A Guide For Obtaining Gambling Merchant Accounts
In 2020, the value of the entertainment sector including gaming and online casinos is expected to reach a value of $2.14 trillion. Numerous financial institutions will not provide this type of business with a merchant account due to the history of the industry, potential legal issues and high chargeback rates.
The Required Documentation
To obtain a merchant account, an operational website, chargebacks below two percent and specific documents are usually required. This generally includes:
- Valid government identification
- Voided check
- An EIN or SSN
- When applicable, three recent, consecutive processing statements
- Three recent, consecutive bank statements
- Applicable licenses required by federal or state boards or gaming commissions
The Risk Factors
To show the business is reputable and legitimate, the following basic information is generally reviewed.
- Credit scores
- Financial history
- Bank statements
- Online website and reviews
- Processing history for credit cards
These are just a few of the first things they will review during the underwriting process. The bank will also look at any pending or potential legal actions and assess the operational and reputational risk of the business they are reviewing.
Reasons the Gambling Industry is Classified as High Risk
Gambling online is truly broken up into two sections. Sports Betting and true Online Gambling (poker etc.). Sport Betting is solely a states’ right issue ever since the Supreme Court overturned the Professional and Amateur Sports Protection Act (PASPA) in 2018. Online Gambling is a states’ rights issue with an additional layer of Federal oversight. Banks consider the industry risky due to all the red tape surrounding the regulations. There is also a large concern of reputational risk for the bank connected to any such establishment. This increases liability for merchant accounts provided by sponsoring banks.
Many gambling solutions are handled offshore because of United States laws. Many domestic solutions focus first on fraud and money laundering because those are the issues that carry massive exposure to the bank. Tracking funds online is more difficult in general. Websites have to adhere to their local and state laws and all have to have a form of age verification.
Online casino merchant accounts can be terminated for excessive chargebacks. The providers do not want to take responsibility for money the business is unable to cover. Excess chargebacks damage the relationships between the processors and the credit card brands. The revenues processors earn from the industry is not enough to risk potential losses, fines or relationships with their banks.
Reducing Chargeback Rates
Merchant accounts can be terminated if chargebacks exceed limits set by the processors. Once terminated, establishing another account is extremely difficult. To prevent customer abuse, the business should record and archive details for each transaction. This includes the time and date of the transaction and the customer’s IP address used for payment. This is used for fighting disputes and common friendly fraud.
Customer service representatives should be trained to provide dissatisfied customers with full refunds as quickly as possible. Excessive chargebacks are more detrimental than refunds. Many chargebacks occur because the name on the credit card statement is not recognized. This is an example of friendly fraud. Customers should be informed regarding what name will appear on their bills.
Websites, receipts, emails and promotional material should include contact information and the business name to prepare customers. Chargebacks can be avoided by sending emails automatically after transactions and client satisfaction surveys. This is a good opportunity to inform customers that the merchant wants them to be satisfied with their purchases and to remind customers they have made a purchase.
Online casinos can use these methods to bring their customers back for another game. The most common reasons for excessive chargebacks include a lack of communication and transparency, unsatisfactory customer service and flaws in the business model. There are ways to protect the merchant account and help ensure chargebacks do not become excessive.
Categories for Online Gaming and Casinos
Countries including the United States and the United Kingdom assign (SIC) Standard Industrial Classification codes. The codes consist of four numerical digits used for identification. The 7999 code is commonly used for online gambling and casino merchants and recreation and amusement services. The complete SIC code listing is available at the U.S. Department of Labor.
Flow Payments has decades of experience helping high risk merchants get the processing solutions they need to grow their business. Contact us today to learn how we can help your business.