Expert says credit card ban can be overcome

By Liz Benston (contact)

Friday, June 28, 2002 | 11:22 a.m.

Moves to halt online gambling transactions using credit cards won't significantly affect major gambling sites, which are already using or exploring alternate technologies to avoid the potential pitfalls of credit card processing, a payment expert told a group of Internet gambling executives and suppliers at a conference Wednesday.

Alternate systems such as debit cards and "smart cards," which authorize cash transactions, are widely used in Europe and the United Kingdom -- where Internet gambling enterprises are flourishing, said Graham Newall, chief executive officer of Apollo Processing Ltd.

Apollo is a London-based firm that crafts payment processing plans for Internet gambling sites and other businesses seeking alternatives to traditional banking services.

That view was bolstered by another speaker at the iGamingWorld conference.

Credit cards are less of a concern outside the United States, said Marc Falcone, a gaming equities analyst for Deutsche Bank Securities. Other methods of payment include wire transfers, checks, money orders as well as debit cards.

It remains to be seen how customers will adapt to new and unfamiliar technology, Falcone said.

In spite of the credit card issue, however, the industry offers long-term investment potential on a global scale, he added.

Internet gambling operations have generally preferred cash rather than credit-based systems because they assure that gambling debts will be repaid, Newall said.

Such debts aren't enforceable in some jurisdictions, though Nevada laws allow land-based casinos to recover markers, or lines of credit issued by casinos to gamblers.

Fears that their banks will be financially liable have in part prompted the move by major U.S. credit card issuers to stop accepting Internet wagers.

Other payment systems will likely take their place, Newall said, though U.S. regulators could ultimately make that determination if gambling is legalized in this country.

One system used by some online casinos, called PayPal, allows customers to e-mail cash payments in a secure environment, he said. Some sites have customers fund a cash account before they can play.

Credit card bans on Internet gambling transactions have mainly hurt illegal sites that have been accepting U.S. bets via credit cards, while many legitimate operators are offering alternative technologies, said Richard Fitzpatrick, president of the Interactive Gaming Institute of Nevada, an Internet gambling proponent.

One Wall Street analyst has offered a decidedly more negative outlook.

Bear Stearns gaming analyst Jason Ader on Monday said the credit card problem, if unresolved, could slash the industry's 2003 revenue from $5 billion to $4.2 billion. The issue is more serious than industry proponents are portraying to the public, Ader warned.

Anthony Cabot, an attorney and Internet gambling expert with Lionel Sawyer & Collins in Las Vegas, said online casinos will likely be hurt by credit card problems in the short term. But other processing systems, likely developed outside the United States, will eventually become the de-facto systems for online casinos and even other online businesses.