Gambling E-Payments Are Tough, But Rarely a Gamble

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Online gambling is like gun shows and weed—legal and very lucrative, though with enough regulatory baggage that most service providers are reluctant to go near them.

Beyond the risks and controversy stemming from recent disputes over whether online sports leagues are gambling sites, Internet gambling should not be a non-starter for the payments industry, according to Jonathan Bowman, the chief technology officer of MiFinity Payments.

"It's not necessarily that gambling and non-gambling payments differ [in risk]…it's that they multiply," Bowman said. "Take all of the risks inherent to digital payments in any sector, add in the vulnerabilities of both acquisition and fund-disbursement transactions, and multiply them by the creativity of tech-savvy financial criminals drawn to an already high-risk, high-stakes sector."

MiFinity earlier this month launched a digital wallet for the gaming industry, enabling users to load or disburse funds using Visa, MasterCard and China UnionPay credit, debit, prepaid and virtual cards. The wallet uses tokenization to secure transactions, and it also includes fraud monitoring and authentication controls such as 'know your customer,' real-time monitoring and reporting.

By leveraging digital wallets, gaming companies can require players to supply bank account or credit card information prior to playing, creating a certifiable access trail and utilize only the tokenized e-wallet for all wagering activity, Bowman said.

Gaming companies handle transactions both coming in and going out, so the payments processor has to manage both the acquisition and distribution of funds, Bowman said. "Online banking outfits also have to interface with a multitude of financial institutions, and accept a variety of currencies, account and payment types, to accommodate an international player base," he said.

Further complications come from different laws and regulations for online wagering in different countries.

"The industry's heavy reliance on credit card-enabled transactions raises numerous authorization and access issues, with criminals frequently attempting to use stolen card numbers on gambling sites," Bowman said, adding consumers use that to their advantage by claiming that the charges are unauthorized and earning undue chargebacks as a result. "Technology is helping gaming companies get ahead of friendly fraud and other risks by putting a stronger focus on validation."

The technology serving the Internet gambling market is evolving so rapidly there will likely be more validation and access-focused technology in the near future, Bowman said. "Visual card functionality, which will require each player to snap a picture of their credit or debit card in order to utilize an e-wallet, is likely to be the next big risk-mitigation tool in the space."

Online fantasy sports has drawn attention to gambling risks, even though the market's two main players, FanDuel and DraftKings, contend they are not gambling sites and as such don't have to comply with the complex regulations and risk management. Some state regulators contend the sites are violating gambling laws, and companies such as Vantiv and Citigroup are reportedly bailing on the $2 billion daily fantasy sports companies. Vantiv, FanDuel and DraftKings did not provide comment for this article.

"For Vantiv, the decision to walk away from a multi-million dollar client is a very difficult one to make, particularly as this business is likely to be scooped up by a competitor rather quickly," said Michael Moeser, director of payments practice for retail and small business for Javelin Strategy & Research, saying Vantiv likely needed to weigh factors such as legal, regulatory and enterprise risk.   

"For Vantiv, the risk clearly must have outweighed the profit opportunity," Moeser said. "In general, these types of decisions come up when new business categories are developed or old offline businesses migrate to the online world."

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