In 2018 the Supreme Court struck down a 1984 federal law that prohibited gambling in most states. And that opened up an entirely new playing field for online gaming establishments now free to operate in any state that would allow them. And as Ingo Money CEO Drew Edwards said in a recent conversation with PYMNTS’ Karen Webster, it opened up a whole new world of tangled regulations as 50 different jurisdictions will attempt to put together rules to prevent online gambling sites from becoming havens for people looking to launder money.
“[Casinos] use all kinds of tools including facial recognition with cameras everywhere,” Edwards said. “And I’d imagine the feeling among regulators has been that an organized money laundering effort could be policed because they [the casino] would actually see it happening. But now gaming and sports betting is moving online and regulators are just now trying to figure out how to manage it.”
That management process, he said, is not exactly on smooth ground as the regulatory efforts are a work in progress. There have been advances. For example, Visa has recreated the MCC codes associated with online gambling to have a merchant verification process built in so that banks are no longer “blanket denying” anything that looks like a gambling transaction. But allowing each state to create a different set of rules, he said, remains a problem for a payments processor.
A problem compounded, he said, when in many cases those rules have requirements that successfully push players like Ingo out of the market and ultimately slow progress.
Untangling Red Tape
While making the states the controlling authority in regulating gambling is an excellent idea, in theory, Edwards said, it does make for unworkable local guidelines. Tennessee, he said, is his favorite example. Ingo has considered working with a client in the state, a startup local sports betting outfit enjoying incredible growth, ringing up around $121 million in sports betting business within its first 30 days. However, Ingo can’t offer the company business support as much as it wants to, because regulations in Tennessee prohibit it.
“The way Tennessee wrote the rules, Ingo as a payment processor has to comply with almost the same kind of vetting that they do as the gambling entity, and we can’t comply with that,” Edwards said. “Because it includes things like getting all of our board/shareholders fingerprinted and background checked. We’re not going to do that, and neither will any public company really.”
It’s a regulatory barrier that will keep Ingo Money out of Tennessee, he said, and it represents an example of the kind of friction popping up as a multitude of markets are attempting to create a regulatory framework for the next generation of gambling, which will be remote as much as it is physical.
Clearing The Path To The Future
There is no shortage of questions yet to be answered in the world of digital gambling and payments, Edwards said, though few of the problems are in and of themselves essentially issues with payments. The fact that ACH payments are used so commonly to push funds, he said, is strange given so many banks reject gambling transactions on push to card. With the new MCC codes Visa has put into place, the banks have better visibility into the risks associated with the transaction.
And there are still issues that will arise but haven’t been addressed yet. For example, nobody asks about how they can move proceeds or winnings if they can move their funds to a mobile wallet account, but the question is coming, Edwards said. And then there are the inconsistencies in the systems, he said, like the fact that different gambling games have different rules.
And while the questions sound funny, he said, the implications of the answers are serious. And those implications grow as every state adds its own spin on online gambling, as New York State just did by green lighting it last week. Or Michigan, which starts online gambling Friday, Jan. 22. The category is expected to grow at an 11.5 percent clip for the rest of the decade.