I’m not going to delve too deeply into the payment methods that a lot of companies use – mainly because I don’t know a lot of it – but I will try to give you all a good overview of the situation that your average online gambling company has to deal with on a daily basis.
Question: How come sites seem to have no problem accepting my money, but then can’t seem to pay me?
First of all, the methods companies use to accept your deposits are completely different from the methods used for payouts. I think this should be pretty obvious to anybody who has ever requested a payout. Simply put, they can’t just dump your money back onto your credit card. That won’t work. So they have to use different methods for payments.
Question: How do deposits work, and why are they usually more reliable then withdrawals?
That sheer volume of ongoing online businesses makes it very easy to disguise online gaming deposits from being detected by American authorities.
How? It’s very easy:
1) Open up a company in, say, Panama and call it “Miguel’s Cool Panama Hats”, or better yet “Panama 1234 S.A.”. While you are at it, open up like five more companies too, each in different business sectors and with preferably different owners listed.
2) Get a credit card merchant account for those business.
3) Use one of those companies to accept your credit card charges for your online gambling business.
4) Make sure you empty out the account every morning, in case the US government tries to get your company closed.
5) If the government does shut that company down, immediately switch your processing to one of your other companies.
6) Go to #3.
This round-robin of businesses makes it virtually impossible for the US authorities to keep on top of all of the deposits. It’s a waste of time. In the time it takes to shut down one company, online gambling companies can create and set up two more replacements.
But paying customers is a completely different beast.
Question: How do withdrawals work, and why are they more prone to problems?
The one thing that separates online gaming from those millions of other online businesses is the fact that gaming sites need to be able to pay back their customers, which is something that the average company only rarely has to do – and credit card companies do not look kindly upon chargebacks and refunds.
And customers do not look kindly on being paid in goods and services, rather than cold hard cash, so there is only one option that pleases everybody… checks.
That’s where the trouble starts.
Firstly, the UIGEA has made it illegal for American banks to deal with online gambling companies, so it’s not like your online casino can simply cut you a check from its account at Citibank Panama.
Why? Because any basic US Department of Justice investigation will work like this:
Step 1: Sign up and deposit at a casino.
Step 2: Trace that deposit and get that company closed. This is not a big problem for the casino, as described above, but it’s still part of the process.
Step 3: Request a payout.
Step 4: Trace the check, and get that bank account closed. Also try to get the issuing bank officially reprimanded for breaking the rules of the UIGEA. If happens often enough, the bank may lose its privilege to do business with American financial institutions. This is a time-consuming and political process, but if it happens, it could be devastating to the bank involved.
Step 5: Repeat.
Now, any company needs a bank account to do business, so it is imperative that online companies keep one bank account clean and free from suspicion. And as Step 4 illustrates, it’s not always easy for online gaming companies to find local banks willing to have them as customers. The risk is too high. Once you find a bank, you protect it and do nothing to jeopardize that relationship.
So in order to handle payouts, they need to find a bank or a third party willing to take this risk.
Also keep in mind that this is not just one transaction. Your average online gambling company needs the ability to cut thousands and thousands of checks per year. And the bigger the company, the more checks that have to be cut. At certain periods, like say after the Super Bowl, they might have to cut literally hundreds of checks per day.
The only way to do this efficiently without putting your banking in jeopardy is to involve a third party… the payment processor.
Question: What is a payment processor?
What these payment processing companies do is basically print checks for a living. They receive a printout each day from your casino, listing the names and amounts for all outgoing checks. They print and send them off. If all goes well, you get your check in a few days and nobody is the wiser.
Now, I’m not sure exactly how these payment processors manage to avoid the pitfalls involved in issuing checks, because everybody does it a bit differently. The bottom line is that these payment processors are involved in a very short-term business, and need to protect themselves too.
Depending on the size of the casino, this security deposit might be anywhere from $100K up to literally millions of dollars. Plus, the casino needs to constantly be transferring funds to this processor to handle the day-to-day issuing of checks. In the event of a meltdown, that is a lot of money that can go down the drain very quickly.
In short, there are two types of payment processors. The honest guys who try to put together a good process and avoid getting caught for as long as possible, and then there are the guys who talk a good game but really are more interested in receiving as many security deposits as they can before mysteriously disappearing and claiming to have been shut down. And from the casino’s standpoint, there really isn’t any reliable way to tell the good guys from the bad.
Question: How does the processing get messed up?
Once the inevitable happens and a processor has gotten shut down, the left over rubble is nearly impossible to sort out.
Since it is involving a third-party, the casino is out of the loop. They really have no immediate way of knowing which checks got cashed, and which checks bounced. It isn’t easy to fix a problem when you have no immediate information.
- Is the problem with the processor?
- Is the problem with the customers’ bank?
- Are we being scammed by the payment processor?
- Are we being scammed by a syndicate of players (it happens) trying to imitate a meltdown?
- Is it an isolated case involving one particular bank, or is it a wide-spread issue involving the American government?
Question: How come some casinos seem to have more problems than others?
Simple. It is a matter of visability.
The online gambling issue in America, at its heart, is a political issue. The DOJ is only really interested in this industry simply because of companies such as Bodog, who made their name by rubbing their business in the face of the American authorities. And the authorities are naturally going to try to first target the operations that draw the most attention.
Then there are companies like Sportsbook.com, who everybody knows are still huge even if they don’t spend as much time trying to piss off American authorities. They are going to run into occasional problems, but they aren’t going to get targeted nearly as much as the true publicity hounds. But when a company the size of Sportsbook runs into problems, it will affect hundreds or thousands of customers, instead of just a few dozen.
Question: If a company is having processing problems, then why don’t they mention it on their site before I sign up?
Processing problems are sporadic. Things can be working perfectly today and completely broken tomorrow.
And if they have an existing problem, they might be only hours away from fixing the problem, which wouldn’t affect new players anyway. Who knows? They might have already fixed the problem, twice, only to have it pop up again?
So, if it were up to me, every online gambling company should have a message on their site explaining this situation, and noting that at any given time their payment processing system might break.
But they don’t. And they won’t. Bottom line, it is a stupid business move. Why should one site put a warning on their site and cause themselves to lose customers when their competition won’t do the same thing?
Question: So what can I do?
Well, first of all, get your head out of the clouds!
You are participating in an activity that the American government – rightly or wrongly – considers illegal. You have to understand that sooner or later, processing problems are going to happen to your favorite casino.
When it happens, you can choose to kick and scream and promise to never do business with that operation again, but that won’t do anything to get your money any quicker.
Question: So what is better? Big attention-seeking operations with deep pockets, or smaller operations that stay under the radar?
Bigger companies are definitely going to draw more attention from authorities, and therefore have more frequent processing problems, but they also are more able to shrug off a period of bad press without so much as a blink. Plus they are more likely to have a wider range of services and features that make the day-to-day use of their site more enjoyable during the good times.
On the other hand, smaller operations might be a lot less likely to suffer major processing problems, but when they finally do get hit, it might be a lot more likely to cause a major financial meltdown that, combined with the bad publicity, could put their entire company in jeopardy.
Big or small? It’s a tough choice with no correct answer, and not a choice that anybody should have to make, but to paraphrase Hyman Roth, this is the hobby we have chosen.
Unfortunately, until the laws get changed, this is a situation that we will have to live with. It might even become more common in the future.
Question: So how can I minimize my vulnerability?
Personally, I think the best remedy is to simply try to avoid requesting payments by check. Sure, checks are easiest, quickest and cheapest, but it is also the method that is most likely to get jammed up. So why bother, especially when there are other methods such as ACH or bank wires or e-wallets?
So try to deal with companies that have “alternative” payment methods, and once you get your money deposited, immediately get yourself signed up with one of their alternatives. That way, even if they do get jammed up by a check processor, it is a lot less likely to directly affect you.
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