Since the industry’s emergence in the mid-1990s, online gambling (or 'iGaming') has grown at a staggering pace. Across the globe, experts estimate that today’s 25,000+ online wagering platforms generate between $20bn (£1.4bn) and $40bn (£2.8bn) in worldwide revenue. With such large numbers, however, come challenges.
Online gambling: Different countries, different rules
Unlike other technology-powered, high-growth industries, online gambling hasn’t matured as broadly and rapidly as it has expanded. The legal and regulatory environment surrounding iGaming remains in flux, differing even among some of the world’s largest Western economies: it’s legal, and well regulated, in the U.K., but remains illegal (with some state and local exceptions) in the U.S., Canada, and Australia.
With every country around the world applying its own set of laws and controls to the industry, the iGaming market continues to combat an image problem. Despite the number of upstanding citizens who wager legally and legitimately, the online gambling sector is often perceived as less credible and stable than others – and its unique risk factors don’t help its cause.
Online gambling companies are considered 'high-risk merchants' in the eyes of vendors and financial institutions. With high volumes of high-dollar transactions taking place on iGaming sites at all hours of the day, the sector possesses obvious vulnerabilities to financial crime that are only exacerbated by the industry’s two-sided transactional nature (with money constantly coming in from wagerers and going out to winners).
The 'high-risk merchant' tag comes with more than just a negative cache – it weighs operators down with fees. But it’s hard to blame vendors for using fees to hedge their own bets on working with iGaming operators. As with all gambling, iGaming’s heavily transactional nature makes it innately susceptible to money laundering. Though the threat of money laundering is low in regulated markets like the UK, the presence of unlicensed platforms (some of which support player anonymity) in other countries boosts the overall risk level for third-party vendors.
Fraud's not that friendly in iGaming
Across all geographies, consumer fraud poses an even more tangible threat to iGaming companies. One of the biggest issues in the space is so-called 'friendly fraud', which occurs when a consumer uses credit card information to wager but later claims that the charges from a gaming outfit were actually unauthorised. The consumer simply lost money, but can win an undue chargeback by telling the credit card company that he or she did not sanction the payment.
Incidents of friendly fraud are commonly caught by iGaming operators and card companies, but only after they happen – leading to expensive investigations by both parties. But dodging those investigations altogether – and protecting their platforms (and players) from all forms of financial crime – should be a priority of every company in the iWagering sector. Until the entire industry invests in comprehensive technological protections, high fees will continue to be a reality across the space… as will a pervasive image problem.
Protecting the industry
Thankfully, technology can help iGaming operators deploy better protections (and get ahead friendly fraud and other consumer-driven financial crime risks). New solutions serving the online wagering space place stronger emphasis on access and validation – combating financial crime by making game-play far from anonymous. For example, many operators are incorporating digital wallet technology into their platforms and requiring players to supply their bank account or credit card information to an online 'e-wallet' account prior to game play – bolstering fraud protections by creating a verifiable access trail of the card being loaded to the site.
Since banking rules typically classify digital wallet transactions as electronic money rather than as regular merchant transactions, users are also prevented from earning undue chargebacks The best digital wallet solutions tokenise cardholder information upon application in the digital wallet, thus injecting additional security into the transaction activity. Tokenisation replaces the consumer’s original cardholder data with a randomly generated virtual card number, or 'token', bundled with business rules for its exact use – where, when, and by whom.
Digital wallets don’t resolve all of gaming companies’ risk factors, but they significantly lower gaming platforms’ vulnerability to fraud. So much so, in fact, that white-labelling an e-wallet solution into their sites can put operators in a stronger position to lower processing fees or renegotiate contracts with other third parties.
Ultimately, now that the iGaming market is two decades old, it needs to start acting like it. In more mature markets, the participants not only comply with overarching laws and regulations – they also self-regulate by consistently investing in tools and strategies to mitigate their risk factors and protect their bottom lines. It’s time for iGaming companies to do the same. By investing in better technological protections, online gambling companies can show the world that they take financial crime prevention – and themselves – seriously, elevating the credibility of the overall iGaming space in the process.
Kris Deyanov, MiFinity Senior Sales Executive
Image Credit: Shutterstock/Syda Productions