Banks Put a Stop to Online Gambling

[Tom0Co]

Banks Put a Stop to Online Gambling
Matt Richtel New York Times Service

Mining the margins of legality, operators of Internet casinos assumed their big worry was regulators and law enforcement agencies. Lately, though, it looks as if the online casinos have a more immediate problem: the growing number of credit card companies and banks that are refusing to process payments for Internet gambling.
.
Although demand by bettors remains brisk, whether they are wagering on sporting events or online games like roulette and blackjack, the credit card companies are concluding that the business is more trouble than it is worth. Internet gambling is illegal in many places, and some types of wagering are barred by federal laws. But beyond that, customers frequently deny having placed bets or simply refuse to pay their credit card bills after running up large gambling debts.
.
That can pose trouble for credit card companies - as when a California woman lost more than $100,000 but argued in court that gambling debts were not enforceable and had her debts wiped clean in a court-ordered settlement. So in many cases, the credit card companies and banks refuse to approve a transaction if they know it is for a gambling site.
.
Some Internet casino owners say four out of every five transaction requests are now denied. As a result, some gambling sites, particularly those serving the U.S. market, where eight of every 10 wagers originate, have seen revenue fall at least 30 percent. Analysts who cover the industry say the liquidity crisis has already forced some operations to close.
.
"It's excruciating for the casinos," said Mitch Garber, an executive vice president at SureFire Commerce, a company in Montreal that processes credit card transactions for hundreds of Internet casinos. Mr. Garber said U.S. banks rejected 25 percent of the credit card transactions he tried to process last year for casinos, a 33 percent increase over the previous year. "The magnitude of the rejection rates has taken off."
.
Visa and MasterCard do not have blanket provisions that prohibit banks that issue their cards from paying Internet gambling transactions. But late last year, Visa USA started auditing Internet casinos to make sure that they were accurately identifying transactions as wagers. The idea behind the audit was to make sure that casinos did not try to report gambling activity as another type of transaction - the purchase of a shirt, say - to keep a bank from denying the transaction.
.
Casinos have increasingly turned to third-party credit card processors like SureFire or PayPal, another major processor of Internet gambling. Processors enable consumers to use their credit cards to set up accounts with online casinos - as well as many other kinds of Internet-based merchants.
.
MasterCard International has put a crimp in that activity with a policy that specifically forbids the use of its card at third-party processors for purposes of Internet gambling.
.
The steps by Visa, MasterCard and the banks that issue their cards are catching up with the policies of American Express and the Discover unit of Morgan Stanley, which have not allowed their cards to be used for Internet gambling transactions for several years.
.
"We do not do business with illegal or very high-risk industries," said Joanne Fisher, an American Express spokeswoman. "We have to be in a position that we know were going to be paid."
.
But some casino operators say the banks are acting too much like the police.
.
"People don't like being told what they can and can't do with their money," said Simon Noble, chief executive of Intertops.com, an Internet casino based in Antigua. He said that efforts by U.S. financial institutions to clamp down had begun to have an influence in Europe, where German customers in particular were beginning to find their transactions being denied. "It's very frustrating," he said.
.
As a result of the clampdown, Christiansen Capital Advisors, a New York firm that serves as a consultant to casinos, recently downgraded its worldwide growth forecast for the online casino industry. Christiansen estimates that the 1,400 gambling sites on the Net generated $3 billion in revenue last year and will generate $4.1 billion in 2002, a drop of about $500 million each year from earlier projections.
.
Gamblers can set up accounts ahead of time using wire transfers or checks. But the casinos say these alternatives are inconvenient and discourage playing.
.
Whether residents of the United States are breaking the law by gambling online depends largely on where they live and where the gambling operator is situated. Nelson Rose, a law professor at Whittier College in California who specializes in gambling law, said that about half of U.S. states forbid residents from placing bets on the Internet.
.
Matthew Katz, who operates Ecasino Solutions, a Los Angeles company that advises offshore Internet casinos, said U.S. banks, while leading the crackdown, were not alone. Mr. Katz recalled the activity of a Singapore resident who logged on a few months ago to eBets.com, a gambling company client of Mr. Katz that is situated in Belize.
.
On three consecutive days, the gambler tried to deposit money from Visa and MasterCard accounts into eBets, but on 18 separate occasions, his banks in Singapore did not allow him to deposit money.
.
Persevering, the gambler was eventually permitted to deposit $1,500, which he used to play European Roulette. Within three days, he had lost all the money, and his banks denied his subsequent efforts to deposit more - except for a few deposits of less than $10.
.
A few weeks later, the gambler called his banks and disputed the $1,500 charge, saying he had not gambled.
.
Mr. Katz said the casinos, trying to help the banks, once regularly asked new customers to fax photocopies of credit cards and drivers licenses to prove that the customer had, in fact, approved use of his or her card for gambling transactions. But they have since stopped.

[ 01-23-2002: Message edited by: Tom0Co ]</p>

[Conrad]

Since gambling on the internet is illegal in the US, doesn't it make sense to stop using credit cards (which leave a trace) and start using Neteller? After all, it's based offshore so it's much safer than Pay Pal for instance. PP has to agree to any law passed in the US, whereas Neteller can show the US the middle finger if it tries to step outside its juristicion.

[Back Line Shooter]

I tried to use my VISA check card to make a PayPal deposit and was declined by the bank because it was for gaming.

NetBank.com

[alysheba88]

BackLine,

Have you tried having the funds send directly from your bank account via Pay Pal (ie; verifying your account). Should work with no problem

[Tom0Co]

I think directly from bank account still works fine... however there is a 3-5 day wait for funds to appear in your account. Clear Chex is a much better alternative as it's instant, but does have it's limitations.

As for CC's from what I'm hearing there's been a recent change in that. CC's that had been used in the past to fund third party payors are no longer going through and some have added a check box asking if the funds will be used for gambling. I'm not sure with PayPal... do you pay yourself via CC to your e-mail and then deposit from paypal account? In any event it appears things have gotten a lot stricter of late.

[ 01-23-2002: Message edited by: Tom0Co ]</p>

[Back Line Shooter]

<blockquote>quote:[/size]Originally posted by alysheba88:
BackLine,

Have you tried having the funds send directly from your bank account via Pay Pal (ie; verifying your account). Should work with no problem[/quote]


I have not tried, thankfully, I am on a winning streak and only had to withdraw funds. I sure the time will come when I will have to re-load the gun... Thanks, I WILL try your thought
[img]graemlins/Peace_5.gif[/img] [img]graemlins/Peace_5.gif[/img]

[Conrad]

Even if we stop using CCs completely when it comes to gambling I don't think we'd miss them really that much. I use Neteller and Pay Pal and not once have I funded any of these with a CC. In fact unless I'm ordering something by phone or on the internet I never use my CC at all... cash is best baby.