Visa Drops the Hammer

On Nov. 15 Visa will begin auditing gambling Web sites to make sure they are using the correct authorization codes when they submit transactions to Visa's member banks.

The credit card company will periodically test I-gaming sites by attempting to make transactions.

Visa will be testing to make sure sites are labeling transactions correctly with the merchant category code (MCC) of 7995 and the POS condition code of 59. Used together, the codes verify that a given transaction took place via the Internet and paid for gambling activities.

For each incorrect MCC or POS Condition Code, the acquirer--the Visa member bank that is dealing with the gambling Web site--will be fined $25,000. Visa e-commerce spokeswoman Casey Watson said the fines will be based on the test transactions, so that if it is found once that a merchant is using the wrong codes to disguise the nature of the purchase, the merchant will be fined.

The penalty for using the wrong code escalates according to Visa's operating rules. For the second, third and fourth transgressions, the merchant is fined $50,000, $75,000 and $100,000 respectively. After that, the merchant is fined $100,000 per month, said Stephen Fein of Signature Card Services. Visa reserves the right to make the member bank drop its account with the merchant, he said.

Visa does not allow its cards to be used for illegal purchases, Watson said. While Internet gambling is illegal in some jurisdictions, in many parts of the world its legal status is still evolving.

The rule that the audits will reinforce is about two years old. Watson said that in November 1999 Visa instituted a rule that all Internet gambling transactions be clearly labeled as such. After making a new rule, the company gives its more than 21,000 member banks a few years to prepare for the changes the new rule will bring, she said.

"What we're in now is sort of the audit and compliance phase, where we've given people notification, time to install and to implement. Now they've had time to complete this requirement, so we will audit them to make sure they are in compliance with this operating regulation," she said. "We want to enforce that the current requirements are being met."

In a document dated Sept. 24 that was forwarded to an operator of an Internet gambling site, which was then forwarded to IGN, Visa said it is cracking down on its cards being used for gambling transactions because while the activity is legal in some jurisdictions, legislation has been proposed in the United States that would make online gambling illegal for U.S. cardholders. As per the proposed legislation, the card issuer would be responsible for making sure the Visa card is not being used for illegal activity.

"Media attention surrounding recent lawsuits brought against Visa, the possibility of brand compromise, and added costs resulting from dispute resolution make it necessary to proactively enforce the operating regulations relating to online gambling merchants," the document stated.

Fein said he's sure that MasterCard is doing something similar.

"There's a difference between auditing and monitoring in their world," he said. "Visa is now auditing, MasterCard is probably monitoring."

The document forwarded by Visa to an Internet gaming operator mentions that recent authorization testing showed that the majority of Internet gambling merchants weren't using the correct codes to identify their transactions as online gambling purchases. Watson said she can't state a specific percentage of transactions that are wrongly identified because the audit program hasn't begun yet.

Fein said he agreed with the statement that a majority of transactions are coded incorrectly.

Fein said that, because Visa's document identifies three types of Internet wagering--casino-style games, lotteries and betting, the company is serious about enforcing the regulations. The document also targets gambling transactions paid with e-cash.

"When you think about it, they're drilling down deep," Fein said.