New credit card code may help online gambling in New Jersey

Visa, Mastercard and other card associations facilitate card payments, but the banks that issue the cards decide whether to decline or authorize a purchase.

More than half of Mastercard transactions and more than one-quarter of Visa transactions are declined for legal online gambling in New Jersey, the state’s chief casino regulator said in January.

A four-digit number — 7995 — is a big reason why. That’s the Merchant Category Code that the card associations have used for years to identify transactions coming from online casinos.
It’s the same code considered anathema by some of the nation’s biggest banks, who refuse to authorize any 7995 transactions, fearing criminal liability for facilitating illegal gambling.

It’s also the code assigned to legal online gambling transactions coming out of New Jersey.
But the associations launched a new code — 7801 — for transactions made at government-licensed online casinos. No longer will legal online bets be lumped in with illegal ones.

The banks’ hardline approach to online gambling is a holdover from the years when the practice wasn’t legal anywhere in the country.

The move has hamstrung New Jersey’s legal operators, who have been forced to ask customers to fund gambling accounts using alternate methods such as wire transfers and e-wallets.

Those methods let gamblers get money into their accounts relatively quickly, but many Americans prefer to pay for online bets the same way they pay for other Internet purchases: with plastic.

In 2006, after Congress passed the Unlawful Internet Gambling Enforcement Act, the federal government began clamping down on rogue offshore Internet betting outfits.

For card-issuing banks, “the easiest way for them to comply was for them to say, ‘Hey I block all 7995 transactions,’” says T.J. Sharkey, an executive at Vantiv Gaming Solutions, which handles most of the payment processing for New Jersey’s legal online casinos.

“Even after the opening of the Internet gaming landscape in the U.S., most of the issuers said, ‘I’m not going to change my blocking”, Sharkey says. “Hence, we have these issues.”

Those issues at least partly explain why Paddy Power, the European bookmaker and online casino juggernaut, has so far decided to sit on the sidelines in New Jersey, Nevada and Delaware, says Eamonn Toland, president of the publicly traded company’s North American division.

“We knew the market couldn’t possibly be the right size until the card-issuing banks started accepting payments,” he added. Toland calls 7801 “crucial” to bringing banks on board.” The code “may be necessary but not sufficient,” though.

The legal Internet betting industry is still small, generating about $122.9 million in New Jersey last year, which was far less than widely predicted. An industry of that size is negligible to many banks, says Matthew Katz, CEO of CAMS, whose platform helps New Jersey’s legal online casinos take payments and verify gambler's age and location.
And there’s the perceived legal risk of servicing underage gamblers or gamblers betting from outside New Jersey (state law requires gamblers to be within state borders).

All considered, there’s little incentive for banks to re-engineer their internal systems to involve themselves in a business that remains illegal in most the country, says Katz, who expects “a slight increase” in credit-card authorization rates now that 7801 is launched. “I don’t think it’s going to be a silver bullet,” he says.

“The banks are not set up to operate on a state-by-state basis, and the potential liability it creates for them is much greater than the revenue,” he says. “It’s not a priority.”

David Rebuck, director of the state Division of Gaming Enforcement, declined to comment.
Ehren Richardson, an analyst who’s followed Internet gambling for years on behalf of tribal casino clients, agrees that the new code will be modestly helpful but that many banks won’t reconsider their denials until the market grows.

“It’s not big enough for them to pay attention,” he said. “The processors like Vantiv have the challenges of having to go around and educate all these big banks.” Many of the banks likely already know that Internet gambling is legal in New Jersey. “They may not care,” he concluded.