Could Online Sports Betting And U.S. Football Prove a Toxic Mix for Payments Firms?

The imminent arrival of the NFL season, coupled with a U.S. Supreme Court decision last year that leaves legalized sports betting up to the states, could sack payments firms’ efforts to control fraud, observers warn.

The professional football season kicks off Sept. 5 and is widely expected to draw strong interest not only from fans but also from punters now that online sports betting is legal in 11 states, including Nevada, New Jersey, and New York. Seven more states have passed laws to legalize the practice but have not yet specified a launch date. Another 24 states have legislation pending.

But while online betting promises to generate a geyser of transaction volume for payments processors, it is also likely to attract more fraud, warn companies that have fought dodgy practices in Europe, where online gambling has been legal for years.

Firms that combat payments fraud overseas caution that user authentication will be critical as sports betting spreads to more states. “The online gambling gold rush today in the U.S. is akin to what we saw nearly two decades ago when iovation first began working with European operators as countries there began to legalize online gambling,” said Greg Pierson, co-founder of Portland, Ore.-based iovation Inc., a 15-year-old company that is part of the credit-reporting giant TransUnion LLC.

Pierson fears that gambling operations are more concerned with signing up users than with verifying user IDs. “With states legalizing online gambling and the American fantasy football season kicking off, operators are sprinting to launch apps and Web sites. They are putting most of their efforts into getting users with less emphasis on preventing gambling issues,” he said in a news release timed to appear on the eve of the NFL season.

Abuses are likely to assume various forms, the firm warns. Some of the more prominent ones will relate to such issues as age verification, credit card fraud, and location of the bettor. Since 2014, credit card fraud losses for online wagering have jumped 155% in markets that lie mostly outside the United States, with a 39% average annual growth rate, according to iovation. And pinpointing the location of the bettor is critical to abide by state laws, since not all states have yet legalized the activity.

Since most online sports gambling has been illegal until recently, estimates of the size of the U.S. market vary widely. A common estimate puts the volume of betting—authorized and illicit—at around $150 billion annually, though some experts put the number as low as $60 billion.