Open banking – a bespoke solution for responsible iGaming
iGaming – a sector which covers any form of online wagering, despite being a relatively young industry, has snowballed over almost 20 years of existence. A study conducted by Statista reported that in 2021, the global online gambling and betting industry was valued at US$ 61.5 billion and is expected to rise to US$ 114.4 billion by 2028. This growth is primarily due to the rising popularity of mobile devices and the availability of internet access across the world. Additionally, the introduction of new payment methods has made it easier for players to access and engage with online gaming and gambling platforms.
As technologies develop, preferences shift, and new tools emerge, the iGaming industry constantly evolves. Open banking has proved to be a transformational force for a broad range of sectors and iGaming is no exception.
By using open banking, operators are given a better understanding of players’ affordability and their financial situation on the basis of bank records, income and credit reports, and other consented data. Thus, increasing trust between operators and players while also providing an easy and secure payment method.
Open banking also creates a more transparent environment, allowing operators to keep track of their customers’ financial transactions and ensure that they are compliant with local laws and regulations. An important aspect of a safe environment is affordability, or how much a player can afford to spend on gambling. This level of transparency can reduce fraudulent activities, as well as provide operators with valuable insights into customer preferences, which can be used to provide better services and enhanced customer experience.
In this article, we will delve deep into the iGaming sector’s struggles as well as how the technology can help the sector overcome them, and the ways operators can leverage it to transform their online offering, improve customer experience, increase security, and bring up new revenue streams. Moreover, we will examine some of the UK and EU requirements the operators must comply with and how using open banking can assist them in meeting those obligations.
Open banking for responsible iGaming. How to comply with strict regulations?
Safe online gaming benefits both players and operators, but it’s also their responsibility to keep this space safe. In aiming to establish this trustworthy environment, there are strict laws governing the handling of customer data and financial transactions within the industry. Regulatory bodies and rules differ from country to country. In the UK, such a regulator is the Gambling Commission, which grants licenses, supervises, advises, and guides gambling businesses and individuals.
In 2022, the Commission updated remote customer interaction requirements and guidance, by introducing the Social Responsibility Code Provision 3.4.3, part of the Licence Conditions and Codes of Practice (LCCP). The amended rules, which came into force in September last year, are more robust and more prescriptive, requiring operators to:
Monitor a specific range of indicators, as a minimum, to identify gambling harm
Flag indicators of harm and take action promptly
Implement automated processes for strong indicators of harm
Prevent marketing and the take-up of new bonuses for at-risk customers
Evaluate their interactions and ensure they interact with consumers at least at the level of problem gambling for the relevant activity
Report customer interaction evaluation to the Gambling Commission during routine casework
Comply with these requirements at all times. This includes ensuring the compliance of third-party providers.
The authority also specifies that it’s the licensee’s duty to implement processes and systems which incorporate that understanding of risk so they are prepared to take action immediately when identified to minimise harm.
There are several factors that make an individual prone to experiencing gambling-related harm which operators should monitor and address. Such factors are described in the Guidance to the new rules, as part of “Know Your Customer” (KYC) and developing customer interaction policies and procedures. Among them is the “situational factor” that should be considered by operators when checking the gambler:
“If the individual is experiencing financial difficulties, is homeless, is suffering from domestic or financial abuse, has caring responsibilities, experiences a life change or sudden change in circumstances.”
There is no doubt that regulators’ focus revolves around grasping a player’s affordability and intervening to protect it. A one-size-fits-all approach fails to recognise that players have different levels of disposable income and different individual risks associated with their gambling habits. As a result, some players may be more vulnerable to financial harm than others. Plus, oftentimes the disposable income is not that easy to determine.
Another challenge the operators may encounter with the updated gambling rules is the obligation to conduct customer due diligence – verifying the customer’s identity and sources of funds to detect unauthorised activities like identity theft, impersonation, or money laundering. Throughout the licensees’ interaction with their customers, a range of methods can be used to reveal potential risks related to a person, including video checks, document verification, digital footprint evaluation, sanctions lists, public data, or private data.
All of these procedures can be time-consuming and sometimes inefficient. To combat this, streamlining and automation are key strategies to help reduce time and energy spent.
Stephen Winyard, CSO at Salt Edge explains where bank data aggregation powered by open banking can deliver:
Open banking solutions, such as Account Information Services facilitate secure and instant access to a player’s bank account data, solely under the user’s consent, and enable operators to better assess a customer’s financial situation and their ability to sustain gambling operations. The enriched data, which provides meaningful insights into the customer’s financial behaviour, allows for greater detection of suspicious activities, such as when a person regularly transfers large amounts to multiple gambling accounts, or the funds’ origin is unclear. With transaction categorisation, all incomes and their sources (main and secondary sources and their regularity, bonuses, freelance, transfers between own accounts, etc.) can be identified instantly. Moreover, the account information service ensures a high level of accuracy in the identity verification process, since it comes from a trustworthy source – the bank.
He stresses that:
Technologies that eliminate all the burdensome procedures of operators from the equation and enable access to categorised, enriched bank data from all accounts in a unified, easy-to-read format should be welcomed.
What about other countries?
European countries are a big market for iGaming as well. Complying with European regulations can be a challenge. Aside from being one of the strictest in the world, the region is also home to over a dozen different regulatory bodies. Even though EU laws encompass many states, many of them have their own regulations that differ from others.
The one thing in common is that operating companies must ensure that they have robust systems in place, including identity verification, money laundering procedures, and detailed databases.
What to expect in terms of regulations in the future?
The British government is planning on updating the UK Gambling White Paper – a publication outlining current regulations, changes, and policies for those who provide gambling services in the UK, as well as many other areas, including ensuring consumer protection, reducing problem gambling, making it easier to enforce payment regulations, and preventing money laundering. Its ultimate goal is to foster greater fairness and transparency across British gambling. The publication was launched in April 2020 and last updated in September 2020, and with its upcoming update, the government is striving to make gambling regulations more secure and robust.
Both operators and players are likely to be impacted by the White Paper, which will bring significant changes to the field. One of the main expectations from the updated regulations is implementing “Affordability checks” – operators having to request bank statements or payslips from anyone losing between £100 and £500 per month.
Evaluating a customer’s financial situation relying solely on payslips and bank statements provided by the player adds more friction to the experience and doesn’t adequately determine affordability when there are instances of significant losses. There are other ways to determine someone’s affordability, with more accuracy and precision using open banking. Here is where Salt Edge, a pioneer in open banking, with 10 years of experience and access to 5,000+ banks through a single API comes into play,
Checking affordability doesn’t have to involve complex procedures. With open banking-powered services, like secure account information access, operators can quickly and easily make decisions about players’ affordability without the need for large teams and slow manual processes. Hundreds of sophisticated recognition and machine learning algorithms run over 12 months of transaction history, identifying red flags instantly and helping prevent potential fraud or money laundering. This also allows for continual assessment, ensuring that spending limits are up-to-date with a customer’s financial situation changing,
Seamless payments with open banking
Global consumer behaviour is currently undergoing profound changes. People expect seamless, secure, and digital transactions across all aspects of their lives. To meet these expectations, businesses must adjust their strategies to keep up with changing consumer behaviour. The only organizations that will last in the long run are those that adapt to the latest technology. The same is true in the world of iGaming.
Besides using open banking data to comply with strict gambling rules, operators can also enhance their payment processing and revamp their online offerings. Through open banking payments, operators are able to accept payments directly from their players’ bank accounts and enable secure payments for their customers to any other account in seconds. Open banking is a one-stop shop that cuts costs and streamlines workflows for operators, as well as removing friction for gambling users,
Here are some ways iGaming operators can make use of open banking technology.
Easy, safe and cost-effective account funding and withdrawals
Gambling users can execute easy, seamless account-to-account payments and expect instant deposits. The same is true for payouts. Whenever a player withdraws winnings, operators can instantly transfer funds to any account the same way they funded it. Aside from instant and secure payments, open banking is cost-effective for operators, since external processors are not required. Due to the faster payment rails in the UK in particular, open banking payments are now seen as a “must have” addition for any company offering multiple payment methods.
Identify and mitigate fraud risk
Moving money involves a lot of security concerns. Reducing fraud and security breaches is the mission of Strong Customer Authentication (SCA) – an EU requirement for online and contactless offline payments. When making account-to-account transfers through open banking, the user passes the SCA. Transactions are then protected by an additional security layer, which ensures the player’s safety and the operator’s compliance with customer risk assessment guidelines.
Payment methods in iGaming are one of the main risk factors mentioned in the recent EU Guidelines on fighting money laundering and terrorist financing. Due to the fact that certain payment methods allow customers to conceal their identity and source of funding, such as pre-paid vouchers for player deposits, some payment methods are more vulnerable to criminal exploitation. Since the purchasers of the vouchers might not be legitimate, it is difficult to conduct the same level of checks as with bank accounts. The power of open banking is evident here. By leveraging open banking payment initiation service, where users must go through strong customer identification, operators identify fraudsters and ensure compliance with regulations,
Improved customer satisfaction, streamlined payment processing, superior security, and cost-effectiveness are just some of the hallmarks of open banking over other checkout methods. Open banking is quickly becoming the preferred payment method for businesses of all sizes. Consumers are also drawn to it, as it offers greater control over their finances, allowing them to manage their accounts more securely and conveniently. This has led to a surge in the adoption of open banking in recent years. The iGaming industry can and should make use of real-time data to get a more comprehensive view of affordability, enhance user experience and stay compliant. The use of such a rich set of banking data enabled by open banking will more accurately reflect the customer’s financial circumstances and their ability to gamble and help gambling operators meet safeguarding requirements more effectively.