Banking Destinations for Online Casinos Part 1

This is a guest contribution by Lionel Iruk. An i‐gaming, international wealth management, M&A, principal attorney and manager at Empire Legal. If you would like to submit a contribution please contact Bill Beatty for submission details. Thank you.

In the first of a two part series Lionel Iruk of Empire Legal explains the importance of banking in the online casino industry. Look for Part 2 tomorrow where he looks at several banking destinations for your online casino.

A. Introduction

Over the last few years as the online Casino Market has expanded across the globe, more entrepreneurs have ventured into the business. It has emerged as one of the most stable investment options with a continuously growing clientele as more people across the globe get connected to the internet and venture into online gambling. Even though the market has a few incumbent players with the first mover advantage, but in a broader sense, the market is largely open and new players can expect to secure a foothold in the market because the internet allows new players to advertise aggressively and secure new customers who will be willing to try out innovative products. This means that if you have a great product on the platter; you can easily attract new customers and build a nice in your market. But, having a great product is not the one single thing which will attract customers to your online casino. There are a few more factors which need to be kept in mind to ensure that you give your business an opportunity to succeed.  We have listed a few of the important factors below:

  • Acquiring a license or a sub-license from a reputed Jurisdiction

A licensed online gaming casino is considered more reliable by customers and they are more likely to bet with higher amounts in license casinos which are backed by regulatory authorities. A license also makes it simpler to open bank accounts and ensure faster service to the gamers

  • Ensuring the services of a recognised payment gateway

A payment gateway is one of the most essential machines which keep an online casino running. Without a payment gateway it would not be possible to accept funds from customers on a real time basis or to ensure that they could bet on your website. A good payment gateway would enable you to receive funds in multiple currencies and through multiple mediums like credit cards, debit cards, virtual cards, online wallets and wire transfer to name a few. It should also allow you to segregate funds from restricted jurisdictions and reject such transactions or refuse such customers.

  • Ensuring prohibitions on customers from restricted jurisdictions

There are a few jurisdictions which do not allow their customers to participate in online gaming activities. Accepting customers from such jurisdictions may bring about huge fines, compliance requirements or may even lead to your prosecution. The policies of the casinos should be clear to enable them to reject such customers. Some of the more technically strong online casinos also now have IP exclusion policies to enable them to identify IP addresses from restricted jurisdictions and exclude such customers.

  • A robust banking solutions provider

A robust banking partner which allows you to easily move funds between jurisdictions across the world and also transfer funds back to customers as and when required is probably the another important pillar which helps in the functioning of a casino. In this present note, we will be looking into the banking solutions for online casinos and which jurisdictions and banks would allow such facilities. We will also slightly delve into the functioning of a payment gateway and its linkage with banking solutions. The coverage on payment service providers is not comprehensive and is only to the extent of their linkage with banking solutions.

  • Obtain a Specialist Banking Advisor

In the later part of this note, you will understand that egaming casinos fall into high risk category owing to the large number of restrictions on the business and the need for compliance. A Specialist Banking Advisor who is generally a lobbyist, lawyer or an accountant would be your greatest support during such times as he will introduce you to banks and payment service providers who on the basis of their familiarity with the Advisor would allow you to obtain their service. It is recommended that all business whether large or small obtain the services of a Specialist Banking Advisor if they plan to operate a high risk business, Services of the advisors helps to simplify compliances’ and ensure that you enjoy a seamless banking service.

B. Banking for Online Casinos- an overview

Banking Destinations for Online Casinos Part 1Banking is essential for the functioning of casinos and online casinos in particular. It becomes more important for online casinos as the funds cannot normally be handled in cash and money has to be received in the form of transfers. These transfers are normally possible only through banks which operate the global money transfer framework through systems such as SWIFT and other global fund transfer mechanisms. These systems have been developed through intergovernmental cooperation and the banks run the system through global cooperation. Billions of dollars are transferred across the borders by such money transfer systems and the need for transfer of cash has virtually been eliminated. For the common man, when he issues an international funds transfer request through his local bank’s counter or online banking platform, he starts a series of complicated transactions which would ultimately result in the funds being deposited in another bank thousands of miles across the globe. Unseen to the eye, the instructions for transfer would have resulted in money being transferred between a number of intermediary banks and in settlement processes being undertaken at least three different banks. This is just an example of the extremely close knit and tight processes which make global transfer of funds possible and makes businesses tick. For online casinos, banking is the backbone of the system and also probably the weakest link. Casinos require banking services both to receive funds from their customers for the games and also to disburse winnings and funds back to the customers. Without linkage to the global banking systems, such transactions would be impossible as the casinos and the customers only maintain a virtual link and actual cash cannot be possibly handled at any stage. Much to the concern of online casinos and customers alike, providing banking services for casinos is now considered an extremely tricky subject particularly owing to the restrictions imposed by the US government and also the recent allegations of use of casinos and their bank accounts in the infamous Bangladesh Bank hack through the US Federal reserve. The services of online casinos would come to a virtual standstill without banking and transactions would not be possible. We at Empire Legal have identified the challenges and have come up with this document to guide you through the challenges. We have also identified jurisdictions which allow banking for online casinos and provide you insights into obtaining the services in those jurisdictions. Please note that in many of the jurisdictions, obtaining a license from the local gambling regulator would simplify the process of opening a bank account or obtaining services from banks in the jurisdiction. Further, accessing the US market is virtually impossible from any country owing to restrictions from the US Government and online casinos are generally advised to carry special disclaimers and warnings for US based clients.

C. Speciality Banking: A boon for online egaming services

There are many among us who consider ourselves to know quite a lot about the banking industry. But, the term ‘Speciality Banking” must have still caught your eye and you may not know quite a lot about it. For beginners, Speciality banking is strictly on lines as to what the literal meaning suggests. It is banking with innovative processes to take care of special needs of clients. Although, it may sound a bit discouraging but many banks and payment processors across the world now decline to do business with clients who are considered ‘high risk’. Although, there is no strict definition of this term, but it broadly refers to businesses which show special characteristics like large transaction size, large monthly or spiked monthly volume, transactions in multiple currencies, multiple high value transactions and funds sourced from multiple countries across the world. Broadly, the situation can be industry specific like gambling or may also be a result of the nature of customers which a business has. The business accounts which show he special high risk characteristics have been given a new name called ‘Speciality Risk Accounts’. Unfortunately, many international banks would consider egaming services as High Risk and banking would be impossible without these so called ‘Speciality Risk Accounts.’ Opening a Speciality Risk Account requires in depth contact through a specialised service provider with links to banks and payment service providers who would then accept you as a customer. As a specialist, the intermediaries have to obtain detailed guidelines from the principal. Speciality banking is a boom for the egaming casinos as they now will be accept and make payments to wider range of clients who are a part of the egaming industry.

D. Necessity of a Business Plan

A well chalked out business plan which shows the progress of your business and its future growth potential and revenue estimates is your biggest supporting document to convince any bank or other financial institution to accept your business. A recent report from HSBC, Malta reiterated the need for a well chalked out business plan particularly to ensure interest of banks and financial institutions about your business and its revenue potential. To begin with, the five most important parts of your business plan are:

  1. Introduction to your plan
  2. Information about the basic essentials of your business
  3. Overview of your sector, your strengths, weakness and revenue and growth projections
  4. Financial history and future projections
  5. Information about your business which attracts attention and is its Unique Selling Factor

To begin with, start with a basic background of your business, your establishment process, the idea behind establishing the business and the brains and hands behind the business venture. Then move to the type of your business and the unique characteristics of your business which differentiates it from competitors. In the next step describe your business and its key products and services. Introduce the main customers of your business and also inform about your key geographical markets and market share or market share projections. You should also include details of your internal management and your plans and projections for the future. The third step is providing a brief overview of the specific industry that your business functions in. Also include information about any regulatory permits or licenses that your business has secured and how this will aid in future growth. Provide a clear outline of your past financials and also your future revenue projections. Also include non classified information about your future business plans and how they will aid the business. Lastly, remember to take help of professionals. A speciality Risk Account professional or introducer can aid you in preparing your business plan and prevent possible pitfalls. As it is your primary document introducing your business venture, ensure that you provide detailed information and provide a clear outline of business potential to clients and banks. Professional support will ensure that your document is on the subject and ready to attract future business. Remember that it is your primary document and identity for approaching regulators and banks and needs to be well prepared. Also, a single plan may not be sufficient for every purpose and customisation may be required based on purpose or jurisdiction, example a plan to approach a bank for account opening purposes would vary from a plan to be submitted to regulators for obtaining an egaming license.

About the author:

Lionel Iruk, is an i‐gaming, international wealth management, M&A, principal attorney and manager at Empire Legal, and frequent legal contributor to . He has been involved in international Business, Real estate, asset development, and iGaming projects throughout the Continental United States, Europe and South East Asia since 2008. His practice focuses on citizenship and residency planning, licensing, tax management, international wealth management, corporate structures, international business compliance, immigration law, E-Sports Law, Financial Technology/ Bitcoin Law, iGaming, and issues affecting non-profit organizations and charitable foundations.