Open banking – a bespoke solution for responsible iGaming

18 April 2023
Knowledge Base

iGaming, which covers ​​any form of online wagering, has snowballed over almost 20 years of its existence. The global online gambling and betting industry was valued at US$ 61.5 billion in 2021 and is expected to rise to US$ 114.4 billion by 2028, according to Statista. This growth is primarily due to the rising popularity of mobile devices and the availability of internet access across the world. Additionally, the introduction of new payment methods has made it easier for players to access and engage with online gaming and gambling platforms. As technologies develop, preferences shift and new tools emerge, the iGaming industry is constantly evolving. Open banking has proved to be a transformational force for a broad range of sectors – and iGaming is no exception. By using open banking, operators are given a better understanding of players’ affordability and their financial situation on the basis of bank records, income and credit reports, and other data. Thus, increasing trust between operators and players while also providing an easy and secure payment method.

Open banking also creates a more transparent environment, allowing operators to keep track of their customers’ financial transactions and ensure they comply with local laws and regulations. An important aspect of a safe environment is affordability, or how much a player can afford to spend on gambling. This level of transparency can reduce fraudulent activities and give operators valuable insights into customer preferences.

Here, we delve into the iGaming sector’s struggles and how the technology can help the sector overcome them. We look at how operators can leverage it to transform their online offering, improve customer experience, increase security and bring up new revenue streams. Moreover, we will examine some UK and EU requirements and how using open banking can assist them in meeting those obligations.

Open banking for responsible iGaming. How to comply with strict regulations?

Safe online gaming benefits both players and operators, but it is also their responsibility to keep this space safe. To establish this trustworthy environment, strict laws govern the handling of customer data and financial transactions. Regulators and rules differ from country to country.

In the UK the Gambling Commission grants licenses and supervises, advises and guides gambling businesses and individuals. In 2022 the Commission updated remote customer interaction requirements and guidance by introducing the Social Responsibility Code, part of the Licence Conditions and Codes of Practice.

The amended rules, which took effect last September, are more robust and more prescriptive, requiring operators to:

  • identify gambling harm and take action promptly,
  • implement automated processes for strong indicators of harm,
  • prevent marketing and the take-up of new bonuses for at-risk customers, and
  • ensure they interact with consumers at least at the level of problem gambling.

The Commission also specifies that licensees must implement systems that incorporate the understanding of risk, so they are prepared to take action immediately when identified to minimise harm.

Several factors make an individual prone to experiencing gambling-related harm that operators should monitor and address. Such factors are described in the Guidance to the new rules, as part of “know your customer” (KYC).

Among them is the “situational factor” that should be considered by operators when checking the gambler: “If the individual is experiencing financial difficulties, is homeless, is suffering from domestic or financial abuse, has caring responsibilities, experiences a life change or sudden change in circumstances.”

There is no doubt that regulators’ focus revolves around grasping a player’s affordability and intervening to protect it. A one-size-fits-all approach fails to recognise that players have different levels of disposable income and different individual risks associated with their gambling habits. As a result, some players may be more vulnerable to financial harm than others. Plus, oftentimes the disposable income is not that easy to determine.

Another challenge operators may encounter with the updated gambling rules is the obligation to conduct customer due diligence – verifying the customer’s identity and sources of funds to detect identity theft, impersonation or money laundering. A range of methods can be used to reveal potential risks, including video checks, document verification, digital footprint evaluation, sanctions lists, and public and private data.

All of these procedures can be time-consuming and sometimes inefficient. To combat this, streamlining and automation are key strategies to help reduce time and energy spent. Salt Edge CEO Stephen Winyard explains where bank data aggregation powered by open banking can deliver.

“Open banking solutions such as Account Information Services facilitate secure and instant access to a player’s bank account data and enable operators to better assess a customer’s financial situation and their ability to sustain gambling operations,” says Winyard. “The enriched data allows for greater detection of suspicious activities, such as when a person regularly transfers large amounts to multiple gambling accounts, or the funds’ origin is unclear.”

What about other countries?

European countries are a big market for iGaming as well. Complying with European regulations can be a challenge. Aside from being one of the strictest in the world, the region is also home to over a dozen different regulatory bodies. Even though EU laws encompass many states, many of them have their own regulations that differ from others.

The one thing in common is that operating companies must ensure that they have robust systems in place, including identity verification, money laundering procedures, and detailed databases.

What to expect in terms of regulations in the future?

The British government is planning on updating the UK Gambling White Paper, which outlines current policies for gambling services providers in the UK. Both operators and players are likely to be affected by the White Paper, which will bring significant changes to the field. One of the main expectations from the updated regulations is implementing “affordability checks” – operators having to request bank statements or pay slips from anyone losing between £100 and £500 per month.

“Checking affordability doesn’t have to involve complex procedures. With open banking-powered services, operators can quickly and easily make decisions about players’ affordability without the need for large teams and slow manual processes,” says Winyard.

Seamless payments with open banking

Global consumer behaviour is undergoing profound changes. People expect seamless, secure and digital transactions across all aspects of their lives. Businesses must adjust their strategies to keep up with changing consumer behaviour. The only organizations that will last in the long run are those that adapt to the latest technology. The same is true in the world of iGaming.

“Besides using open banking data to comply with strict gambling rules, operators can also enhance their payment processing and revamp their online offerings. Through open banking payments, operators are able to accept payments directly from their players’ bank accounts and enable secure payments for their customers to any other account in seconds,” says Winyard.

Here are some ways iGaming operators can make use of open banking technology.

Easy, safe and cost-effective account funding and withdrawals

Due to payment initiation when players fund their gambling accounts, they’re no longer transferred to another interface, instead, they can continue the transaction without leaving the operator’s platform. Gambling users can execute easy, seamless account-to-account payments and expect instant deposits. The same is true for payouts. Whenever a player withdraws winnings, operators can instantly transfer funds to any account the same way they funded it.

Identify and mitigate fraud risk

Moving money involves a lot of security concerns. Reducing fraud and security breaches is the mission of Strong Customer Authentication (SCA) – an EU requirement for online and contactless offline payments. When making account-to-account transfers through open banking, the user passes the SCA. Transactions are then protected by an additional security layer..

“Payment methods in iGaming are one of the main risk factors mentioned in the recent EU guidelines on fighting money laundering and terrorist financing. Due to the fact that certain payment methods allow customers to conceal their identity and source of funding, some payment methods are more vulnerable to criminal exploitation,” says Winyard.

Improved customer satisfaction, streamlined payment processing, superior security and cost-effectiveness are just some of the hallmarks of open banking. Open banking is quickly becoming the preferred payment method for businesses of all sizes. Consumers are also drawn to it, as it offers greater control over their finances, allowing them to manage their accounts more securely and conveniently.

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