A Winning Hand for Payments

The boom in iGaming—online poker and casino games—and sports betting is generating big potential for payments companies. Can they cash in?

Payments companies looking for new markets might wager on the online sports betting and casino games market. It could reap big dividends, especially as more states allow these forms of online gambling and consumers continue to play online, observers say.

Indeed, the excitement around online sports betting may one day be eclipsed by the interest in online gambling—think of casino games and poker—among many payments companies.

Why is that? In 2021, through October, online casino games and poker, known as iGaming and allowed in some form in only seven states, generated $2.98 billion in gross gaming revenue, according to data from the American Gaming Association.

Gross gaming revenue, or GGR, reflects the difference between the amount of money players wager and the amount they win, says CorporateFinanceInstitute.com. That is a 645% increase from January through October 2019 and up 143% for the same period in 2020.

Sports betting, which is legal in 30 states and the District of Columbia, generated $3.2 billion year-to-date in 2021, up 359.3% from the same period in 2019 and up 229.5% from 2020. As recently as 2018, just three states allowed sports betting (“The Sporting Chance,” July 2018).

‘A Lot of Hoops’

These numbers translate into excitement for payments companies that serve the online gaming industry. The potential for them is tremendous, says Jerry Rau, managing director of electronic money movement at Eilers & Krejcik Gaming LLC, an Irvine, Calif.-based gaming consultancy. “But there’s a lot of hoops, so it’s not easy,” Rau says. These hoops are the state-by-state regulations and broader ones that include know-your-customer mandates and similar requirements.

Still, some payment companies are not deterred. “The excitement around the size and potential around the opportunity [have] grown significantly since 2018,” says Greg Kirstein, vice president of business for North America at Paysafe Ltd., a London-based payments provider.

Paysafe is live in 19 states that permit some form of online gambling or sports betting, he says. As of mid-December, New York appeared to be the next large state to allow sports betting. The potential is massive in New York, which has multiple professional sports teams.

The challenge for payments providers servicing online gambling, whether it’s casino games and poker or sports betting, is that each state has its own rules. So the potential payoff depends on how the state regulates online gaming,” Kirstein says, adding, “States that allow online sports and iGaming have the most opportunity.”

But to tap that opportunity, payments companies must be licensed in each state they want to operate in, says Scott Talbott, senior vice president of government affairs at the Electronic Transactions Association, a Washington, D.C.-based trade group. “The payment industry must make sure the casino is licensed and complies with federal and state law,” Talbott says.

For example, most states permit only debit and prepaid cards to be used to fund wallets that bets are made from. New Jersey, however, allows credit cards as a funding option, though such transactions count as cash advances. Payments companies must complete a risk-management process and underwrite the casino to ensure compliance protocols are adhered to.

There are other stipulations. “What makes things a bit more complicated is [payment providers] have to comply with state-by-state regulations,” Kirstein says. “Every state has a different approach.” For example, states cannot commingle funds with another state

Many states also want to ensure that users are gambling within their jurisdiction, so geofencing technology must be used to verify the user’s location. That is not much of a hurdle, but it must be accounted for, Talbott says. Some payments companies can help with that, he says, but it’s the casino’s responsibility to comply. Age verification is another compliance matter. Most states require online gamblers be at least 21 years old.

The Moral Aspect

What interests Rau, however, is that not many payments companies appear to be pursuing the online gambling industry, despite involvement by some big-name companies. “I went to Money 2020 looking for payments providers serving the industry; I found a couple,” he says.

One reason some processors may shy away from online gambling is the time and cost required by regulation and compliance demands. “It’s difficult because they have to get jurisdictional compliance. It can be complex,” says Rau.

In Louisiana, for example, Rau says that though gambling is governed by statewide regulations, each parish (a county in other states), can opt in or not. The American Gaming Association lists 11 payment and transaction systems members, including Paysafe, Fiserv Inc., FIS Inc.’s Worldpay, Nuvei Technologies Inc., and Shift4 Payments Inc.

The moral aspect of gambling also is a concern. “From a moral standpoint, the biggest concern now is responsible gaming,” Rau says. “There’s been a lot of good efforts to allow for customers to have alternatives.” For example, gamers in New Jersey can opt themselves out of online gambling. When they do that for one operator, the exclusion is shared with other New Jersey operators so the individual is excluded from them all, Rau says.

“There will always be moral questions around gaming,” Kirstein says. “It just comes with the territory.”

The National Football League, which supports sports betting, limits the number of online gambling ads shown during game broadcasts, he says. The NFL in October launched a $6.2-million responsible-betting campaign. The online gambling industry, including operators, payments providers, and responsible gaming advocate organizations, have taken steps to ensure responsible gaming is adhered to, Kirstein says.

Real-Time Payouts

Still, even with the state-by-state issues, the opportunity in online gaming is vast for payments companies, suggests Paysafe’s Kirstein. “The bigger the state, the more activity they permit, the more opportunity as a whole,” he says.

New York, some reports suggest, may enable online betting in February. Nine sportsbook apps are readying for that, reports PlayNY.com, a site about online betting in the Knickerbocker state. Meanwhile, iGaming in New York hasn’t advanced very far, with no state bills authorizing online casinos in process.

Online gaming, whether sports betting or casino games, has benefited from the seemingly unfettered adoption of mobile devices. The American Gaming Association says 86% of all sports bet are placed online, and. of the $41.3 billion wagered legally through October, $36.3 billion was done via a mobile device.

Rau says mobile sports betting might be in the 90% range for some locations, excluding Nevada, that have both mobile and retail (on-site) wagering. A Paysafe report from January 2021 found that 70% of players placed their sports bets online.

Rau also sees an opportunity for real-time payments in online gambling. “This sector is ripe for real-time payments,” he says. A couple of payments providers have implemented real-time payments for cashing out. The same Paysafe report, which surveyed 2,022 gamblers in eight sports-betting states—Nevada, New Jersey, Pennsylvania, Colorado, West Virginia, Indiana, Iowa, and Illinois—found that 32% wanted instant payouts, while 34% said they wanted their money within 24 hours and 24% said within one to 3 days, with decreasing percentages for longer periods.

Even without further adaptations, like real-time payments for payouts or even loading funds into wallets, the potential for payments providers looms large. Some smaller payments providers may not have the resources to fully jump into the market, while larger ones might be reluctant to do so because of the disclosures they might have to make, Rau says. “There is a sweet spot where having gaming would be a tremendous potential to their portfolios,” he says.

And there are even more markets beyond the 30 states and the District of Columbia. “Everyone has their eyes on California and Ohio and traditionally big sports states,” says Kirstein. “The modernization of this space, and [the fact] that all the leagues are participating, only furthers the credibility necessary. Traditional online gaming has come with its own stigmas, but these stigmas are being alleviated.”