Ron Mendelson is the Director of Costa-Rica based International Business & Corporate Services consultancy firm, Fast Offshore. With over 24 years of real-world experience in iGaming Licensing and Payments, Regulatory Compliance, Tax-Efficient Corporate Structuring, Incubator and other Hedge Fund Licenses, Blockchain and Cryptocurrency related services, he advises a number of international clients on their business needs in the Americas, Europe, and beyond.
If you are thinking of starting an online gambling business, you might have heard it being referred to as a “high-risk” industry. This doesn’t have to be bad news; however, it just means you need to work with the right partners. But before we get to that, why is the gaming business high risk for payment companies, and how to negate the risks?
When we deal with customers face-to-face, we can be sure it’s them making the transaction. Also, they input a pin when paying with a card- a number only they would know. Any concerns or suspicions can be allayed by asking to see a photographic ID. But this cannot happen online. Everything is done remotely and digitally, and there are fewer safeguards in place. This means it is easier for financial crimes such as fraud and identity theft to take place. For this reason, banks are warier of online sales and payments, thus designating them as high-risk.
There are several ways to solve this issue, including thorough onboarding procedures, transaction monitoring, and even enlisting the help of AI and other technologies to help you root out nefarious actors.
There are high chargeback rates
The online gambling sector is prone to high chargeback rates. Most banks and payment processors will ask you to keep these below a certain value or risk penalties or even the suspension of your account. These chargebacks happen for several reasons. Firstly, they can be accidental. If your merchant name doesn’t match your site name, players might get confused and accidentally ask for a chargeback, thinking they didn’t authorize the payment. Secondly, some will try to do so fraudulently.
There isn’t much you can do to avoid that, so it’s best to focus on the first scenario. As well as making sure your merchant name matches your site, make sure to communicate regularly with customers and keep multiple channels open for them.
Online gambling is considered a high-risk industry. It’s often a target for those looking to move illicit funds, and it has a negative reputation in some areas. While this may not be exactly fair, it is a reality. For this reason, many banks and payment processors shy away from accepting gambling clients, but not all. By ensuring you are licensed in a reputable jurisdiction and remain compliant with the regulator, your bank, and your payment processor, you can avoid and reduce any possible issues.
Incorporating in an offshore jurisdiction has many benefits, but it can make getting certain accounts more difficult. You can incorporate your offshore company and get an account by opting for an offshore bank. Typically, you will need an introduction from a third party (such as Fast Offshore) to start the application process. You will then need to keep your account in good standing, being sure to stay on top of the chargeback ratio and other matters mentioned above.
Running an online gambling business is a multi-national operation. You will be serving customers from the world over and accepting payments in many different currencies. Banks perceive this as an additional risk and may be hesitant to offer services. This can be due to various factors, including some jurisdictions being less reputable than others and variations in currency stability and strength. To keep your global reach and maintain a good relationship with your bank, you should opt for a provider that specializes in high-risk or gambling companies and do your utmost to keep your account in order.
If you are looking to open a merchant account, Fast Offshore can help. We have over 23 years of experience in providing corporate services to both sectors. Our help includes incorporation, payments and banking, structuring, licensing, and compliance. To find out more about our services, contact us here to arrange a chat!