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Monday, December 7, 2009

Are Credit Card Processors Shutting Down Online Virtual Currency And Subscription Gaming Models Illegally?

I work with a number of online game companies and startups and have been informed that the credit card processing companies are now denying them access to credit card processing facilities for legal gaming transactions.

This trend started several months ago coincident with Zynga and Pureplay leveraging virtual currency to generate revenue from casual online game play. It is also coincident with an increase in the number of "sweepstakes" gaming sites emerging as a result of the successful purchase of WPT.com by PartyGaming. This purchase has drawn attention to the fact that a number of gaming sites (EA Club Pogo, SpadeClub, etc.) have been operating successfully under this model and it is a very attractive way to legally generate revenue from online game play.

Their are two aspects of this new new credit card processing policy that are disturbing.

1.) Are legal authorities in the US putting pressure on the credit card processors to not accept perfectly legal gaming transactions?
If this is the case is that directive legal? Can a federal or state institution strong arm a business to do or not to do something when there is no legal justification for that directive?

2.) Existing online gaming sites that have been processing credit card transactions under this model continue to do so.
This situation is the most disturbing because it leads to monopolization in the US online gaming sector by companies that have grandfather clauses allowing them to take transactions. All of the new companies seeking to enter the market are frozen out.

This entire situation highlights the very confusing and contradictory nature of US gaming law. It also points out the frightening power of credit card processors and credit card companies to arbitrarily decide who they like and do not like.

The irony of all this is that the collusion of government authorities and credit card processors is leading to an undeniable un-American activity on the part of government and credit card processors.

The solution is simple. Is it legal or is it not? If it is not all businesses should be denied credit card processing of these gaming transactions. If it is legal then let them all have their transactions processed.


Anonymous said...

If gaming and gambling were not such interchangable terms, this would not be a problem. Unfortunately, any gaming system that offers "prizes" that have tangible financial value are in effect, gambling houses with the implicit fraud and chargeback risks. Fly by night processors may be willing to absorb the risks in return for higher fees but none of the majors will.

Kevin Flood said...

Th issue is that many processors have signed-up these businesses, do not have charge back problems but are denying access to other legitimate businesses. This is the problem and is resulting in businesses receiving preferential treatment at the expense of other businesses.

MichaelB said...

That is precisely the problem with the UIGEA. It does not define in any meaningful manner, that which is legal, and that which is not, but it requires banks to enforce financial blocking of "illegal" internet gambling. Since the banks have no way of determining what is legal and what is not, they err on the side of over blocking, since they have a safe harbor in the event of over blocking, but not for under blocking. That is what the Menendez and Frank bills hope to address.