Online Gambling won’t Flourish in US without Backing of Casinos, Banks

For the last four years, US states have had the option to legalize certain forms of online gambling, including online casino and poker games. Despite being a multi-billion dollar business, estimated to be worth $40 billion worldwide this year, only three states have chosen to regulate interactive wagering. The revenue from doing so has been underwhelming, and some experts say it’s greatly due to a lack of support from major banks and live casinos.

Live Casino and Banks Still Reject Online GamblingIn December 2011, the US Department of Justice basically said okay, the UIGEA applies only to sports betting, so each state can choose to legalize other forms of online gambling at will. Delaware, Nevada and New Jersey all did so, developing regulatory frameworks and launching their respective, intrastate markets in 2013.

Since then, regulation has gone into stalemate. California has tried to regulate online poker for years, but horse tracks, commercial casinos and tribal casinos, can’t agree on how it should be done. New York’s live casinos don’t want to compete with out-of-state companies, so they’ve opposed legislation there. Pennsylvania is currently the only state with real hope of legalization in the coming year.

To make matters more complicated, the three states that did regulate online casino and/or poker games aren’t exactly rolling in the dough, and Attorney William Bogot of Fox Rothschild LLP thinks he knows why. Bogot said it’s due to the unwillingness of live casinos, who afraid their business will be cannibalized by online gambling, and more importantly, the reluctance of financial institutions to process payments.

Payment processing has been a major area of concern for online gamblers in the US who participate at regulated gaming sites. In New Jersey, some major credit card companies have just recently loosened their grip on account holders, with only about 50% of MasterCard deposits being accepted, and about 75% of Visa deposits, up until now.

A former legal advisor to the Illinois Gaming Board, Bogot explained, “Banks are not obligated to process transactions, and gambling is an activity a lot of large players have steered clear of.” He reasoned that financial institutions are wary of these transactions because they cannot sufficiently track the location from which a deposit occurs, nor determine the age of the person initiating the transaction.

A recent alteration to the Merchant Category Code (MCC) has enabled credit card companies to identify online gambling transactions derived from states where the activity is legal, thereby increasing the volume of successful payments to gaming sites in New Jersey.

It’s also worth noting that PayPal, one of the most popular online payment processors in the world, just received a license to process iGaming payments in Nevada and Delaware, and is expected to receive similar approval in New Jersey in the very near future. Giving consumers an array trusted payment methods that aren’t constantly declined should have a noticeable impact on the amount of players participating, and subsequently the amount of revenue being generated by these states.

Once the revenue picks up, it’s much more likely that other states will become acquiesce to the concept of regulation, because if there’s one thing that’s certain in this life – besides death and taxes, of course – it’s that most politicians appreciate just about anything that comes with enough dollar signs attached.

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