Frankly, banking as a sector is not fit for the needs of the gambling sector. There’s a lot of scope for improvement. While successful players have reached multi-billion-dollar turnovers – with forecasts indicating more to come – the sector continues to face hurdles when it comes to traditional banking services.
It even comes down to basic provision. Financial institutions see risks and often shy away from the sector, categorising gaming and gambling alongside other high-risk industries. But is that a fair response that benefits either the banks themselves or their customers?
It’s time to reevaluate what truly constitutes a high-risk sector and consider whether it’s time for a new way of working in this ultra-high-growth business area.
The changing landscape of high-risk industries
Over the past year, financial institutions have been enforcing a noticeable tightening of compliance measures for high-risk industries. Mastercard‘s decision to halt transactions related to the marijuana industry serve as a stark example.
Financial institutions often react to these industries as if they are high-risk too. There are various, legitimate concerns, such as high chargeback rates, potential for fraud, and negative societal impacts. Adding further complexity, many gaming businesses are offshore and, historically, there have been cases of money laundering and fraud.
As a result, banks may decline to offer services to merchants, who are finding it increasingly difficult to establish stable banking relationships.
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But what are the genuine risks associated with these industries?
In the case of the cannabis industry in the United States, federal intervention can potentially seize assets, effectively nullifying a business overnight. Understandably, this is a risk many banks find challenging to accept.
However, gaming and gambling, despite being labelled high-risk, differ significantly from other high-risk sectors. While there are inherent risks, such as the potential for regulatory changes, they operate on well-understood models and are relatively stable.
From a regulatory perspective, excluding these industries from conventional banking institutions may inadvertently increase their risks rather than mitigate them.
Why should banks seek to accommodate gambling?
While there are good reasons for regulation of the industry, let’s not lose sight of the benefits it brings.
The gambling industry contributes to the economy in various ways. It has a significant global footprint and contributes to economies worldwide. The worldwide casino and online gambling industry reached a market size of $231bn in 2021. This industry has not only generated substantial revenue but also created numerous job opportunities globally
Moreover, the benefits of the gambling industry extend beyond direct economic impact. It has been associated with increased employment and income, enhanced tourism and recreational opportunities, and rising property values. In 2021, around two-fifths of the adult population gambled each month in Great Britain, equating to approximately 22.5 million adults. This level of engagement suggests that the industry plays a significant role in recreational activity and entertainment for a substantial portion of the population.
Perhaps it is time to consider the benefits of including gaming and gambling in robust banking services, as this could help stabilise these sectors and be beneficial to everyone involved.
A way forward
Traditional banking models are clearly reticent about serving gaming and gambling companies. However, emerging transactional banking frameworks, like Electronic Money Institutions (EMIs), present advantages that offer a serious alternative for the sector.
These are relatively new providers and navigating the evolving landscape requires a careful selection of banking solution providers. When choosing an ideal provider, several essential criteria should be prioritised:
- Licensing: Ensure that the provider holds the necessary licences to support gaming and gambling transactions.
- Deposit assurance: Verify that deposits are held in the custody of a central bank, offering greater security for clients.
- Compliance: Regulation is a moving target and is only going to increase. Providers need to have rigorous compliance protocols in place and the ability to review and update them regularly.
- Industry experience: Experience working with high-risk industries is a must, as is a clear understanding of the gaming and gambling companies’ unique challenges.
- KYC and AML expertise: Given the sensitive nature of these industries, a banking partner must excel in Know Your Customer (KYC) and Anti-Money Laundering (AML) processes.
Adaptation from both sides
For a successful partnership, there has to be an effort and willingness to adapt from both the banking service provider’s and the client’s side. Gaming and gambling companies should be prepared to meet the stringent requirements set by banking partners to foster a symbiotic relationship.
They must demonstrate willingness to adhere to strict standards, invest in compliance, and collaborate closely with banking institutions to develop a robust framework. This shared effort has the potential to better serve customers, enable sector growth and innovation, and ultimately benefit national economies.
By selecting the right banking solution providers and adapting to new compliance standards, these industries can not only safeguard their future but also contribute to a more stable and secure financial ecosystem for all.
Sofian Berrahal is Chief Business Officer at Nexpay
Licensed by the Bank of Lithuania, Nexpay is processing almost €1bn monthly across Europe, having helped over 600 businesses build the future of money. Prior to joining Nexpay in 2021, Sofian managed a multinational team at Dukascopy Bank SA, an innovative Swiss bank that provides online ECN Forex, precious metals, and CFD trading facilities through the SWFX platform