In the four years since the U.S. Supreme Court struck down a federal ban on online sports betting, forces in the payments industry struggled to create a streamlined and secure path for using credit and debit cards for wagering at these sites.
Initially when participants tried to use credit and debit cards to deposit funds at online sportsbooks,
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One of the top challenges that fraud-prevention providers face for online wagering is managing the friction users experience around compliance with strict (yet shifting) regulations of the more than 30 states that have legalized online sports betting — with more states expected to approve the practice this year.
"States can be very specific about identification details to wager bets, requiring sports betting firms to have strong consumer identity programs to verify that the person placing a bet is of legal age, and they are located not only within that state, but sometimes at the casino itself," said David Mattei, a strategic advisor at Aite-Novarica who has studied payments technology in the sports-betting sector.
Card-fraud protections for online sports betting go far beyond what most consumers typically experience with in-store and mobile payments. Online wagers often require the use of document identification tools and verification by scanning a user's driver's license and take a selfie to compare with it, plus location services to geofence transactions, according to Mattei.
"Sports bettors are willing to go through additional identity verification steps and withstand friction in order to set up and access their accounts," Mattei said.
For payments technology providers working with online betting operators, having deep pockets or a long history in the online betting industry seems to be an edge.
Bank technology provider
The BetMGM consortium this week launched mobile and retail sports betting operations across Ohio, with plans to expand online sports betting to other U.S. regions this year.
"We have experience handling really high transaction volumes for weekend sports events, or a major event that takes place once a year like the Melbourne Cup [annual horse race] in Australia," said Jeff Wixted, vice president of marketing and client solutions at Itasca, Illinois-based Accertify.
Spotting and blocking friendly fraud — where sports bettors claim they didn't actually make a losing bet and attempt to claim a chargeback — is another area where Accertify has developed expertise through years of refining its tools working with travel and retail customers, Wixted said.
Licensed to work with gaming operators in 21 states, Accertify recently announced a partnership with Hard Rock Digital, an arm of the global hotel and entertainment chain, which is rapidly expanding its online and retail sports betting operations.
Paysafe specialized in providing secure payments processing for online gaming establishments in Europe for years before its recent expansion in the U.S.
Under new CEO Bruce Lowthers, who joined the firm in May 2022 after 14 years as president of FIS, Paysafe has ramped up sales and marketing of its payment card gateway here, which provides connectivity into multiple card-acquiring options along with Skrill, Paysafe's digital wallet.
Paysafe uses a mixture of fraud-detection techniques from external vendors and proprietary tools while constantly tuning its risk rules in real time, said Rob Gatto, who joined Paysafe as the company's first chief revenue officer last year.
"We're drawing on data that goes back to the online betting market's inception," Gatto said. "With these tools and the U.S. regulations for geolocation, KYC and AML, fraud is difficult to carry out in our space."
Another factor helping to make online sports-betting payments more secure is the proliferation of mobile sports-betting apps, said Aite-Novarica's Mattei.
"There's considerable mobile-device data that sports betting firms can use passively and actively to verify the identity of the person betting. Desktop PCs and tablets don't offer as much location and activity detail," he said.
Although online sports-betting rules have created some of the stiffest defenses against fraud in the U.S., the sector's uniquely strict identity-verification practices are unlikely to transfer to other payment-card use cases.
"Location services that pinpoint where the customer physically is — and has been — will continue to be a stronger requirement for online gaming and gambling operators than for financial institutions, e-commerce merchants or other online businesses," Mattei said.
And as more states legalize online sports betting — and if the pastime continues to grow in popularity — new fraud tactics are bound to emerge, Mattei warns.
"Fraudsters follow the money, and as more money is held in sports-betting accounts and the dollar amount of bets increases, that will certainly attract the interest of fraudsters," he said.
