The iGaming industry has experienced explosive growth in recent years, with global online gambling revenue projected to reach $131.9 billion by 2027.

But with that growth comes an increased risk of financial fraud, money laundering, and other shady activities, making high-risk gambling transactions a major concern for operators.

Effectively managing these transactions is crucial for keeping the industry clean, staying compliant with regulatory frameworks, and protecting both operators and players. In this article, we’ll explore the challenges high-risk payments bring and how to manage them effectively.

Factors That Classify a Gambling Business as High-Risk

The online gambling industry is frequently classified as high-risk by banks, payment gateway providers, and regulatory bodies. Several key factors contribute to this classification:

• High Chargeback Rates: Chargebacks are a common issue in the gambling industry, whether due to a player disputing a transaction after losing a large sum or as a result of fraudulent activity. High chargeback rates increase the risk for payment processing providers and banks, making them more cautious in dealing with gambling transactions.
• Reputational Risks: The iGaming industry often carries a controversial reputation, with negative associations related to problem gambling, fraud, and unethical practices. These reputational risks make financial institutions hesitant to engage with gambling companies, fearing potential backlash or damage to their own standing, which complicates risk management efforts.
• Volatile Revenue Streams: Gambling businesses often experience fluctuating revenue streams due to the unpredictable nature of gaming outcomes and player behaviour. This volatility makes it challenging for banks and financial institutions to assess the long-term financial viability of these businesses, leading them to classify them as high-risk in their financial risk management assessments.
• Fraud and Money Laundering Risks: Gambling platforms can be attractive to criminals looking to launder money. By depositing illicit funds and withdrawing them after minimal gameplay, the money can be made to appear legitimate. The large volume of transactions and the anonymity provided by digital payments further exacerbate these risks, highlighting the need for effective fraud prevention and risk mitigation strategies.

These factors, among others, create significant payment processing challenges for gambling platforms. Let’s explore each in more detail.

Key Challenges in High-Risk Transactions

Managing high-risk transactions in gambling and iGaming involves navigating several key challenges:

Navigating Regulatory Compliance

Staying compliant with regulatory frameworks is one of the biggest hurdles. The online gambling industry is heavily regulated, and rules vary widely across different regions. You’ve got to comply with anti-money laundering (AML) regulations, know your customer (KYC) policies and data protection laws. If you don’t, you could face hefty fines, legal trouble, or even lose your license to operate.

The complexity is compounded by the fact that regulatory challenges can differ significantly from one country to another, requiring operators to have a deep understanding of local laws and the ability to quickly adapt to changes in compliance management.

Securing Merchant Identification Numbers (MIDs) and Payment Service Providers (PSPs)

Getting Merchant Identification Numbers (MIDs) and integrating payment systems for iGaming is another challenge. MIDs are essential for processing credit card transactions, but they can be tough to get for gambling operators because of the high risk involved. Many banks are hesitant to work with gambling companies due to the potential for chargebacks, fraud, and reputational risks.

Integrating PSPs comes with its own set of challenges. Operators need PSPs that can handle high-risk transactions and offer various payment solutions for a global audience. However, not all PSPs are willing to work with gambling companies, and the added risk often means higher fees, increasing operational costs and cutting into profit margins, affecting overall financial security.

Dealing with Conversion Issues

Conversion rates, or the percentage of visitors who complete a desired action like making a deposit, can be negatively impacted by high-risk gambling transactions. Factors such as limited secure payment solutions, high transaction fees, or a poor user experience can lead customers to abandon their transactions, resulting in lost revenue and an increased likelihood of chargebacks and disputes. Optimising the payment process to ensure smooth and secure transactions is crucial for maintaining high conversion rates.

Strategies for Managing High-Risk Transactions

Effectively managing high-risk transactions in gambling and iGaming requires a comprehensive approach that tackles the various challenges mentioned above. Here are some strategies operators can use to reduce risks and keep their platforms running smoothly.

Implement Virtual Merchant Accounts

Creating and maintaining a strong compliance program is essential for managing high-risk transactions. But what are the strategies to achieve it? Implementing virtual merchant accounts may be the answer.

Virtual merchant accounts help segregate funds from different sources, keeping them in separate accounts without physically moving them. This approach enhances regulatory compliance, such as separating client funds from operational funds. By maintaining organised and compliant operations, operators can reduce the risk of financial mishandling and improve relationships with financial institutions, enhancing financial security.

Partner with the Right PSPs

Choosing the right PSPs is critical for managing high-risk transactions. Look for PSPs that specialise in high-risk industries and have a proven track record of handling large transaction volumes securely. It’s also wise to integrate multiple PSPs, so you’re not reliant on just one provider, and you can offer more payment options to your customers.

While high-risk PSPs often charge higher fees, negotiating favourable terms and showing strong risk management practices can help you get better rates and more flexible terms.

Use Advanced Fraud Detection Tools

Fraud detection is a key part of managing high-risk transactions. Investing in advanced fraud detection tools that use machine learning and artificial intelligence can help you spot suspicious patterns and flag potentially fraudulent transactions. These tools analyse large amounts of data in real time, allowing for quick responses to emerging cyber threats.

Alongside automated tools, manual review processes should also be in place for high-value transactions or those flagged as suspicious. This dual approach ensures that every transaction is thoroughly checked, reducing the risk of fraud slipping through.

To Sum Up

Implementing robust financial risk management strategies, such as using virtual merchant accounts, partnering with the right payment systems for iGaming, and investing in advanced fraud prevention tools, can help operators mitigate risks and ensure smoother operations. Staying proactive in compliance management and risk mitigation not only protects the business but also builds trust with customers and financial partners.

This article was written by Den Melnykov, Corefy’s Co-founder & CBDO