Fintechs: Don’t Come Up Snake Eyes when Processing Online Gambling Payments

July 28, 2022 World iGaming & Gambling Industry Updates

Online gambling is a growing pastime hitting new highs since the lockdowns of the pandemic, writes Shaun Smith-Taylor of ThetaRay

Revenues of online gambling companies are also reaching new heights and gaining critical legality throughout the US. The global online gambling market is growing at an annual rate of nearly 12% and is expected to reach $127.3bn by 2027. The liberalisation of online gambling regulations in the US, the Netherlands, and other countries are helping accelerate this growth.

To operate, online gambling companies require digital payments and third-party service providers as gateways for payments.

Criminal activity a constant danger
Gambling is a leading area of concern for anti-money laundering (AML) efforts because criminal activity is a constant danger. Gambling is used by criminals to launder funds and obscure the origins of money obtained through illicit activities. In gambling, it’s commonplace for players to frequently lose as much as 80% or more of their invested funds.

A recent scam in Turkey, in which $10m was laundered over Twitch, made global headlines and highlighted the risks involved in this space.

Outdated legacy AML systems heighten risk
Using outdated legacy AML systems increases the risk of these ‘nested’ payments being processed incorrectly and exposing the gambling company, fintech and processing banks to regulatory compliance fines.

Low-level transactions, high volume turnover
The high volume of transactions in online gambling creates activity monitoring challenges for payment providers, increasing risk. On the other hand, low-level transactions are common in gambling and don’t necessarily meet the minimum threshold for CDD monitoring.

Limited visibility using ACH
Gambling companies that use fintechs to pay out to clients typically make electronic payments through the Automated Clearing House (ACH) network, using faster payment schemes that automatically move funds from one bank account to another in a cost-effective and often real-time manner.

The problem of nested payments for banks
In fintech-processed money transfers that originate from online gambling, the processing bank only sees the identity of the customer and doesn’t always have information regarding the gaming company or the fintech.

Benefits of AI solutions
Using AI-powered solutions, banks and fintechs can gain a full picture of the transaction and analyse every entity along the chain of payments emanating from online gambling. With machine learning-based systems, the amount of data is not an obstacle to finding abnormal behaviour patterns and anomalies that indicate activity such as money laundering. By highlighting risk factors and creating pseudo customer identities, AI can pinpoint complex risk patterns and guide payment service providers and banks to suspicious cases.