For many interrelated reasons, financial institutions have long viewed the online gambling sector as high-risk.
For the 25,000+ online wagering platforms generating between $20 and $40 billion USD in worldwide revenue, the “high-risk merchant” tag comes with consequences in the form of high processing fees from third party vendors. Especially given the legal and regulatory environment surrounding iGaming remains, it’s vital for online gambling companies to better address their risk factors to help the industry mature.
What are those risk factors? And how should iGaming companies mitigate them? We recently talked to Kris Deyanov, Senior Sales Executive at MiFinity Payments, to find out.
What are the unique payment needs for online gambling or iGaming companies?
Online gambling operators require highly comprehensive solutions given the high volumes of high-value transactions they handle – often from players in a variety of geographies, with different laws and regulations covering each country. And unlike regular eCommerce businesses, iGaming outfits operate in a two-sided transaction environment (with money continuously coming in and being paid out), essentially doubling their vulnerabilities.
How do online gambling operators handle player accounts and payments? What are their options?
Given the evolving legal and regulatory landscape of the online wagering sector, there’s no standardised set of options available to operators and many accept a variety of payment types. Prepaid cards and bitcoin-enabled payments are available options, but the simplest and most popular payment route for players and operators alike is still credit cards, which come with a variety of associated risks. Digital e-wallets, which provide stronger protections, are a newer option that provides stronger protections (which is why they’re seeing increased adoption in the space).
What risks do payments-related concerns pose for iGaming operators?
iGaming outfits face all the same risk factors as other eCommerce businesses (times two, given the two-sided nature) and like all gambling companies they’re also vulnerable to money laundering and other forms of financial crime. Across the sector, frequent use of credit cards raises numerous authorisation and access issues: Criminals frequently attempt to use stolen card numbers on wagering sites, and consumers play that to their advantage by committing “friendly fraud.” Friendly fraud occurs when a consumer uses credit card information to wager, but later claims that the related 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.
How big a problem is money laundering in the space?
The threat of money laundering is low in markets like the UK, where online gambling is legal and well-regulated. But the presence of unlicensed platforms (some of which support player anonymity) in other countries is where money laundering plays a larger role, boosting the overall risk level for third-party vendors. Yet gambling companies that self-regulate with more comprehensive financial crime preventions (chiefly through their payments technology) can vastly lower their vulnerability to money laundering, regardless of their geography.
What fraud prevention efforts should iGaming operators be taking?
The key for operators is to place a stronger focus on card access and validation to lower the risk of stolen cards being used for gameplay and friendly fraud. 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 a digital e-wallet account, 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 “quasi-cash” (that is, representative of actual currency), 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.
What extra protections does tokenisation provide?
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.
How is technology adapting to combat new threats in the space?
More validation and access-focused features are expected to enter the market later this year. For example, emerging visual card functionality will require each player to snap a photo of the credit or debit card to authorise it for gameplay; only then will the player be able to load funds or otherwise utilise the e-wallet.
What other benefits can better payments technology provide to iGaming companies?
Protecting their platforms (and their players) from financial crime should be a priority of every company in the iGaming sector, and utilising digital wallets can 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.
Image source: Shutterstock/Syda Productions