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Banks remain wary of approving credit card use for Internet gaming

Credit card transactions have been a challenge for online gaming operators in markets where Internet poker and online casinos are legal, including Nevada. There have been banks that seem to have no issues with processing these transactions and others that have been risk-averse.

“Considering the changes that were required of banks, as well as the increased risk exposure due to UIEGEA (Unlawful Internet Gambling Enforcement Act) in 2006, and the fallout of the poker ‘Black Friday’ indictments in 2011, it’s understandable that banks have been cautious about accepting I-gaming transactions,” said Bill Rini, head of online poker for Caesars Interactive Entertainment.

“Black Friday” was April 15, 2011, the day the Justice Department issued indictments against the nation’s three largest online poker websites, Full Tilt Poker, PokerStars and Absolute Poker. The indictments halted a nascent Internet poker boom.

Rini said Caesars Interactive has been meeting with processors, issuers and banks about how online gaming is properly regulated and licensed in several states. Caesars Interactive operates a real money poker game in Nevada under the wsop.com brand, and in New Jersey under the caesarscasino.com, harrahscasino.com and wsop.com brands.

Rini said teaching credit card issuers about licensed operators’ Internet betting safeguards hasn’t been easy.

“But,” Rini said, “we’re optimistic that things will only improve over time.”

Any turnaround in credit card transaction acceptance for gambling is expected to be driven by new merchant category codes for regulated online gaming transactions.

The new codes are:

● State-run online lotteries, 7800;

● State-run online casino games, 7801;

● State-run dog/horse racing, 7802.

These codes join the existing 7995 code, which will henceforth designate unregulated online gaming transactions only.

All of this activity raises questions. Will these new codes make a difference? Or, will the online gaming industry continue to struggle to get financial institutions’ approval?

“It removes a barrier, but it’s not like a light switch that was suddenly turned on,” Rini said.

Rini said code 7801 lets banks identify legitimate Internet gaming transactions as coming from a licensed and regulated operator. But, he said it doesn’t force banks to accept the transaction.

“However, we have seen an uptick in acceptance rates since the new code was introduced (in April),” Rini said, “so things appear to be moving in a positive direction.”

Banks are under no legal obligation to process certain types of transactions, and gambling is a classification that several major financial institutions, including Wells Fargo &Co. and Bank of America, have shunned.

Even with the new codes, Wells Fargo will continue to block online gaming transactions.

“Visa’s new merchant category codes don’t impact our need to continue to comply with regulation GG (Unlawful Internet Gambling Enforcement Act of 2006),” Wells Fargo’s credit card management division said in a statement. “While we assess the new codes, we will continue to block online Visa credit card transactions from online casinos, racetracks and lotteries.”

Wells Fargo will allow cardholders “to make in-person purchases of these items.”

TJ Sharkey, vice president of operations and business development for Vantiv Gaming Solutions, is more optimistic.

“These codes allow financial institutions the ability to get more clarity as to what they are being requested to authorize,” Sharkey said. “Banks are taking a very close look at I-gaming. They want to understand what lines of business are being requested of them, from a card issuing perspective.”

The Unlawful Internet Gambling Enforcement Act of 2006 substantially restricted online gambling, essentially making it illegal in the United States. Internet gambling had also been restricted under the 1961 U.S. Wire Act.

In August 2011, Assistant U.S. Attorney General Virginia Seitz issued a new opinion on the Wire Act, limiting its scope to sports betting. The opinion led to the opening of online casinos and poker in Nevada, New Jersey and Delaware.

But despite the updated legal framework, regulated operators, and a modest online gaming industry, the new codes have yet to reverse exceedingly high credit card decline rates.

“Right now we’re reviewing the data points,” Sharkey said. “We do see some upside on the Visa side, so that’s good news. At the end of the day, Americans want to pay with cards. We are a country that likes to use our cards, debit or credit.”

Matthew Katz, CEO of CAMS LLC, a player verification company, called the creation of these new merchant codes a positive development, but he also cautioned that these codes are no silver bullets to fix the problem of declined online transactions.

Katz said banks will continue to be cautious when processing online gaming transactions. He blamed their fear of running afoul of the Unlawful Internet Gambling Enforcement Act.

“They are not used to this level of visibility, and as (credit card) issuers they don’t want it,” he said. “There is also a risk of damaging their brand from taking these bets.”

And it’s likely that many financial institutions will continue to decline online gambling transactions until the market is larger. Katz said banks are weighing the potential risk of handling the transactions against the reward of potential revenue.

“There’s really not enough revenue for banks to start accepting these transactions,” Katz said.

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