As Bill Gates once stated: “The advance of technology is based on making it fit in so that you don’t really even notice it, so it’s part of everyday life.” This couldn’t be truer in a post-pandemic world which has accelerated major technological advances to create a new digital lifestyle. With people staying at home due to global lockdowns, the iGaming industry has experienced higher revenues and greater opportunities than ever before.
However, while 2021 has significantly accelerated technological changes and innovation, the iGaming industry is still challenged by: fluctuating market trends, laws and regulations, as well as rising payment fraud and chargebacks. In this article, we will analyse the most common challenges affecting the iGaming industry (I) and the transformation of payments in the iGaming industry with the rise of in-game digital assets usage via different blockchain technologies (II).
(I) The most common challenges affecting the iGaming industry
A. Regulatory challenges
One of the biggest challenges facing the iGaming industry is adapting to ever-changing regulations. Indeed, the iGaming industry is highly regulated and there is still no global policy that regulates online gaming, gambling, or esports across borders. Therefore, depending on the country you operate in, your business will need to follow specific regulations, obtain specific licences depending on your target market, and perhaps even rethink your business strategy.
At Regulate-Me, we know how complicated it can be to understand which regulations apply to your business. Indeed, depending on the structure of your game, applicable laws can include: gambling laws, sports laws, data privacy laws, anti-money laundering laws and even laws on prize promotions or limitations on certain sponsorships depending on your advertising strategy.
Although there is no global policy, what each country has in common is the need for strict Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements. The first goal is therefore to make sure you identify each player for any potential risk, including age limits to mitigate the potential for money laundering and crime risks on your iGaming business. Make sure your business obtains ongoing legal and compliance advice to train your team on such measures, and update your legal documents to ensure sufficient AML and KYC requirements are being met.
B. Fraud and cyber security Threats
Another ongoing concern for both the end player and your iGaming business is fraud. With increasing cyber security threats, it is your business’s role to safeguard online payments and use prevention tools to keep your clients’ data safe at all times. Indeed, players share sensitive personal data with your business and it is primordial for them to feel confident that their data protection rights are being met safely and securely. Remember that remaining compliant will build trust and encourage long term relationships with your clients.
How do you protect personal data against cybersecurity threats?
Legal advice is key. Data holds a central role in any business nowadays, and you must ensure your business obides by GDPR and any other applicable data protection laws. Although the pressure to retain players is very strong nowadays, keep in mind that this must be done in a consented way. To remain compliant, make sure your business has custom policies in place, have your legal documents reviewed before you enter into a new transaction with a third party, verify and store each player’s consent, verify data transfer clauses to ensure data is transferred securely according to applicable regulatory requirements, and make sure your website is fully up to date with regards to data protection laws.
Once you have protected personal data, how do you safeguard online payments against fraud?
Consistent monitoring is key. Your business should not only monitor initial sign-ups, but also repeat log-ins, withdrawals, deposits, actual gameplay, as well as strict Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements. We strongly encourage you to keep a close eye on regulatory changes affecting each individual market where your business operates. The higher your awareness, the more your business will remain compliant and therefore avoid major fines. Over the past few years, fluctuating regulatory environments and increasing technological innovations have transformed payments in the iGaming industry, which are gradually shifting towards a more open methodology involving the use of in-game digital assets.
(II) Digital assets: the future of payments in iGaming?
With the rise of crypto currencies and digital assets, 2021 is currently witnessing the creation of a new ecosystem for video games and a transformed iGaming economy. The most direct change is the gradual introduction of crypto currencies as acceptable deposit and reward options, to solve problems relating to fraudulent transactions encountered by players on online games. Indeed, due to increasing cyber threats and high risks of fraud, some players now refuse to link their bank account directly to gaming websites or gaming applications. This is where tech-based alternative payment methods are being introduced. Nowadays, iGaming platforms are striving to provide players with secure, efficient and anonymous means of handling money associated with games. It is also in their interest to be at the forefront of innovation, as it allows such gaming platforms to lower transaction fees. The trend is now for game creators to build and release materials for players to enjoy, all based on blockchain technology and with the potential of enabling crypto transactions (this entails strict regulatory requirements which need to be identified on a case by case basis).
This leads us to the concept of in-game transactions. Recently, we have witnessed the introduction of NFTs (non-fungible tokens) into iGaming as digital assets with real-world value.
What is an NFT?
An NFT is a certificate of ownership of a unique digital asset, stored on a blockchain, which also enables the transfer of such ownership. Essentially, this means a player can acquire a unique item, which can’t be replaced with anything else, such as visual art, videos, music or collectibles within a video game, and the player can then sell that non-fungible unique item for real money online. However, keep in mind that there is a strict case-by-case analysis on the manner in which an NFT is sold or marketed. This case-by-case analysis is used to determine whether or not such NFTs need to be regulated.
While the industry has moved ahead extremely quickly, regulators are already taking a closer look at how these technologies fit within existing legal frameworks. NFT sales may also raise significant money-laundering compliance considerations for market participants. Keep in mind that if your iGaming business hosts giveaways, sweepstakes and other promotions, regulators will apply traditional regulatory principles, even if the prize is an NFT. If you promote an NFT, you will therefore need to include a free alternative method of entry (AMOE) and ensure clear and visible disclosures of the AMOE. Securities regulators have already stepped in to regulate cases where NFTs operate like currency substitutes, and we have seen class actions targeting a crypto currency exchange for failure to clearly disclose the AMOE in a sweepstake promotion offering crypto currency as the prize. Therefore, if your business is dealing with sweepstakes, be careful not to misstate the prize or how the winner can claim or use it.
To conclude, laws surrounding crypto currencies and NFTs are evolving extremely rapidly and it is more important than ever to obtain ongoing legal advice. On 24 September 2020, the European Commission even adopted a digital finance package that includes a legislative proposal for the regulation of crypto assets, the Markets in Crypto assets Regulation (the MiCA Proposal). The MiCA Proposal includes regulations that could apply to NFTs in certain cases and defines a crypto asset for the first time in the EU as: “a digital representation of value or rights which may be transferred and stored electronically, using distributed ledger technology or similar technology”. Therefore, it is strongly recommended to understand the potential impact of existing and forthcoming regulations, licensing, market communications, and compliance requirements on your iGaming business.
Ms. Stephanie Attias (LL.M, LL.B) is a certified Privacy Professional and a member of the International Association of Privacy Professionals (IAPP). Stephanie graduated from Fordham University School of Law (New York, USA), with an LL.M in “Banking, Corporate and Finance Law”, and with a Master of Laws in “Business Law and Economics”, followed by a Master of Finance in “Financial Engineering” obtained with Magna Cum Laude Honors.
Since 2011, Stephanie has worked in leading international law firms worldwide and gained experience working with EU, US and international regulators. After advising top-tier companies, Stephanie founded Regulate-Me.com, a Compliance One-Stop-Shop, focused on providing innovative tailor-made compliance services for businesses in the: iGaming, IT, Data, Finance, Crypto, Digital Marketing industries. In other words, Regulate-Meallows you to outsource your legal and compliance tasks, while you focus entirely on growing your business.
