12 May, 2023

Armalytix on affordability checks - "society is changing"

Richard McCall, Armalytix CEO, and Mike Ward, the supplier’s Executive Chairman, speak to Gambling Insider Editor Tim Poole about affordability checks; and how the gambling sector must develop mutually accepted guidelines – avoiding the mistakes of other industries

Can you walk me through the company and your main pitch for standing out in the market?

We’ve all come from a finance background, so we understand the money laundering, financial harm side of things. And as a company, what we did was cut our teeth on conveyancing, which is an industry that until quite recently hasn’t had to worry about financial checks. But actually, more and more is becoming required to conduct source-of-funds and source-of-wealth checks on its clients when they’re putting large amounts of money into a transaction. What we’re seeing is that the gaming industry is moving the same way, where they are now being required to – more than ever in the past – check the prominence of funds that’s coming in from their clients and to check whether those clients can afford to spend the money they’re spending.

So that’s where we’ve come from. I guess our relevance to the gaming industry is that we have a lot of knowledge from having done these things in different industries, which we think we can provide to help this nascent industry to evolve in the right way. Because they’re suddenly being asked to do a whole load of stuff they didn’t have to, finance got hit with a lot more rigour in 2008. With that, we can understand the change which has to happen in an organisation first. It just starts with this idea that things aren’t going to be done the same way. And whether you like it or not, that’s going to be the case.

We look across industries and the themes are the same regardless of any industry: that society is changing

I totally understand the rhetoric you see, which is ‘oh, why do we need to do more?’ We have to have policies where the many have to do something to protect the few, in most industries. It’s not that there are whole-scale problems across every single player base. The question is how do you manage that balance by getting enough people to follow a process to allow you to guard against a few? You need to dig into whether you’re looking for money launderers or whether you’re looking for people whose own practices may be harmful. You need an understanding of how to look at financial data and also get the balance right; how much data do we need? So you’ve got that balance and I think banks, love them or loathe them, have always been conscious that people’s financial data is their own. It doesn’t belong to the banks. So how do you get that balance right?

Gaming is relatively new for your organisation. You work with Buzz Bingo and recently partnered with Betsmart. How are you looking to grow within the sector?

We look across industries and the themes are the same regardless of any industry: that society is changing. Financial crime is being taken seriously, whether you’re in gambling, conveyancing or a financial institution. In today’s world, if you have a business which might do harm to some people, whether that’s in finance – so that could be providing loans or whatever – or people gambling beyond their means, these are common themes; and it’s really about consumer protection. So for us, yes, gambling is new, the themes are not. We are definitely not gambling specialists. Hence why our collaboration with Betsmart is so important because they’re the industry experts, and they help translate the needs of the industry into what we see as a successful process.

The recent William Hill settlement, where it paid Ј19.2m ($23.6m) to the Gambling Commission is a well-timed example. If an operator has all the data and technology available in the world, isn’t it still down to the mentality of that operator in the engine room?

I think ultimately this sounds like a question of liability in terms of: are we telling William Hill, Buzz Bingo or anybody else what to do? No, what we’re doing is we’re making it easy for their customer to provide the information they need for them to make a decision, and we’re hopefully making it easy for them to identify the customers who might ultimately turn into a problem. So we’re not trying to say to anyone you can or can’t do this. We’re basically making it easy for people to provide information; a way that makes their situation easy to understand if we give them the tools, and we give their clients the tools, to provide their information in an easy way.

I think more generally from our experience of the banking industry, it all starts with cultural change. So certainly if you look at banking, you first had that attitude of ‘Why do I need to change? I’m not sure I do’ – and I think we’ve gone through that. Now it’s that question of ‘Right, how do I instil cultural change to make sure people understand we are going to need to do something?’ How do we get people and the hierarchy to understand that these checks are important, and something that both matter for the minority of people who were harmed but also matter from the risk and reputation standpoint?

We saw with the coverage William Hill got that, if you get that balance wrong, the reputational risk as well as financial risk can be meaningful. So this is what happens when you get regulatory change. You tend to get large fines or settlements, and you tend to then make changes to your organisation, to recognise that these checks are important and then you turn it into process work. Where we come in is where you’re looking at a process you want to do with scale. How do you get the right tool in place? How do you increase the amount of checks without increasing friction?

That’s the ultimate question in this situation with onboarding and customers that come in. Is it always the case that you’re going to have to increase customer friction?

Well, I think what we can do is we can sit in there as a trusted third party that potentially restricts the amount of information a person has to share with a company like a gaming firm. And that works both ways because the gaming firms don’t necessarily want to receive a whole load of information about someone’s financial position, either. So I think the idea that we sit in there and are actually protecting both sides from either sharing or receiving too much information is an important one. I do think gaming operators have tried to use proxies for people’s finances to not have to ask that person to give them any information.

I think if you actually want to understand something about someone’s financial situation, you do ultimately have to ask them. What we do is make that asking process as quick and easy as possible. I think this is all part of coming to terms with regulatory changes. So you have to accept in certain circumstances, clients' journeys may be slowed down and I think that’s the nature of the checks that need to be in place. But it doesn’t have to happen in every circumstance. It’s very easy to get into a binary world where everyone’s checked for everything or they don’t get checked at all.

The regulator tends not to prescribe a set of rules that everyone has to follow. It’s more like a set of guidelines. Those guidelines tend to, over time, form into a set of industry-accepted standards

The reality is it’s not binary: it’s understanding customer playing profiles. Our aim is for when that point is where you need some financial information, you make that seamless and a fair exchange of information, which would take both parties – meaning it will slow them down. When it comes to money-laundering checks, I think one has to accept you’re going to have to go further. I think what we learned from finance is, in circumstances, you do have to slow down. The job of the technology is trying to make that slowing down as painless as possible.

What can gambling learn from conveyancing, finance and banking, so that the sector can come to terms with new regulation quicker?

I think what we saw in finance and what we’re seeing in conveyancing, because it’s an ongoing process, is that the regulator tends not to prescribe a set of rules that everyone has to follow. It’s more like a set of guidelines. Those guidelines tend to, over time, form into a set of industry-accepted standards, although they’re not written down. And so the quicker you can get to, ‘Well, what do we think is a sensible set of industry rules?’ – the better. What tends to happen is that the bigger firms get hit with some fines or settlements by the regulator, then they start to make the changes because they know they’re in the crosshairs of the regulator, and then everybody else watches what they’re doing and starts to do the same; everybody eventually coalesces around a similar set of solutions and standards.

It becomes a set of standardised ways that people do business. So I actually think, in the gaming space, whether you’re a big or a small firm, have a sensible look at what would be reasonable in front of the regulator and quickly come to a set of agreed standards. Because, actually, the quicker you get there, the quicker everyone can get on with day-to-day business, right? The longer you drag it on, the longer you’re just dealing with a problem that, ultimately, you’re going to have to deal with at some point anyway.

Finally, do you have any specific aims or aspirations for the gambling industry? Do you have a target market share or something concrete you want to achieve?

Well, we started from nothing, not being known 20 months ago, and I think by the end of this year we should be aiming for one in 10 comparing transactions in conveyancing, having an Armalytix report involved in those source-of-funds checks. I think what I’m most excited by, in the betting sector, is working towards finding out: what are these industry standards and are we able to help dramatically improve the process of where they are today? If you do that, you’ll tend to win clients – which of course, we’re a business, so we always want to win them. But I think getting in the middle of that discussion, seeing the modules we have can help fix that for me. I’d love to be able to come out at the end of it and look at a problem which the industry may have seen as a huge barrier to dealing with their clients, and turn around and say, 'actually that wasn’t too bad.' We’ve come up with a process which protects the minority and that the majority is prepared to do without ruining their gaming experience.

The gaming industry is being hit from all sides, and I don’t think it’s a tremendously difficult problem to solve. We might be able to help it in such a way as to not take a tremendous amount of time and money out of anyone’s equation, and improve the process for those problem customers that ultimately none of the gaming firms would like to have on their books. Really, 99% of their clients are not a problem, But, for example, with William Hill, how many cases did they cite? Three or four. How many customers must they have had in that period? Millions. I’m sure if they could go back and stop those three to four customers coming on board in the first place, they would absolutely do so because it would have saved them a whole load of pain and trouble.