Open Banking Casinos
Introduction
The gaming industry is one among many contenders to welcome Open Banking. Offering payment methods at online casinos and sports betting sites that not only improve the security of deposits and withdrawals but also speed up the process has been a top priority ever since the first brands opened their virtual doors just before the turn of the century.
The implementation of the Second European Payment Services Directive (PSD2) could be the next big step in achieving that goal. The EU directive 2015/2366 is set to regulate payment services and providers as well as opening up the payment market to non-banks while making transactions more secure and improving consumer protections. One core component to implement the directive is Open Banking as it allows third parties to develop applications for online and mobile payments.
A Brief Look at the Status Quo
At first, credit and debit cards were the sole methods players could use at online casinos. That changed quickly with the introduction of e-wallets such as Neteller or Ecopayz and prepaid vouchers like Paysafe Card. Mobile phone options and cryptocurrencies followed, giving customers ample choices to fund their casino accounts and request withdrawals.
However, there has always been one part that never seemed to be on a level footing for players. While deposits are generally instant, meaning casino operators receive the funds the soon a transaction is completed, withdrawals take often hours and even days to reach the players’ card, bank or e-wallet accounts. A discrepancy that gaming operators have worked to narrow in recent years as demands for faster payouts have increased.
Equally, the demands and requirements for customer identification and affordability have also been heightened due to new regulations being introduced by gambling commissions in most major markets, by the EU and by singular countries. KYC (Know-Your-Customer) and AML (Anti Money Laundering) procedures have been complemented with strict requirements for SOW (Source of Wealth) and/or SOF (Source of Funds) checks. To be compliant with all regulations, casino operators have introduced procedures that often feel very intrusive as players are asked to submit a slew of documents to pass the due diligence thresholds. In some cases, it leads to Enhanced Due Diligence (EDD) checks where a greater level of scrutiny is applied to determine affordability and source of funds.
Lastly, paramount to all financial transactions we do on the internet, be it at an online casino, sportsbook or any other merchant, is the security that safeguards our data. After all, we are asked to submit details such as card numbers, PINs, email addresses and others that will allow us to complete a transfer to a merchant. It is absolutely vital that this data is not compromised in any way either by missing safeguards or intrusions by rogue elements.
Acronyms & Terms Used by Online Casinos & Payment Providers
It is becoming increasingly tough to keep up with all regulations popping up in recent times and even tougher to decipher the acronyms used in the industry. Here’s a current list of the most occurring acronyms you might come across when gambling online. Feel free to post in the comments section if you want more added.
- PSD2 – Second European Payment Services Directive: the EU law 2015/2366 aiming to better regulate and promote online payment systems
- API – Application Programming Interface: the software intermediary that allows two applications to talk to each other
- TPP – Third Party Provider: non-bank Fintech firms offering payment applications and services
- KYC – Know Your Customer: the procedure used to identify a customer
- AML – Anti Money Laundering: laws and regulations to prevent money laundering
- SOF – Source of Funds: identifying the source of income
- SOW – Source of Wealth: identifying the source of wealth
- EDD – Extended Due Diligence: enhanced SOF/SOW check
- GDPR – General Data Protection Regulation: the current EU law 2016/679 for data protection and privacy
- FCA – Financial Conduct Authority: the financial regulatory body in the United Kingdom
- IBAN – International Bank Account Number: the number identifying all bank accounts in EU countries plus Norway, Switzerland and Liechtenstein
What is Open Banking?
Cue in PSD2 and Open Banking to change that status quo in the coming years. The two go hand in hand since the former is the legal basis for the latter. So, what exactly is Open Banking? To date, the payment market for any type of financial transactions is controlled and dominated by banks. It being a source of revenue is one reason banks actually want to keep the status quo to the maximum extent possible.
However, the PSD2 is making it mandatory for banks to open their systems to so-called third-party providers by allowing APIs to access customer accounts and data. The aim is to promote a larger variety of payment systems while at the same time increasing the security and protections for client data. Open Banking is the term used by the industry to describe exactly that.
In essence, Open Banking consists of two parts – Payment API and Data API. Any third party can develop applications to access bank accounts once they have been approved by the country regulators. In the UK, that is done by the FCA for each of the two parts. Once authorized, Fintech companies will develop their own applications in collaboration with the local banks that will allow them to offer their services to their clients, in our case, online casino and sports betting operators.
Open Banking Model (Source: sandfield.co.nz)
The Payment API is the part used to make a deposit to an online gaming site. Once selected in the banking lobby, players are redirected to their internet banking page where they enter their credentials to authorize the payment. As for the reverse, withdrawals are send back from the casino to the same bank account in a matter of seconds to a maximum of two hours.
The Data API will give operators access to personal details needed for the mandatory compliance checks. The Gambling Commission is issuing regulations for each part of the compliance – KYC, SOF, SOW, EDD, AML – and casino operators have to complete them within the allowed time frame. By using Open Banking, most if not all checks are done automatically with a transaction. The required data is submitted to the casino operator via secure communication channels. Here’s what they can receive from your bank (source: TrueLayer) while it is worth noting that any submitted data is not permanently stored by the receivers:
- Account: account holder name, account number, IBAN etc.
- Credit card: card network, last four digits, name on card etc.
- Transactions: description, amount, category, merchant name etc
- Balances: current, available etc.
- Regular payments: standing orders and direct debits
Trustly is one of the companies that is already using Open Banking to offer its Pay N Play product in a few select countries including Sweden, Finland and Germany where it has been able to integrate the APIs with the local banks. More countries will be added in the near future as they work to extend their services. No doubt, there will be also a whole host of Fintech companies like TrueLayer who will enter the market in the coming years.
Online Casinos and Open Banking
Online casinos offering transactions via Open Banking can benefit from two distinct features – payments and data. The payment channel provides for deposits and withdrawals while the data channel delivers customer details needed for KYC, AML, SOW, SOF and EDD.
With Open Banking, the concept of instant banking transfers is working both ways, meaning deposits are instantly added to your casino balance and withdrawals are instantly processed once approved by the operator, usually within seconds to a maximum of two hours (source: TrueLayer). This will vastly improve the player experience as it eliminates lengthy waiting periods to receive any winnings.
As for the data submission, one could call it “Big Brother will be watching” as it basically opens up personal details to third parties. While that is true to some extent, it is actually rarely more than the documents we have to submit to comply with identification, affordability and EDD checks. The advantages are clearly in the automation of the process as for the majority of players it will eliminate the burdensome document uploads and allow them to enjoy their gaming without delays. And more importantly, have faster or even instant payouts from online casinos and sportsbooks.
LeoVegas Casino introducing Open Banking
In Q4/2020, the LeoVegas Mobile Gaming Group was the first to introduce Open Banking in the United Kingdom in partnership with TrueLayer Ltd, starting with their flagship brand LeoVegas. The first weeks showed promising results as roughly 10% of UK players began using the new payment service for deposits and withdrawals. On 8th January 2021, they announced the rollout across all their online casino and sports betting brands in the UK with plans to add more countries in the near future.
In addition to offering instant deposits and withdrawals, Open Banking will allow LeoVegas to streamline the registration process, simplify KYC and other compliance checks, significantly reduce fraud as well as improve data security and protections for vulnerable players.
Players opening the banking lobby can simply choose Instant Bank Transfer as their deposit option. After entering the amount and clicking on deposit, they will be asked to select their bank from a list before being redirected to their internet banking interface. Here they log in with their usual credentials to authorize the payment. Once the first deposit is complete, it automatically unlocks fast payouts via the same method, usually between instant to 2 hours.
Any time LeoVegas needs customer details for identification or compliance checks, the data will be requested and transmitted at the same time as the payment transaction. Once authorized, the bank will transmit the requested details to LeoVegas via the data API. The casino compliance team will then complete the checks although in some rare cases they will still need ask for extra documents to be sent or uploaded. According to TrueLayer and LeoVegas, the received data will be used for the checks only and will not be permanently stored on their servers.
List of Open Banking casinos
You may want to visit also the page Pay N Play.