Article published on November 22, 2013

Banks Backing Out of Gambling

By: Harper Whitefield

It doesn't really matter to some prominent financial institutions that online gambling might be legal in the United States in some jurisdictions.

They are still not interested in being involved in processing gambling-related transactions. That's the word that has come down from some of them, and more may follow.

There are banks, card companies and an electronic wallet system that have backed off from this kind of activity.

They are obviously concerned about liability, and they don't want to be exposed to a lot of risks as this grand online gambling experiment (at least as it is regulated by the states) unfolds and serves as a model for other states that are waiting to see what happens. In fact, there have been some refusals of service reported in Nevada and Delaware, two states that have launched online gambling as a revenue booster.

The companies that are involved in this refusal are PayPal, American Express, Wells Fargo and Bank of America.

PayPal has long turned itself against processing any transactions that might be related to gaming in the United States. American express is not necessarily a credit card company, but is in fact involved mostly in the issuance of charge cards, which mist be paid in full at the end of a cycle. Banks such as Wells Fargo and Bank of America issue MasterCard and Visa as credit cards. Will that create some problems, in that MasterCard and Visa have said that they would indeed process the transactions where it was legal.

Online gambling is ready to go in New Jersey, and honestly, officials who are behind it don't really know what to expect. They do know that if customers are signing up, they are probably doing it with the help of credit cards, and of course, credit cards involve banks. What happens in a case like this is that the bank itself is extending the credit to the customer for action, whereas under a different scenario the casino itself would be doing it and worrying about collecting.

Speaking of collections, there would appear to be some potential difficulties on that end because of possible chargeback problems and defaults. Someone is left holding the bag, so to speak, when something like that happens, and banks wouldn't be likely to do that for very long. At some point the casino would suffer because there would be less availability for players to have access to funding through credit cards.

"There are still things that can go wrong even with controls in place. Does the revenue I get offset the potential downside?," asked Steve Kenneally, the vice president of regulatory compliance with the American Banking Association. That is indeed a valid question to ask.

In Nevada this is considered to be a problem that deserves to be addressed, and so there are officials from that state who are trying to do just that with some banks right now. If problems with financial institutions continue there, and develop in New Jersey, that could eventually cut greatly into the expected revenues those states are hopeful of generating.

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