What are the Payment Challenges Facing iGaming in 2024?

Posted by Harry Kane on Tuesday, April 21, 2020

If you were to glance at the online gambling industry, you’d see a marketplace that appears to be in genuinely rude health.

After all, the sector generated a total gross gaming yield (GGY) of £5.3 billion in the year ending March 2019, while iGaming evolved to account for 37% of the gambling industry as a whole during the same period.

However, these numbers also highlighted the first genuine contraction in the iGaming market, as the sector’s total yield actually declined by 0.6% year-on-year. Even the overall market share of the iGaming sector fell by 0.1% in March last year, with this indicative of the range of social, economic and regulatory challenges facing operators in 2020.

One of the most important but underrated challenges revolves around the viable payment methods in the industry, as there are numerous barriers that impact on both operators and players alike. We’ll explore these in more detail below, while asking how operators can take steps to protect both themselves and their customers.

1. The Risk of Fraud

Typically, fraudulent activity is considered to be a primary concern for customers, but we should also recognise that it impacts significantly on businesses throughout the iGaming sector.

After all, customers are unlikely to remain loyal to operators and online casinos that are perennially vulnerable to the risk of fraud, while the advent of online reviews and forums means that a gambling brand’s reputation can be quickly tarnished if it fails to prevent fraudulent activity.

Given this, the claim that one in every 20 new sign-ups is a fraudulent one remains hugely concerning, as this means that potentially thousands of cyber-thieves are operating online at peak times and accounting for as much as 50% of your traffic.

The threat of fraud is also persistent throughout the typical journey in the digital age, as while the sign-up process provides a particularly high risk, customers are potentially vulnerable every time they access their account and complete deposit or withdrawal transactions.

‘Friendly fraud’ is one the most common threats to iGaming operators, while this is also one of the most difficult entities to stop. This either involves genuine customers opening multiple accounts simultaneously or multiple users collaborating to overcome the bots, and while this poses a relatively small risk it can cost operators huge amounts in bonuses and an increased number of payouts.

This can also negatively affect genuine players over time, as brands may respond by introducing overly stringent safety precautions that impact on the overall gambling experience online.

The question that remains, of course, is how can operators take steps to protect themselves against all forms of fraud? Ultimately, the key is to adopt a vigilant and proactive approach, and one that looks to safeguard players at every stage of their iGaming journey.

This should involve the constant monitoring of customer and account activity, from the initial sign-up to subsequent logins, withdrawals, deposits and actual gameplay. It’s also important to use intuitive tools that monitor the size and frequency of deposits, to ensure that customers are wagering money that they can afford to lose and adhering to anti-money laundering guidelines.

We’d also recommend ensuring that you deploy the industry standard 128-bit SSL encryption across the platform, as this helps to secure financial transactions and any sensitive information that your customers share online.

It’s also wise to proactively prevent fraud at the point of payment, by using secure third-party processes like 3D Secure 2. This provides a bulletproof layer of protection to all financial transactions, while this platform is one of the few payment providers that cater to the high-risk and largely unregulated iGaming market.

Providers such as 3D Secure 2 and Quaife buck this trend, however, with the latter actually optimised for online gambling and known to run up to 120 risk checks as part of its built-in fraud protection software.

Beyond this, it’s important that your iGaming business is compliant with all relevant UK and European legislation, including anti-money laundering requirements and Know Your Customer (KYC). The latter is a process that requires your business to verify the identity of all customers, while assessing their suitability and the potential risk of them holding illegal machinations.

This helps to ensure that each customer holds a single, maintained account with your brand, while monitoring each customer’s source of income and ensuring that their activity is compatible with this.

The changing regulatory and anti-fraud climate also compelled the UKGC to change the verification process in 2019, by requiring operators to confirm the identity of new players before they credit their account and place a wager.

Previously, players had a window of up 72 hours in which they could make a deposit and place a bet after their registration, and it was during this period that operators would verify their identity.

This has been closed by the regulator, however, and your brand must adhere to the new guidelines if it’s to remain compliant and negate potential issues such as friendly fraud and problem gambling.

2. Variable Market Regulations

Interestingly, legislation such as KYC and Anti-Money laundering requirements provide the only genuine examples of commonality when appraising iGaming laws in Europe and the UK.

Beyond this, it’s fair to say that regulations aren’t standardised across international borders, even in the single bloc where 26 of the 27 member states are part of the collaborative Schengen agreement.

This means that the majority of iGaming regulations will vary from one European jurisdiction to another, creating confusion and the potential for non-compliance when it comes to accepting payment from customers overseas.

This is why individuals such as Martin Haijer, who’s the Director General of the European Gaming & Betting Association (EGBA), has been proposing the development of a common rulebook for all EU member states going forward, as a way of easing the regulatory burden placed on operators and creating a set of universal safeguards for all players online.

This would certainly help to create a uniform set of standards for verifying players and securing websites, while also creating a comprehensive list of acceptable payment methods that drives transparency and safety across the board.

This issue is becoming increasingly pressing, even if the EU now has one less member state following the departure of the UK. After all, Italy’s iGaming market currently grosses an estimated €18 billion per annum, while Spain is also home to a lucrative sector that generated in excess of €8 million during Q3 of 2018 while growing by a staggering 29.9% during the same period.

Spain also recently reduced the rate of duty payable by iGaming brands from 25% to 20%, while empowering semi-autonomous enclaves such as Ceuta to offer even more favourable corporation and income tax terms to relocating operators.

With Europe’s iGaming markets becoming larger and increasingly interconnected, it’s important that operators understand the shifting nature of the landscape and the lack of universal regulations across different jurisdictions.

This means focusing on real-time regulations and keeping your eyes peeled for any legislative changes in the areas in which you actively target players.

3. Chargebacks

Another significant risk when running an iGaming form is the repayment of chargebacks, which you’ll be liable to pay a bank or e-wallet in the case of a disputed transaction.

Chargebacks can be issued for a variety of reasons, with the perceived non-receipt of services, fraudulent payments and dissatisfaction with the quality of service provided.

However, the fact remains that customers can often request chargebacks indiscriminately, while it can be exceptionally difficult to produce evidence that effectively disputes transactions or the precise argument raised.

Ultimately, this means that a high proportion of chargebacks are awarded against operators on an annual basis in the UK and Europe, while in some instances they may even be issued for simple cases of buyer’s remorse.

Arguably, the most sinister occurrences of chargebacks are for users who have been previously banned for conducting fraudulent activity, who are subsequently able to reclaim their initial deposits.

Once again, this is because the burden is on operators to prove that the money used to fund the deposit was fraudulent, and without the requisite evidence to support your position you may be asked to refund the consumer in question. This represents a double blow for any online casino platform, who must repay the amount charged while simultaneously failing to comply with anti-money laundering requirements.

Over time, there’s no doubt that both your profit and your reputation suffers in line with the number of chargebacks that you have to repay, so once again it’s important to recognise this threat ahead of time and take proactive steps towards minimising it.

Strong SSL encryption and a stringent verification process can definitely help in this respect, as can creating an unambiguous policy that customers must agree to before registering with your site.

This can make clear provisions for chargebacks (particularly those pertaining to allegedly fraudulent payments), while outline potential disciplinary procedures and effectively safeguard your venture going forward.

4. Falling Conversion Rates

Given everything that we’ve discussed so far, it’s clear that iGaming operators both old and new should constantly be reviewing, testing and updating the security of their platforms and payment methods.

However, there’s also an important balance to strike here, as while brands must take steps to safeguard each individual transaction and the interests of their customers, they should avoid creating a scenario where players are actively discouraged from registering.

For example, let’s say that you double down on the security measures imposed on customer sign-ups, both in terms of the documentation that new players are required to provide and the terms and conditions that underpin their deposits.

In this instance, players may be deterred from going through such a stringent and demanding sign-up process, reducing conversion rates and diminishing your market share in the process. This risk is particularly prevalent in a competitive market such as the bustling iGaming space, as many of your rivals will be on hand to offer a more painless registration experience.

It makes no difference that you’re ultimately trying to protect your customers and their money, or that you’re actively more detailed steps to achieve this objective.

The reason for this is simple; as the vast majority of players simply fail to recognise the threat of fraudulent activity when wagering online, and this means that they’re always likely to prioritise more relaxed operators that offer an easy and bonus-laden sign-up!

Striking such a balance can be tough, but tapping into the very latest advances in secure payment processes and site encryption can effortlessly safeguard your platform without overly inconveniencing the customer.

Some of these processes can even automate the verification procedure (known as Strong Customer Authentication), creating streamlined and instant payouts that are more secure and far less intrusive.