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What’s Behind Door Number One?

Payment gateways are the critical first step of the money-moving process

What’s Behind Door Number One?

For decades, casinos and sportsbooks have stood proudly as some of the last bastions of cash transactions, and in many ways cash still remains as a cultural symbol of the high-flying lifestyle often projected in operators’ marketing campaigns.

But in today’s world, digital payments reign supreme, increasingly so for gaming institutions. This means that state-of-the-art payment systems and related technologies are more important than ever for those hoping to expand into new markets, properties and platforms.

One key piece of the payment pipeline is the first step, also known as a gateway. In simplest and broadest terms, payment gateways are a form of front-end technology used by merchants to accept payments from customers, in the form of debit or credit transactions. In physical form, these are card readers and PIN pads, and the online versions are the same, just in a virtual format.

Given its ever-confusing regulatory environment, the gaming industry represents a unique challenge for payment providers that differs tremendously from more traditional industries such as retail, due to the additional safety requirements and fraud risks associated with it. As the first step in any successful transaction, gateways have an outsized impact on customer satisfaction and retention, and that’s a huge priority for an industry that’s becoming more competitive by the day.


A Uniquely Difficult Proposition

Most payment providers—or at least the people in key leadership roles among them—have a large amount of experience and business dealings with other industries outside of gaming. As such, most agree that the betting industry is unique within the overall payments ecosystem.

“I’ve found a number of considerations (for gateways) that are unique to gaming,” says Victor Newsom, senior vice president of product management and payment solutions for Everi. “There’s such precision on the transaction types that occur in our space that are different from just a regular merchant, whether that’s online or land-based.”

Newsom explains that providers have to keep a number of considerations in mind at any given time, including “whether or not the customer is on premises, purchasing goods, services or gaming credit,” and other factors. Part of the reason why this is so difficult, he says, is because of the large number of different merchant category codes (MCCs) that providers must account for.

“We handle more than five MCC codes today ourselves, which leads to challenges with the various gateways, and a different set of challenges with the card networks themselves because many of them are not designed to handle this complexity,” he notes.

In addition to the sophistication that gaming-related gateways present, another challenge that providers must rise to is the speed and accuracy needed to keep pace with a constant stream of wagers. All business transactions are crucial, but hefty live wagers on a high-profile sporting event create a slim margin for error that can perhaps only be rivaled by concert tickets for chart-topping artists and the latest designer sneaker releases.

John Minor, chief product officer for online provider PayNearMe, acknowledges that “there’s a bit more wiggle room and forgiveness when it comes to a glitch in the payment process” for retail and e-commerce that doesn’t apply to the betting world.

“In gaming, especially in the case of online sports betting, you’re funding an account to bet on a live event, and that means there is a finite amount of time for the player to place their bet,” he says. “If your payment fails, the opportunity is missed. So reliability, uptime and the ability to handle high-volume events are vital. “

Mega-cap giants like Amazon and Apple may be dwindling the competition in their respective zones, but gaming is still very much an open landscape with a large number of players all vying for market share—if a patron is underwhelmed or dissatisfied, there has never been more options available for them to turn to, which is great for them but sweat-inducing for the providers hoping to capitalize on those missed opportunities.

As Minor explains, “The ease of the payment journey as well as the speed of both deposits and withdrawals is crucial to player retention,” because online bettors specifically “have a plethora of options for betting apps or websites where they can place the exact same bet. Meaning, it’s easy for them to jump ship on a particular app as soon as they run into friction in the payment process.”

Yet another consideration that providers must heed, as Pavilion Payments CEO Christopher Justice says, has to do with the regulatory web of the business. Much like the operators they serve, payment companies “need to be licensed within a certain jurisdiction,” which, multiplied across several states and markets, can become a sizable commitment.

“Gaming payments also come with specific transaction sets,” Justice adds. “Of course, these are both linked to the rigorous regulations that shape the gaming industry.”


Connecting, Securing and Growing

In today’s industry, operators are continuing to diversify between land-based and online offerings more than ever before, meaning that providers must have gateways in place for both.

As one can probably imagine, this calls for entirely distinct processes and systems, each with its own difficulties and problems to solve.

“Land-based gateways incorporate hardware devices, chip cards, encrypted PINs and specific transaction sets, while online gateways are responsible for managing web sessions and uniquely interoperating with operator platforms,” Justice explains.

He contends that neither “is dramatically more difficult than the other,” but instead it “ultimately comes down to the operator’s needs.”

Newsom offers a slightly different perspective, in the sense that digital gateways are “simpler, but a bigger target for fraud.” By contrast, land-based gateways can be more complicated due to the human element as well as the large number of moving parts.

“While the online does represent a slightly bigger target surface area, the real threat is absolutely in the land-based area,” he asserts. “Even card networks, to be candid, have not really solved the implications of joining the two, yet we have tremendous pressure to do just that. This is really where I expect the focus to shift towards in the next year or so—trying to take advantage of the industry in transition.”

Part of the difficulty of connecting the two mediums is the high level of security and fraud protection that must be adhered to, which is a common theme for just about any gaming-related technology.

Minor contends that operators and providers must plan accordingly for this—added measures like “authenticating transactions, verifying identities and detecting fraud attempts,” he says, “are all valuable assets to have built on top of payments.

“Payment platforms or technology stacks for gaming need to be designed with extra emphasis placed on fraud mitigation,” he adds.

“Online gaming is an industry particularly susceptible to fraud, with the rates of fraud rising year over year. An extra layer of risk protection is needed within any payments platform.”

On top of everything else, even when all the kinks have been ironed out and the process is working as it should, the final difficulty in building successful gaming gateways is to do so at scale.

The frenzied and segmented nature of the business inevitably convinces some to cobble things together haphazardly in an effort to cut costs, but this leads to suboptimal performance and a degradation of the patron experience.

“The main challenge regarding payment gateways comes from scaling,” Justice says. “Outsourcing payments gateways can be a cost-effective way to streamline intricate payments processes for smaller gaming institutions. However, sometimes casinos outgrow their payment gateways and desire to regain control over their payments once they acquire some expertise of their own. Moreover, outsourcing payment gateways becomes more expensive at scale, incentivizing growing gaming institutions to move their payments processes in-house.”

Minor echoes this point, asserting that “a good payments provider should allow (operators) to adapt to meet market demand now and in the future.” Some good examples of this flexibility, he says, are the ability to add “new tender types from their existing integration or going live in a new market quickly with minimal lift from internal resources.”


2024 and Beyond

Looking ahead to the next year, a number of trends surrounding the gateway sector are starting to take shape.

Perhaps the biggest overall development, as Newsom notes, is convergence—now that most of the biggest operators have distinct offerings for casino gaming, iGaming and sports betting, the trick will be to find the provider who has the resources to cover the most bases at one time.

“What we’re seeing is this convergence pressure between not just the gaming pieces I mentioned, but also the ability to spend digitally in the retail spaces that are adjacent to the hospitality venues of choice,” he says. “Everi’s Venuetize platform is an example of this convergence, but in the entertainment arenas of choice.”

Gaming and banking don’t exactly fit hand-in-glove, which is why the challenge is so great. Newsom contends that those who are “coming at it from the retail side of the world are not Banking-as-a-Service type providers, and the folks coming at it purely from the CMS system world are not banking-grade solutions,” which makes it difficult to create a product that can meld the two worlds effectively.

Justice also believes that “seamless integration and lowering the barrier to entry for patrons” will be critical in 2024, and that overall, “we are seeing a shift towards mobile and self-service options.”

Harkening back to the topic of security and fraud protection, Minor asserts that one of the biggest trends to keep an eye on will be the use of artificial intelligence (AI) to help detect potential bad actors.

“Industry trends will be focused on fraud mitigation and the role that artificial intelligence and machine learning (ML) play in reducing risk and fraud,” he explains. “Operators are aware that fraud is scaling parallel to the growth of mainstream online betting. With a larger volume of transactions comes more opportunities for fraudsters, but scaling an internal risk and fraud team to meet this level of monitoring needs is likely impossible for operators. That’s where AI and ML can be applied to detect patterns from large amounts of data, freeing up risk and fraud teams to focus on the necessary human decisions.”

Broadly speaking, the last impactful trend has less to do with business and more to do with perception—most operators only started to consider payment solutions in a real way after the fall of PASPA in 2018 cleared the way for a digital avalanche, and the most successful among them will recognize just how important high-performance gateways are to their overall success and growth plans.

“In terms of the guest experience, we’re also aware of how all of this affects the patrons, because they’re engaging in different journeys on different systems,” says Newsom. “They could have very different experiences for the same amount of money on the same card at the same casino because they’re actually working with different payment providers. Even though it’s the same card, it may have a different authorization rate based on the processor that card is going through. So, simple-level guest experience now becomes in jeopardy, as a pitfall.”

Minor adds that moving forward, all players “will expect and demand speed, choice and security when it comes to payments,” in addition to “quick and easy deposits and instantaneous withdrawals,” meaning that operators will be forced to “start to view the payment process as a critical part of the overall user experience—if they don’t already.”

Well-constructed and high-performing payment gateways are like the perfectly graded foundation of a high-rise or the expertly welded frame of a supercar—without them, you can’t build very high and you can’t operate very fast, both of which are death knells in this market.

The winners, as Newsom posits, will be those who can handle the difficulties of the gaming industry while distilling everything in an “elegant and simple way for the casino operators.”

Jess Marquez is the managing editor of Global Gaming Business. A lifelong Nevadan, Marquez has communications experience across multiple sectors, including local government. Prior to joining GGB, he was the communications and advertising director for a prominent personal injury law firm based in Las Vegas and Seattle. He also founded and hosted The Pair O’Dice Podcast, a weekly show that focused on sports betting news and predictions. He graduated magna cum laude from the University of Nevada, Reno in 2019 with a B.A. in journalism. Outside of work, Marquez is passionate about professional sports, classic literature and leatherworking.

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