Betting the House

Payments companies should make simplicity of use a big bet when courting iGaming providers.

Everyone, especially those placing bets online and hoping to win big, wants a smooth payment experience. Online gaming providers are no different. They want their customers to easily fund their betting accounts and have a simple experience managing their payments.

That’s where payments providers may be able to capture some share in the iGaming space.

Defined by the American Gaming Association as real-money online wagering on casino games such as slots, table games, or poker, iGaming is a growing industry with lots of potential payoff for payments companies. How much? One indicator may be the 22.7% increase in iGaming gross revenue in the first quarter of 2023 compared to the year-ago quarter.

Data from the Washington, D.C.-based AGA’s Commercial Gaming Revenue Tracker shows that online sports betting and iGaming accounted for 24.7%, or $4 billion, of gross gaming revenue in the first quarter, which totaled $16.6 billion for all gaming verticals.

As chief executive of North America iGaming for London-based Paysafe Ltd., Zak Cutler is tasked with knowing what iGaming companies want from payments companies. He probably has a good idea because, prior to joining Paysafe in 2021, he spent 10 years working at three different online-gaming companies.

What is it they want? Simplicity and ease of use rank high, though a single integration is atop the list of must-haves, Cutler says. “The high-level stuff they want is a single integration so that they can fulfill every payment need, money in, money out,” Cutler tells Digital Transactions.

Another must-have is fraud protection. “It doesn’t matter where you are in the world, the temptation of shiny bonuses, quick access to money, and de facto online wallets continues to be too alluring for organized criminals and habitually abusive users,” says Matt DeLauro, chief revenue officer at Seon, a London-based fraud-prevention firm that has U.S. offices in Austin, Texas. Thirty-six states allow legalized sports betting, he says.

But iGaming companies can’t exist without bettors, and their experiences must be seamless. “Our iGaming clients insist on keeping their players happy, and today’s players expect the entire experience to be ‘pixel perfect,’” says Michael Kaplan, chief revenue officer at PayNearMe Inc., a Santa Clara, Calif.-based firm.

Involved in iGaming since 2013, PayNearMe launched MoneyLine in 2021 to make it easier for players to receive payouts and make deposits in their iGaming accounts. “At the first sign of a hiccup or glitch, players—especially new ones—can become leery of the entire process,” Kaplan says.

Tackling integrations has become quicker thanks to API codes, but the process can still have challenges. As Cutler says, the tricky part of easy integrations is that clients want redundancy. If one payment processor is down, they want instant routing to another, with no discernible interruption for the gaming consumer. Paysafe can offer three different forms of card acquiring through its gateway, Cutler says.

A key component is funding and payouts. Indeed, 36% those surveyed for Paysafe’s “All the ways players pay” report, released earlier this year, said quick and easy payouts was their most important criterion for selecting an online sportsbook. That was followed by a trustworthy brand, 32%, and good odds, 28%.

Cutler says that means iGaming companies want to offer funding and payouts in multiple options. “How you want to fund is really a pie chart,” he says. “There’s credit, electronic cash, ACH, online banking, and digital wallets. You want to play a little in each.”

While credit cards are the biggest piece, he says, they tend to have the lowest profit margins. Online banking is in the middle. “The opportunity is to be a gateway, a single connection that offers all of them.”

“Providing reliable, fast, and consumer-friendly deposit and withdrawal appears to be the largest opportunity currently in the market,” says Kaplan. “Third-party, gaming-specific wallets represent a very small and decreasing percentage of deposits and withdrawals.”

A Mixed Bag

The uniqueness of iGaming also means there are special risk and compliance matters for payments companies, made more complicated because each state with online gambling has its own rules to abide by.

“The iGaming sector is growing quickly, while also facing pressure to uphold regulatory and compliance requirements,” DeLauro says. “At the same time, the sector is being affected by a significant fraud problem that it must tackle. That’s leading to iGaming businesses looking for compliant services that enable effective risk management.”

Because of this, iGaming operators are looking for services that go beyond the regulatory requirements, he says. They are considering adopting or strengthening anti-money laundering and know-your-customer procedures, conducting risk assessments, and seeking ongoing monitoring and reporting.

But doing all this requires a balance. “Establishing robust anti-fraud, KYC, and AML processes requires a delicate balance where the company puts in place key security measures that address the issues, limiting destructive behavior,” DeLauro says. “Concurrently, it’s important for the company to avoid applying excessive measures that negatively impact customers’ experiences.”

These experiences shouldn’t burden the onboarding process with undue friction, he says. “However, it’s clear that more must be done to tackle this pronounced and evolving issue,” he adds.

Compliance matters will be tricky because of the lack of consistency from state to state, Kaplan says. “Each new state passes its own legislation to legalize the activity and then writes [its] own regulation to govern it,” he says. “Once that is done, all of the participants in the market need to educate themselves on the regulation to understand how to operate their service legally in that state.”

Some states require specific licensing and background checks of participating payments companies, “while others don’t require anything other than a simple registration. It is a complete mixed bag,” adds Kaplan.

What payments companies and their iGaming clients don’t want is bettor confusion when it comes to funding their accounts and collecting their winnings. Cutler, in his experience both as a client and now on the payments side, says seamless payouts are paramount. According to the Paysafe report, which surveyed 2,002 U.S. consumers in November, 38% expect an instant or near-instant payout. Many—25%—said that’s important because deposits are instant and their withdrawals should be, too.

The First Deposit

Giving bettors a streamlined, seamless experience is how operators can differentiate themselves, Kaplan says, “so they expect their payments partners to be hyper-focused on the user experience.”

That could mean being able to provide routine funding and payouts and being able to cater to an iGaming company’s high rollers. These consumers may need different service levels, Cutler says. They may have higher betting limits or demand 24/7 access to funds.

“Operators spend considerable amounts of money in match or bonus play in an attempt to attract new customers, get them through their registration, and KYC flows, and into their applications,” Kaplan says. “However, no customer is truly acquired until they’ve successfully made a first deposit.

The allure of iGaming and online gambling in general is strong. U.S. sports betting could reach $7 billion in volume by 2025, DeLauro says, citing a Morgan Stanley report.

“Within each newly legalized state is a new pool of potential customers for operators—meaning huge opportunity for new revenue,” Kaplan says. “New and casual bettors often won’t hesitate to abandon a betting app if they feel uneasy during the registration and deposit process. It’s imperative that payments providers enable operators to facilitate a first-deposit experience that builds trust.”

“In a market booming with new bettors,” he continues, “a provider with a focus on optimizing payment experiences is critical for operators to reduce acquisition cost, maximize the lifetime value of a player and ultimately, drive more profitability.”