Financial Institutions Deliver a Crushing Blow to the Net Betting Biz

It was quietly one of the worst weeks ever experienced by the Internet gambling industry. While operators happily iced champagne for what they believe to be the pending death of Rep. Goodlatte's prohibition bill, a few very important financial institutions jumped in to break up the party and deliver three crippling shots below the belt. An unnamed source from one of the industry's biggest payment processing companies filled us in on some of the ugly details.

The fallout hasn't finished falling out, but here's the score as it stands now:

MasterCard USA is no longer accepting credit back on gaming transactions (meaning that no winnings can be paid to players via credit card, even if the total winnings are less than or equal to the initial deposit). Further, rumors point to MasterCard making it an international policy.

Visa now considers all Internet transactions as e-commerce and is attaching a fee to all transactions under this classification.

A handful of major banks, including Wells Fargo and Citibank, have informed their cardholders that their cards are not to be used for illegal activity and explicitly specify that Internet gambling is illegal activity.

The unnamed source, who prefers to remain unnamed to avoid being bombarded by phone calls from panicking non-clients, says that the MasterCard and Visa policies have each taken around a 10 percent chunk of his clients' business. The new banking policy, he says, has taken an additional 25 percent chunk. One operator informed IGN this week that he has seen his business cut in half.

"The biggest fear is that site operators, desperate to stop the loss of business will start using processors that are not operating within the guidelines," the source said. "And they'll still get the transactions through because they are not coded correctly."

Those who try skirting the rules will not be dealt with kindly. "Anyone caught violating the regulations will be dealt with severely," the source continued. "That means fines, and if a site is 'blacklisted,' they may never be able to find a processor again."

So, is the industry doomed? Doubtful, says the processing rep. "It is serious," he cautioned, "but I do think it will calm down and I do believe that solutions will be worked out. It will just take some time."

For those who fancy numbers, The IGN FYI department did some research on Sen. Jon Kyl, the sponsor of the Senate's prohibition bill, and ascertained that the "Finance, Insurance & Real Estate" industry sector, as of August 3, 2000 contributed $168,811 (more than any other sector) to Kyl during the 1999/2000 time frame. Commercial banks have contributed $34,750, and the biggest chunk of that--$7,500--was contributed by Wells Fargo. In fact, of the hundreds of contributors across all sectors, only six institutions donated more than Wells Fargo.