It’s been over two years since the Supreme Court’s landmark ruling paved the way for states to determine their sports betting destiny. Despite more than half of US states legalizing sports betting, some US banks and credit card issuers are still not on board.
According to an article in American Banker, many banks continue to block online gambling transactions out of fear federal authorities will punish them for inadvertently facilitating financial crimes.
But with global sports betting on the rise and no sign of federal sports betting legislation passing any time soon, the question is how long can these banks hold off from grabbing part of the lucrative market.
Thanks to the American Gaming Association’s efforts to mediate between sports betting operators and financial institutions, progress is being made. Some smaller banks are looking for opportunities to move money safely and have even started to target the online gambling population that some heavyweight banks are reticent to service.
A $100b Global Sports Betting Industry
There is no ignoring the giant strides that legal sports betting has made since May 2018. Some 25 states and the District of Columbia have authorized sports wagering – either online, in-person, or a combination of both. The most recent are South Dakota, Maryland, and parts of Louisiana. All three saw changes approved in the recent November 3rd referendums. And more states are in line to introduce sports betting, or at the very least consider changes in their laws this year and next.
According to estimates from Goldman Sachs, the global sports betting industry is set to grow just over 7% per year and eclipse $100 billion by 2022.
Not to be overlooked, the pandemic has given online gambling numbers a boost, with more gamblers than ever seeking a safer way to bet.
So Why Aren’t Major Banks Getting in on the Action?
With that as the backdrop, one would think that US banks and credit card issuers would rush to grab chunks of this market, but the reality on the ground paints a different picture.
Sports betting operator FanDuel is cited in the American Banker column as stating many big banks (Bank of America, Capital One, Huntington Bank, and JPMorgan Chase) forbid their debit and credit cards to be used for online gambling purposes. There is no shortage of concerns. From lingering UIGEA concerns to chargebacks to money laundering and fraud, banks want to avoid potential prosecution from federal authorities.
Unfortunately, analysts predict there won’t be any significant shifts in this policy until the federal government passes a law that explicitly allows sports betting.
Baby Steps for Now
We can’t, however, ignore some of the advancements the industry has made on this front.
The biggest occurred in 2015 when new credit card codes for legal online gambling transactions were created.
And the hoops they must jump through haven’t stopped online players from using the multiple banking methods at their disposal for depositing and withdrawing funds into their accounts, including Paypal, PayNearMe, and PlayPlus.
As PaySafe’s Greg Kiersten told Betting USA in a July interview:
“The strongest improvements or innovations in payment processing for iLottery and iGaming brands have related to lowering customer abandonment. Salvaging customers whose issuing banks do not allow them to use their cards for iLottery and iGaming has been a key challenge for operators.
“New, innovative alternative payment methods such as digital wallets and eCash solutions have played a role in overcoming this challenge. More broadly, technology has been vitally important. Our iGaming payments API, for example, allows players facing a card decline to seamlessly configure the alternative payment method of their choice. This helps prevent customers from abandoning the gaming experience because of their card issue.”
Still, for the moment, banks are more likely to clear in-person betting transactions, and the industry is hopeful that as more states legalize sports betting and online gambling, they will make more allowances for online wagers.
The American Gaming Association has stepped in to act as a mediator of sorts between the two sides and is working hard to smooth out any concerns. The vice president of strategic alliances at the AGA, Jonathan Michaels, was quoted in the American Banker article, saying “tremendous progress” has been made since PASPA was ruled unconstitutional by the Supreme Court.
“There’s still a couple of larger banks who are outliers, and we continue to work with partners and folks we know in those banks,” Michaels said. “Some were very quick to say yes, and others are waiting a little longer to see how it is.”
Smaller Banks are Taking Bigger Chances
According to the American Banker article, there is a trend among smaller banks working with fintech companies to come up with solutions regarding the safe movement of money.
Big banks pulling back from online poker transactions due to higher compliance demands resulted in the founding of Lexicon Bank in Las Vegas last year. Prominent poker player Daniel Negreanu publicly moved his account to Lexicon after having another institution closed his account, ostensibly over gambling.
Since the bank is run by people with inside knowledge of the gaming world, they can verify deposits’ legitimacy by tracking tournament participation and winnings.
Analysts predict that community banks across the country, and not just in Nevada, will be on the lookout for profitable niches, and online gambling would undoubtedly be one of them. However, that niche could close fast if big banks change their position on gambling transactions.