If regulation follows innovation, then payments rules in the gambling industry are inevitably going to be subject to major changes in the coming years.
Cryptocurrencies, blockchains, cashless societies, open banking, payment blocking software and affordability checks all have the potential to massively disrupt the gambling payments ecosystem.
Payment industry stakeholders’ expertise and cooperation will be increasingly valuable to gambling operators and regulators as they attempt to grapple with the new consumer trends and risks proliferated by these technologies.
Their rise also comes as online gambling continues to boom around the world and public concerns around disordered gambling and social responsibility reach an all-time high.
For years, banks have helped enforce payment blocking orders against illegal gambling operators in numerous countries. Now, we are also seeing a growing number of banks following Starling and Monzo’s lead in offering their customers an option to block gambling payments themselves.
There is academic research to suggest that these payment blocking options help reduce gambling-related harms and there are calls for them to be offered to all UK current account holders. Although they may never be enforced, it would not be surprising if they were offered by all major banks in the coming years.
Gambling with a credit card in the UK is already banned and loopholes allowing players to make deposits into digital wallets to circumvent the rules were quickly closed. It is clear that many other countries, particularly in Europe, are looking to follow suit to improve consumer protection.
The payments industry has also been called upon to play a key role in the UK Gambling Commission’s plan to introduce affordability checks, mentioned in its online customer interaction consultation. Banks can undoubtedly play a key role here and it will be interesting to see how much influence they have on the debate in the coming months.
The ongoing UK Gambling Act review is also exploring the potential consumer protection benefits and risks offered by new payment methods, such as cryptocurrencies and blockchain. It is these technologies that are likely to be subject to the most intense regulatory scrutiny in the coming years.
Without adequate regulations tackling money laundering, terrorist financing, price volatility and know your customer (KYC) requirements, governments and operators are unlikely to facilitate their use on a large scale.
From an operator’s perspective, crypto offers a host of benefits, including faster onboarding times. But from a regulator’s perspective, they can be a nightmare, offering unparalleled anonymity and, in some instances, even giving consumers the ability to circumvent local payment blocking software.
Therein lies one of the biggest challenges for gambling regulators. In an inherently innovative and hyper-competitive industry, it is inevitable that even if licensed operators are restricted from exploring the use of these technologies, unlicensed companies definitely will.
Regulators must ensure they stay ahead of the curve or risk consumers using these new technologies to bypass self-exclusion lists, payment blocking orders and tax or anti-money laundering requirements.
There is a sign of change on the horizon; partly due to a growing number of countries starting to regulate virtual currencies, as well as their exchange platforms.
In just the past few weeks, US-based Coinbase, one of the largest regulated crypto exchanges, was listed on the Nasdaq stock market, valued at an incredible $85bn.
The rise of these new technologies is happening as the payments industry has been grappling with complying with PSD2, the EU directive aimed at promoting innovation, improving consumer protection and reducing the cost of payment services.
Developments in the payments industry aided by PSD2, such as the growth fuelled by open banking, could also be key to unlocking many of the gambling industry’s biggest current conundrums; for example, affordability.
The gambling industry now needs to keep a fine balance — it must keep up with these innovations in the payments industry while still mitigating their risks and ensuring consumer and operator confidence in their adoption.
We are already seeing a huge push from the Malta Gaming Authority and several other regulators, including US states in their new sports-betting legislation, exploring the regulation of these new payment technologies, but there is no doubt there is plenty more work to be done.