Neteller Pulls out of US Market

Online payment processing firm Neteller today announced its complete withdrawal from the U.S. Internet gambling market, wiping out 65 percent of the company's business.

Neteller said in a trading update for Q4 2006 that as of today, its U.S.-based customers can no longer transfer funds to or from any online gambling site.

While the company cited the impending regulations for the U.S. Unlawful Internet Gambling Enforcement Act (UIGEA) as the primary reason for the withdrawal, the announcement comes three days after the arrests by U.S. authorities of former Neteller directors on Stephen Lawrence and John Lefebvre charges of money laundering.

"Today's withdrawal from the U.S. market by Neteller is the culmination of months of careful planning," the company said. Along with this action, the group is actively assessing what further steps it may take in light of the two arrests made earlier this week to clarify the company's position in this matter.

Neteller's board of directors on Tuesday requested an immediate temporary suspension of its shares on the London Stock Exchange (AIM) pending clarification of the situation surrounding the detention of Lawrence and Lefebvre. The company said today that the shares will remain suspended until further notice.

Today's announcement does not come as a complete surprise. The company had hinted at a withdrawal shortly after the enactment of the UIGEA.

CEO Ron Martin said in November that the U.S. legislation would "fundamentally" change the future direction and nature of the business, and that the company was "constantly reexamining and reviewing its position with regard to the U.S. market and its provision of services."

Furthermore, the company said today the decision to withdraw has been under consideration for some time.

"This announcement reflects the culmination of a series of deliberations and steps the group has taken since the passing of the UIGEA in October 2006," the company said. "Previous steps have included the development of country blocking and instant funds transfer restriction enhancements to the group's software platform."

U.S. customers will be able to access their accounts, just not for purposes of gambling. The company said funds are held in segregated trust accounts and will be available for withdrawal on demand. Furthermore, U.S. customers are not required to close their accounts or withdraw their funds, the company added.

Now that Neteller has virtually eliminated 65 percent of its business in one day, it said it would continue to focus on geographic diversification through further product launches in Europe and Asia.

In the wake of the passage of the UIGEA, Neteller reported slowing fourth quarter results, with average daily receipts from customers in the period at $5.75 million and average daily new customer sign ups at 3,493. The company said it expects full-year revenue to be between $255 million and $260 million.

Neteller, a publicly traded company listed on the London Stock Exchange, processed more than $7 billion in financial transactions annually, according to the company's interim report for 2006.

The company vowed to continue to operate its non-U.S. business as normal, maintaining existing customer and merchant support across all the markets it currently serves. It will also turn its focus on geographic diversification through further product launches in response to customer and merchant demand, in particular in Europe and Asia.

Canadian payment processor Citadel Commerce Corp. also pulled out of the U.S. Internet gaming market. ESI Entertainment Systems Inc., Citadel's parent company, today announced that in light of the arrests of Lawrence and Lefebvre, the board made the decision to cease the processing of non-domestic Internet Gaming merchants for U.S.-based consumers.

"This decision will have a material impact on the financial condition of the company as a substantial part of its revenues was derived from non-domestic Internet gaming merchants for USA consumers," the company said.

Online gambling companies such as PokerStars and Full Tilt, which have remained in the United States, despite the ban, will likely suffer from the withdrawal of Neteller.

"This is the first piece of news that will really hurt the likes of PokerStars and Full Tilt," Evolution Securities analyst Tejinder Randhawa told Reuters today. "If you look at the gambling chat rooms, you'll see Neteller was one of the main payment methods."

At least one I-gaming company, however, has reassured its customers in the wake of today's announcements. The Jackpot Factory Group, which employed neither Neteller nor Citadel's services for payment processing, announced today that it will continue with business as usual in the United States

"U.S. gamblers are still welcome at the Jackpot Factory and all of our casinos -- All Slots Casino, All Jackpots Casino, First Web Casino, Wild Jack Casino, and The VIP Lounge Casino -- offer a variety of payment methods, including Click2Pay, Instadebit, and a range of credit cards," the company said. "As we have mentioned before, the Jackpot Factory Group, along with BrightShare, our exclusive affiliate program, will continue to closely monitor this situation. More importantly, though, U.S. players will still be able to find safe and secure online gambling at any one of our casinos and affiliates will continue to receive the professional service that they have come to know."

Martin Owens, an attorney who specializes in the problems of operating gambling businesses online, addressed rumors that the actions of the DOJ have been a big business conspiracy -- that American interests are working their way into the I-gaming market by outlawing the competition.

"Suspicion began in London with the [David] Carruthers arrest that American interests were using the law as a blunt instrument to clear away the competition and leave the Internet gambling market clear for themselves," Owens said.

He said the rumors are unfounded, as there is no logic behind such presumptions.

"If there were, they would not try to destroy the essential facilities like Neteller, which has built up clients," Owens said. "This is simply an attempt to wipe out Internet gambling in the USA. There is no accommodation on their agenda. They simply want to do away with it altogether."

Owens does not think, however, that the government will accomplish what it is setting out to do.

"Here you have an industry that's worth $12 billion and it's still on course to top $20 billion by the end of 2010," he said. "And mobile phone gaming is coming up alongside it, making it a $16 billion market by that time all by itself. But what they (the government) are doing is driving away the best elements -- the people who are willing to be held accountable and transparent; the people who are worried about responsible gaming are all being driven to the wall. So, people are going to gamble, but the people handling the gambling are the people the DOJ swears we're being protected against."

Ultimately, Owens does not see the online gambling industry leaving the U.S. anytime soon.

"American online gaming will not be wiped out unless and until no Americans wish to gamble online," said Martin Owens. "In the meantime, the USA remains the most important single market in the industry. And somebody will service it."

Neteller could not be reached for comment.

Click here to view Neteller's trading update.