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Emily D. Swoboda
 

Online Payment Blocking Hits Two U.S. Lotteries

18 November 2008

Although the New Hampshire and North Dakota lotteries derive disparate portions of revenue online, a new hiccup with credit card transaction processing is currently affecting both groups' ability to generate income from aboveboard Internet subscription services.

"We've encountered a little bit of an issue with credit cards being rejected because of the type of code that is being put on credit cards," Donna Thronson, director of communications for the North Dakota Lottery, told IGamingNews. "Credit card companies are finding out when their customers sign up for the online subscription service that it is a lottery and coding their transactions as betting."

In 2001, Visa Inc., the United States' biggest credit card network, created the 7995 merchant category code to prevent having its cards used for online gambling transactions. Randy Miller, director of the North Dakota Lottery, told IGN that problems began in late September after credit card transactions for online lottery subscriptions were denied.

Mr. Miller said the North Dakota Lottery, which generates 3 percent of its revenue online, determined that merchant code had been changed from 9399 -- government services -- to the 7995 code for betting. Mr. Miller said he learned from the lottery's credit card processor that customers could contact their credit card issuer and have the transaction unblocked.

Because that solution is inconvenient for customers, however, the lottery wanted to find another way.

So, just recently, the North American Association of State and Provincial Lotteries has taken group efforts on behalf of the state lotteries and requested a meeting with Visa's vice president of government relations, Mr. Miller said.

It appears the best short-term solution would be to reinstate the 9399 code to their acquirers who use the lottery. The North Dakota lottery, for its part, has put in a formal request with Visa for the change and is awaiting answer.

Long term, Mr. Miller said, the lottery would like to receive input from the Department of Justice on a regulatory solution.

Conceivably, the confusion at the credit card companies has been caused by the ambiguous Unlawful Internet Gambling Enforcement Act, which many have argued fails to clearly define "unlawful Internet gambling."

Banks and financial institutions have expressed concern this year that the law's regulations, released just last week, provide no tools for separating out unlawful Internet gambling transactions from lawful ones.

The rules, therefore, could lead banks and financial institutions to block transactions that aren't for unlawful Internet gambling -- like those for online subscriptions with the North Dakota and New Hampshire lotteries.

While North Dakota's subscription is still available by post and at lottery retailers, the lottery has temporarily lost access to its online income stream and, as a result, has suspended its holiday subscription promotion.

Ms. Thronson said the lottery is looking at initiating Automated Clearinghouse transfers as a way to pay for the subscriptions, but that it may be another three months to get that service up and running.

Big picture: The loss of convenience is paramount, Ms. Thronson said.

"It's now no longer convenient," she said. "Players have to download an application and fill it out and send it in. For people who do online commerce, if you can't use a debit or credit card, it kind of defeats the purpose."

In New Hampshire, the lottery, which takes 24 percent of its subscription revenue online, started experiencing blocking approximately three weeks ago. Like the North Dakota Lottery, Visa changed the New Hampshire Lottery's merchant code to 7995.

Rick Wisler, executive director of the lottery, told IGN that as a result of the code change, many of the lottery's players have been assessed surcharges or fees -- or both -- by their banks.

Mr. Wisler said as he understands it, Paymenttech, the lottery's credit card processor, was notified by Visa of the code change and is obligated to abide by Visa's rules.

New Hampshire, too, has made its case to Visa.

"We expressed our concerns and we also tried to explain the effect this can have on our revenues, which are earmarked for public education," Mr. Wisler said. "Visa took our concerns and will get back to us with anything they can do or cannot do."

Approximately 30 percent of revenues from the New Hampshire Lottery go to education.

Mr. Wisler suspects that the code change may be tied to the finalization of the UIGEA rules, but affirms that the lottery is a state institution, is not illegal and should be coded as such.

Paymenttech was unable to comment on the matter.

Calls to Visa were unreturned by press time, and the North American lottery association declined comment.

Online Payment Blocking Hits Two U.S. Lotteries is republished from iGamingNews.com.
Emily D. Swoboda
Emily D. Swoboda