networks (Visa, MasterCard) are by now more or less on board with legalized online gambling transactions, the decision to process them doesn’t rest solely within them.
Cards are issued by banks, which also process payments, and banks have been extremely hesitant to get involved with anything even dubiously related to “unlawful gambling” since 2006, when the Unlawful Internet Gambling Enforcement Act was passed by Congress.
While there were some clearly delineated exceptions to the UIGEA (horse racing, for example, which is subject to its own separate transaction code), banks were left largely up to their own devices to figure out what unlawful gambling was supposed to be. The result is that most of them opted to take a rather blanket view and avoid any unnecessary exposure.
Like practically every other area of commerce, online gambling is subject to its own MCC—merchant category code. Credit card companies issue these codes, which are used by the banks to decide whether they want to process those payments or not. The MCC most often associated with internet gambling is 7995, which, to most U.S. banks, has historically looked like a pentagram.
It wasn’t until the Justice Department’s reinterpretation of the Wire Act in late 2011 that both the banking and the gambling industries got a better idea of what the federal government considered unlawful internet gambling. The primary takeaway from that decision was that online gambling was no longer considered as broadly illicit as it had once seemed, provided that it did not involve sports betting, that it did not cross state lines and that it obeyed local state law.
In view of this, shouldn’t any pre-2011 concerns about online gambling payment processing be arcane by now? Unfortunately, the banking industry isn’t paying as much attention to the online gambling industry as we are. In his report titled “Payment Challenges for the Emerging U.S. Intra-State Poker Market,” Paul Davis of Counting House writes, “One would hope… the banks will take a more liberal view of the lawful use of their facilities. There is little financial incentive for them to do so, however, and we should never forget that the typical compliance officer in a large bank knows little of the detail of the gaming world.”
This leaves the industry in an uncertain position. On the one hand, the banking community could simply change its mind about MCC 7995, and some have. This, however, would be a long, slow process to see through to complete uniformity, given how many banking establishments there are.
“If you speak to the banks and the card networks,” Richards explains, “they wholly support legalized internet gaming transactions. What they’re trying to figure out is how to fireproof themselves on the risks, and how much time and energy they are willing to invest in something that may not be substantive for them until a few more years.”
The card networks have taken some of the lead in trying to elicit compliance from the banks. MasterCard has decided to begin using an entirely separate MCC for legal internet wagering—MCC 9754. Earlier this year, Visa acknowledged the challenge facing legal iGaming transactions and announced the creation of the internet Gambling Stand-In Processing (STIP) Blocking Service, a method meant to help banks filter which internet gaming payments are legitimate and which aren’t. (According to some online poker players in Nevada, however, Visa deposit success rates have remained notably low.)
It is thus not altogether impossible to use cards to fund online accounts, and the process is bound to improve, but while it does, it may be worth studying and considering other account funding options.
“Payments are the lifeblood of a remote gaming operator,” says Phil Jackson, CEO of London-based Boxhill Technologies, which operates payment service PayCorp. “The European and Asian payment landscapes are relatively mature. The U.S. landscape in this sector remains something of a blank canvas which will inevitably foster innovation, but equally become a magnet for fraud.”
ACH (automated clearing house) and electronic checks, although commonly in play, are both susceptible to the type of fraud that Jackson is referring to. They are generally reliable options, but not without their drawbacks. Because the funds cannot usually be cleared immediately, this either slows down the rate at which players can deposit or forces the operator to credit the customer’s account while waiting for funds to clear—which they never might, leaving the door open for fraud.
An additional inferiority of ACH and echecks is that many Americans have seldom or never used them and are not as familiar handling them as they are with debit or credit cards.
Fortunately for the iGaming industry, there exist other cash-based payment lifelines. The brick-and-mortar casinos themselves, which are increasingly becoming the hosts and sponsors of new online gaming offerings, are the main providers of a very self-sufficient solution: letting online gamers fund their accounts directly at the casino cage. In Nevada this has already proved popular thanks to Ultimate Poker, which allows locals to deposit online via any Station casino. New Jersey is set to offer this option as well.
John Mehffaey, a gaming consultant and player advocate based in Las Vegas, is a fan of the cage deposit method, and believes it has given Ultimate Poker a leg up on one of its competitors, WSOP.com, which has yet to allow it as a payment option.
“WSOP.com is missing out without cage transactions,” Mehaffey says. “If an Ultimate Poker player has issues with their credit card or echeck, they have the cage option. WSOP.com is losing those types of players, although I do not know to what extent.”
“The number of players who are having issues depositing at Ultimate Poker must be close to zero since they have cage deposits,” Mehaffey continues, “although I suppose that a player could change his mind on the way to a Station casino, or dump it into a slot machine on the way to the cage.”
In this way, the cage deposit option speaks to other pressing concerns that numerous brick-and-mortar casinos still have with regards to online gaming. For one, it does bring the user into the brick-and-mortar facility—always a happy sight. It can also make the depositor feel more secure about the transaction by letting him hold the cash in hand and watch a trusted casino employee handle it.
At the same time, online gambling is supposed to be about convenience, and players should not be expected to drive out to their local casino every time they feel like playing from the comfort of their own homes.
The aforementioned PayNearMe takes the cage deposit idea and expands it to apply to various other participating retailers. An outlet in cooperation with PayNearMe, such as a convenience store like 7-Eleven, can thus become an agent in accepting players’ deposits and transferring them to any online site. By selecting the PayNearMe option, players are given a deposit code online—they bring this deposit code, plus the cash, to the participating outlet and complete their transaction there. The player still has to leave the house to deposit, but his choices for locations to do this are conveniently increased. In addition, all transactions are done in cash and the funds are transferred immediately.
As the U.S. online gambling environment grows and matures, so will the need for effective payment solutions. Different eligibility requirements and operational standards for payment services may apply on a state-by-state basis. Will payment processors be able to keep up with the eventual interstate player pooling? Will new, unforeseen issues arise based on the player’s deposit or withdrawal location?
It’s worth keeping in mind that some federal online gaming solutions proposed in recent years have been quite specific in their treatment of payment methods. U.S. Rep. Joe Barton’s Internet Poker Freedom Act of 2013, for example, would ban the use of credit cards altogether to fund online gaming accounts, whereas both Nevada and New Jersey currently allow them, although with controls.
With all the exciting developments marking the U.S. online gaming industry’s path to broader regulation, it’s easy to forget that payment processing was what brought down the U.S. online poker giants in the first place on Black Friday, partly paving the way for the resurgence of a homegrown industry. In April 2011, managers of PokerStars, Full Tilt Poker and UltimateBet/Absolute Poker were indicted for crimes largely having to do with trying to skirt banking regulations and miscoding transactions.
Internet gaming lobbyist Joe Brennan Jr. would later go on to inculpate untenable payment standards in a CalvinAyre.com editorial. “U.S. poker players want their processing immediately. And for the most part, that’s what they got. It was those expectations that contributed to the Black Friday meltdown of the U.S.-facing online poker industry. Especially after the passage of the UIGEA in 2006, players responded by wanting money even faster than before.” And in their mad quest to keep up, the online poker powers had to resort to breaking the law in order to meet demand. (Or so the U.S. government alleges.)
With the pressure of gaming regulation weighing heavily upon today’s iGaming operators, it is unlikely that a payment processing scandal the likes of Black Friday may happen again. That said, while the once-unclear legal environment for U.S. online gaming has certainly been clarified, deeply ingrained banking and payment policies haven’t been polished as much.
Sufficient demand, spurred by high gaming activity on new U.S. sites, may motivate the payments world to take the matter more seriously. Then again, high gaming activity may not be fully realizable until the payments world begins taking the matter more seriously.