Today, illegal gambling represents a $150 billion business. Soon, however, the payments industry will be able to tap into that market legally, thanks to a recent decision by the Supreme Court to axe a federal law that prohibited gambling on sports in most U.S. states.
The opportunity is big, and it’s going to move fast, says Joe Pappano, SVP Worldpay Gaming. Around 20 states have already passed laws or have pending legislation around online gaming and sports wagering. The rest, says Pappano, are going to be scrambling to catch up so they can start to enjoy the potential new tax revenues that legalized gambling can create.
Payments will, of course, be central to online gaming and sports wagering. Fast, secure electronic payments are never easy — so surely that will slow things down?
Not as much as one might think, says Pappano. He predicts that the state of New Jersey will be accepting live electronic bets in time for the start of the American football season, and other states won’t be far behind; they’ll want to cash in on the season, he said.
Tax revenue is a powerful motivator.
Still, the desire to move quickly and the ability to do so don’t always go hand in hand. In a recent interview with Karen Webster, Pappano explained why this industry will be able to do it – particularly compared to medical marijuana, another recently-legalized industry that has not been able to move quite so fast.
More than 40 states already have land-based casinos and/or state lotteries, Pappano said. The framework for those games has existed for decades, and therefore states which allow gambling already have an understanding and in-depth experience around gaming.
So as states sit down to craft their individual laws and regulations around such activities, they will already have a foundation in place, said Pappano, making the project much less daunting. The ability to shape this new environment is simply “cascading” what’s already existed for decades.
Instead of reinventing the wheel, Pappano said, the gaming industry will be able to focus on industry-specific challenges, such as velocity monitoring and other controls on what consumers can and can’t do with a specific financial instrument.
As for the payments industry, it would not have been prepared for such a rapid rollout just four years ago, but Pappano said that a lot has happened in that time frame. Worldpay and others created a framework there, too, so the payments industry is ready to accept those online gaming transactions whenever they come (and it will be sooner rather than later).
Fraud Isn’t A Problem
How often does one get to read that sentence in this modern era of data breaches and hacks? But truly, says Pappano, fraud really isn’t much of an issue in gaming due to the heavy identity verification process at signup as well as stricter authentication whenever money is moved in or out of the gaming or wagering account.
Due to this credentialing, Pappano said that disputes and chargebacks are actually less of a problem in online gaming and wagering than in traditional eCommerce environments.
Today’s world is one of instant gratification, he said; shopping online is expected to be a one-click experience. When was the last time a customer ever had to share their Social Security number to buy a new pair of shoes? People would never consent to sharing that level of personal data, Pappano said — if not out of sheer principle, then simply due to the inconvenience of having to enter all the info every time they shopped.
Therefore, comparing eCommerce to online gaming and sports wagering is apples to oranges, he said. Gaming is a highly regulated environment, and consumers leave a highly audited trail of their behavior, giving companies ample compelling evidence to win a dispute.
When incidents do occur, Pappano said, more often than not it’s “friendly fraud” — that is, a legitimate customer issuing a dispute or chargeback on a transaction they legitimately conducted. Pappano said this can happen when a customer conducted multiple gaming transactions, lost, and wanted to hide it from a spouse, for example.
Why Marijuana Is Different
Pappano said Worldpay has also looked into the medical marijuana industry — but so far, that remains a much more challenging vertical for a few reasons.
First and foremost, marijuana is still technically illegal at the federal level, whereas the Supreme Court just knocked down the federal law pertaining to online gaming. There are also local differences in regulations that add even more complexity, he said.
Second, but on a related note, Pappano said financial institutions are wary of getting involved in payments around marijuana due to the legal challenges surrounding it. Perhaps if banks were extended a “safe harbor” provision, by which the government would promise not to prosecute them as long as they engaged in such activities in a legal manner, they might be more open to the possibility – but unless and until that happens, Pappano said they will likely keep their distance.
He added that this could change if the medical marijuana industry follows the path that the legalized gaming industry is now laying out.
For states that want to pursue legalized online gaming and sports wagering, card fees, interchange structures and third party fees will remain consistent with traditional card fees, said Pappano. And from a merchant-acquiring perspective, nothing changes, either.
What could change is that consumers may owe additional fees to their issuing bank if the issuer decides to charge for risky usage of their card. So while fees are one less thing for operators, issuers and gateways to worry about, consumers participating in these activities should make sure they know their issuer’s policy before spending too much.