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PartMasterCard and Visa issued several new credit card codes to help banks differentiate between licensed state-run, legal online gambling, and illegal online gambling transactions.
The three new codes carved out these legal activities from the original 7995 coding used for all online gambling transactions. They are:
The industry’s hope was the new codes would clearly differentiate legal online gambling transactions from illegal ones, and in the process set the minds of some financial institutions at ease regarding processing these transactions.
However, it needs to be stated that even with the new codes, the final decision on what types of transactions they will process resides with the issuing bank. Banks and financial institutions do not have to accept any type of gambling transaction, regardless of its legality, and PayPal, American Express, Bank of America, TD Bank, and Wells Fargo are among the bigger names that refuse to process online gambling transactions.
Because of this, the results of the new MCC codes have been modest thus far.
According to Bill Rini, the head of online poker for Caesars Interactive, WSOP.com has experienced “minor improvement.” Rini said this is due to several smaller banks now processing online gaming transactions under the new MCC codes, but the larger banks that have prohibited iGaming transactions have not followed suit.
“The vast majority of banking in the U.S. is through larger banks, [so] not much is going to change until their policies on gaming transactions change,” Rini explained.
While any improvement is positive, until these major banks (where most people have their credit card accounts) emulate their smaller counterparts, credit card payment processing will continue to be a major issue.
For PartyPoker, the new MCC codes have been a case of good news/bad news according to bwin.party Group Director of Poker Jeffrey Haas.
“In the first few days after the new codes went live, we saw an immediate decline in MasterCard transaction success rates of about 5%,” Haas stated. Haas went on to say the company saw the volume of Visa transactions more than double during that time frame, although he indicated Visa success rates had plummeted to 11-15% following TD Bank’s decision to stop processing online gaming transactions.
Haas believes the recent decline in MasterCard volume has to do with Santander prohibition on online gaming transactions; prior to the new MCC codes going into effect, Santander was processing online gaming transactions.
Haas went on to say that over the past 50 days, they are seeing continued improvement, and MasterCard volume is now down just 4% compared to the period before the new codes were instituted. Furthermore, success rates are ticking up, “Two weeks ago we had an average success rate of 77.5% [MasterCard], and last week that improved to 79.3%,” Haas said, adding that on June 11, MasterCard success rates hit 84%.
Visa success is improving at an even faster clip according to Haas. “The decline in MasterCard has been more than offset with the substantial improvements we have seen in Visa transaction success rates,” Haas noted. “The success rate in June has been 61.1% MTD, with last week hitting above 62% for the first time.”
Pala Interactive has seen more positive results since the new codes went into effect, according to Chief Operating Officer Mike O’Malley:
“Since making the change to the new codes, the number of transactions getting approved for MasterCard have doubled as well as a substantial increase in the number of players getting approved. Since making the change for Visa, we have seen increase in both approved transactions and players.”
Pala seems to be seeing the same boost in Visa volume and success rates as PartyPoker, but they’re also seeing an increase in MasterCard usage and success rates as well.
One possible reason for the discrepancies between operators could be the sign-up process at each site.
Depending on each site’s suggested methods of deposit, and how clearly each site relays which banks are prohibiting online gaming transactions, it could explain why sites are having divergent experiences with credit cards since the new MCC codes went into effect.
There are a number of reasons banks remain hesitant when it comes to online gaming transactions.
Continued uncertainty over current federal laws, as well as uncertainty over future possible laws such as RAWA are at the top of the list.
Uncertainty aside, it’s not out of the question that offshore sites might try to game the system (as they have in the past when they coded transactions as retail sales for sporting goods) and code what should be 7995 transactions as 7800, 7801, or 7802. This could cause a situation where a bank would have to vet virtually every iGaming transaction in order to make sure they weren’t running afoul of UIGEA.
This type of through vetting is something few banks would be willing to do, as there is the problem of incentive. As noted by Haas, Santander pulled out after the new MCC codes were adopted.
Banks like Santander have the luxury to exercise caution. Presently, only 3% of the U.S. population lives in jurisdictions with legal online gaming. With penetration rates of 1%-2%, the prohibition on online gaming transactions amount to a drop in the bucket for these financial institutions, which allows them to act conservatively on these issues.
A positive risk-to-reward analysis is missing for many banks.
The good news is, payment processing is getting better and should continue to improve.
Furthermore, O’Malley doesn’t see the new MCC codes as a one-time boost. He expects the new codes to continually improve payment processing in the future:
“As time goes on, we expect to see the numbers continue to climb, both because players are retrying and becoming more aware, as well as more banks are approving the codes (some didn’t switch their code over when the change was made). Also, operators will continue to push MasterCard and Visa as they get more comfortable with the approval rates, and move off of high recommendations for other forms of payment.”
Additionally, as more states legalize online gaming, banks will find they have a larger carrot to chase. As more and more of their cardholders are exposed to legal online gambling options (something banks will notice by the number of 7800-7802 transactions they are declining) the uncalled for caution currently being shown will have a larger impact on their bottom line, and their bottom line tends to influence policy.
Finally, online gaming operators and regulators in states with legalized iGaming have been reaching out to banks and financial institutions to educate them on iGaming and debunk myths such as high chargeback rates.
The solutions to iGaming’s payment processing issues are going to require a long, slow slog. The new MCC codes weren’t expected to solve the issue overnight, as there are no quick fixes or magic pills.
The good news is progress has been continual since iGaming launched in New Jersey in November of 2013. At that time, Visa success rates were barely cracking double digits.