PayPal (Europe) Ltd. Allows Betfair Customers to Use Its Service

PayPal (Europe) Ltd, an online payment company that allows anyone with an e-mail address to send money online, has signed an agreement with British betting exchange operator Betfair that will allow Betfair's European customers to make payments to the company using the PayPal service. The deal is especially noteworthy considering that PayPal (Europe)'s U.S-based parent company PayPal Inc. has recently stuck to a policy of avoiding the gambling industry.

The PayPal service will be fully integrated with the account management section of the Betfair site, and it will allow punters to deposit and withdraw from their Betfair accounts in real time. Users can opt for their payment to Betfair to come from their existing PayPal balance or from their credit or debit cards. In Germany and the UK punters will also have the ability to have the funds taken directly from their banking accounts. PayPal users will incur the same transaction fee rates for funding their Betfair accounts as they do when paying for other goods and services.

In the UK and Europe, payment via credit, debit and other types of cards is the most common method of betting account funding, constituting about 90 percent of all such payments. There is therefore not likely to be a huge surge in new Betfair customers or in existing customers switching to the PayPal service as their new preferred payment method.

"I don't think we're going to see a whole load of European people who are currently funding another way funding through PayPal," stated Betfair spokesperson Mark Davies, "but it's another option for them if they want to.

"For us the key is that we give people as many options as possible, and the reason that this is a really significant deal is because PayPal had taken a clear standing against gambling and they have changed that position in order to be a payment mechanism for us. And the reason they've done that is because we're not taking bets from the United States."

Unlike in Europe, using credit and debit cards to pay for online gambling services is not an option that is available to consumers in America. The Department of Justice and other national authorities have taken a stance against the legality of online gambling, but a lack of adequately modern laws has lead to an inability to enforce a prohibition. With the legality debate simmering around the turn of the century, credit card companies and banks began refusing transactions that were coded for online gambling, partly as a response to pressure from the government and partly due to unfavorable consumer lawsuits.

It is against this backdrop that payment processing alternatives like NETeller and Firepay grew popular. PayPal continued to serve as an alternative payment option for some American-facing online casinos and sportsbooks until November 2002 when it was purchased by online auction site eBay.com for US$1.5 billion.

Ebay declared that PayPal would no longer facilitate transaction for online gambling when it announced its intent to purchase the company in July of 2002. Shortly after, the payment processing firm suffered two major blows for its involvement with online gambling. After receiving a subpoena from New York Attorney General Eliot Spitzer, in August of 2002 PayPal reached a settlement with Spitzer's office whereby it would block all illegal Internet gambling transaction from New Yorkers and would pay $200,000 to the state of New York for disgorged profits, investigation costs and penalties.

Then in early 2003 the company was forced to defend itself against charges from the Department of Justice that it aided in illegal offshore online gaming activities throughout the months June 2000 to November 2002. PayPal eventually settled the case out of court in July of 2003, agreeing to pay $10 million to the Justice Department and to maintain a corporate compliance program for at least two years.

Two and a half years later, the legal environment surrounding online gambling in the United States is as murky as ever and PayPal has not processed a single gambling transaction until announcing its deal with Betfair.

"It is a significant step for Betfair to be the first online gambling company approved by PayPal Europe," says Betfair's Davies. "This will undoubtedly also give us access to a large and growing base of experienced online users."

Meanwhile Geoff Iddison, CEO of PayPal UK, stated, "PayPal may be best known as the preferred payment method for eBay customers, this is another example of the PayPal system being used by merchants to develop their online business.

"Betfair is a popular, highly regarded, regulated and reputable online gaming site. By having PayPal available to Betfair's customers, PayPal will enable European users to pay and receive funds safely and securely, without sharing any financial information from simply an e-mail address."

PayPal Europe is apparently open to the idea of permitting more online gambling companies to use its services, but it does have strict requirements. The company's press statement reads, "To become pre-approved by PayPal (Europe) Ltd, any online betting service will need to demonstrate to PayPal's satisfaction that it blocks participation in Gambling Activities by people accessing the PayPal service in the United States. Approved services must also demonstrate to PayPal that they have strong anti-money laundering and age verification programs.

"PayPal still prohibits the use of its service for gambling activities by anyone located in the United States."

PayPal (Europe) Ltd is based in the UK and is a subsidiary of PayPal (International) Ltd, which is based in Dublin, Ireland and is in turn a subsidiary of PayPal Inc. of California, USA. PayPal has over 10 million accounts in the UK and more than 100 million accounts worldwide.

Betfair Made Easier; Sells 20 percent Stake to Softbank

Betfair, which claims to handle twice as many credit and debit card activities as any other European Website, advanced its business strategy in other ways as well this week. The company has just launched a new "back only" version of its betting exchange that is meant to appeal to casual punters who are sometimes confused by the inundation of data that is inherent in a system that allows a user to back or lay given or user-proposed odds on pre-match or in-play markets. A new Express View of Betfair's markets shows only the current available "backing" prices displayed in a manner similar to how markets are displayed at traditional bookmakers' sites. Customers will also have the ability to convert prices into fractional odds and be able to view jockey colors on UK horseracing and live score updates on soccer matches.

Betfair also recently signed an agreement with Japanese telecommunications and software company Softbank whereby Softbank Group will acquire between 18 to 23 percent of Betfair. The parent company of Betfair, The Sporting Exchange Limited, will facilitate an offer to its shareholders for a minimum of 15 percent and a maximum of 20 percent of its fully-diluted share capital. The Sporting Exchange will then offer Softbank Group a further 3 percent of primary shares. Betfair's chairman Tim Bunting commented, "Softbank is the ideal strategic partner for Betfair's ambitious expansion plans. It has a hugely successful track record in a number of related areas, and we're looking forward to working together."

Softbank runs the Yahoo! broadband service in Japan, and in September 2005 it signed a deal with the lwate Prefecture Horse Racing Association that will allow it to become Japan's first company to offer betting online. Beginning in April 2006, Softbank will begin taking bets over the Internet on races at two courses in lwate Prefecture, which is about 250 miles north of Tokyo where Softbank is based. The company says that if the venture proves successful it will spread the service to other regional races.