Online gaming is a fast growing industry and has become one of the fastest moving sectors in the online entertainment industry. Estimates indicate that, worldwide, gaming nearly generated $60 billion in 2005 with approximately $3 billion in commission revenues.
With this tremendous growth, many online gaming merchants face two major challenges: payment processing and fraud. Merchants in the online gaming industry have payment processing difficulties especially with banks and credit card companies who would not allow credit card transactions to go through. Merchants also experience high chargebacks and fraudulent transactions.
While majority of these merchant account providers are rather cynical about approving gaming merchant accounts for gambling related gaming agencies, they are reasonably liberal about approving gaming merchant accounts for sites engaged in recreational games or competitions. Online gambling operation is obviously a very lucrative business. Nevertheless, susceptibility of these types of operations to fraud and illegality makes them highly risk-prone, thereby denying them the privilege of easily owning a gaming merchant account.
Internet gaming agencies that are mostly gambling-oriented are normally required to make large online transactions as there is always a need for instant access to funds during the gaming process. The deposits and withdrawals are done through credit cards and other electronic payment methods that necessarily warrant transactions through a gaming merchant account. However, gambling related gaming sites are viewed as extremely high-risk businesses as huge amounts of money are always at risk in such operations.
Coded and Uncoded Gaming
There are 2 types of gaming in the online business industry. For the coded gaming business, the merchant has to comply with all the regulations from the Card Associations. This will include having a Gaming License, hosting and targeting non-gaming countries such as USA, China, Middle Eastern countries, etc.
Although many may know that it has been illegal for businesses in USA to host an online gaming business, some USA states have begun to legalize this business to operate in their own jurisdictions. Nevada was the first state to legalize online gaming (only poker), followed by Delaware and New Jersey (online slots, blackjack, and other table games). States that were hit hard by the financial crisis, and by the increasing costs of retirement and healthcare benefits, are still struggling to plug big budget holes, and many expanded gaming as they looked in every corner for new sources of revenue.