Software Suppliers Feel the Impact of Transaction Processing Crisis

Credit card processing problems aren't a subject the heads of I-gaming companies enjoy talking about, be they software suppliers or operators.

Last month one of the big players in the industry publicly acknowledged the impact of the problem in its yearend report--offering one of the first qualitative glimpses of the money squeeze that's so widely touted in this publication and others as being attributable to a select group of issuing banks refusing to allow players to pay for online gambling via Visa and MasterCard accounts.

"America being a little strange is normal, but from what we understand, when we draw our own conclusions, it looks like it's going to ease up for established, large companies and banks."

-Peter Bertilsson
Boss Media

In its yearly financials released Feb. 12, Boss Media not only breached the subject--and by all means, it's a prickly one, just trying asking industry executives about it--but dove right into it at the beginning of the report by making the net sales decrease of 7 percent the first bulleted point to hit the reader's eye.

Several paragraphs into the report, Boss explained that the fourth quarter net sales decrease was due to credit card problems in the United States. According to the report, "At the end of the third quarter a large number of card-issuing banks in the U.S. began declining credit card payments to Internet casinos, which decreased sales considerable since most players in licensee' casinos come from the U.S."

By the end of the fourth quarter, gaming-related sales began to rebound, Boss goes on to say. Peter Bertilsson, the group's CEO and president, said Swedish software maker is addressing the problem by introducing new payment systems that customers are starting to get used to. He mentioned that while sales have not yet returned to pre-problem levels, the situation is starting to reverse--as most as can be expected, that is.

"America being a little strange is normal, but from what we understand, when we draw our own conclusions, it looks like it's going to ease up for established, large companies and banks," Bertilsson said.

Bertilsson also said he's hearing from the banking side that it looks like credit card companies are looking for regulations instead of prohibitions. Regulation of the industry--with all the legitimacy it would bring--is something most in the business recognize as being good for the bottom line.

"We suffer the same perils with MasterCard and Visa that our competitors do," said Mike Aymong, CEO of World Gaming. "I think the only way to combat it is to regulate the industry. They (the credit card companies) need to understand their customers, and understand some of the things we are putting in place to satisfy their compliance. It's sort of stabilized in the last few months."

Most operators and software suppliers will readily admit that the damage done by credit card problems varies with how much a company depends on U.S. customers for play. Common sense would dictate the software suppliers would feel the same pinch from Visa and MasterCard that operators do. Even if the software supplier doesn't operate an online casino on the side, the business model most used by suppliers specifies that their profitability is dependent on the success of the site operator, said Darold Parken, president and CEO of Chartwell Technology.

Therefore, Parken said, software firms that license their wares to sites that rely on American customers will be affected by credit card problems more than those who don't. Bertilsson said today that less than 50 percent of his company's business comes out of the United States. While North America is still the largest part of the I-gaming market, Parken said the problem could be mitigated by the tremendous growth happening in other parts of the world.

"Us in particular," he said, "certainly the vast majority of the business that's done by our customers is non-North American, so I would expect to see less impact on our business as a result of that."

CryptoLogic's Nancy Chan Palmateer voiced similar sentiments. The problem is not something companies are seeing in international markets, she said. Her company, like Chartwell, has been able to mitigate the situation because its players are spread out all over the world.

However, CryptoLogic has had some credit card problems; they started in December, right when Boss' sales started to improve. Palmateer, the company's spokeswoman, expects the problem to persist through the first half of 2002. Palmateer is quick to point out, however, that the credit card issue only exists because of a handful of banks have developed individual policies against processing online gaming transactions.

"I think the thing to be clear is this is where only certain U.S. banks have begun to take a more conservative stance and actually self-regulate because the legislative environment in the U.S. continues to be uncertain," she said.

And that is the root of the problem: Internet gambling is neither definitively legal nor illegal in the United States. Until I-gaming's legality is clarified in the country where a large chunk of its players come from, credit card transaction problems will dog the industry. And questions about it from reporters will dog I-gaming's leaders.