Online gamblers, most of whom can no longer use U.S. credit cards to fund their habit, are about to lose yet another payment option.
Under the terms of its planned purchase of PayPal (PYPL), eBay said Monday it intends to stop offering the payment service for Internet gambling transactions.
EBay, which plans to acquire PayPal in an estimated $1.5 billion stock transaction, attributed its decision to an “uncertain regulatory environment surrounding online gaming.”
With the U.S. House of Representatives reviewing legislation to prohibit Internet gambling, the online auctioneer determined it was too risky to continue offering the service.
Although the decision seems sensible for eBay (EBAY), analysts say it poses a host of problems for online gambling companies. Many gaming firms have promoted PayPal recently as an alternative to credit cards. Now, they’re hard pressed to find a replacement.
“There are a number of alternative payment solutions. The problem is in terms of size, none of them have as much exposure or usage as PayPal does,” said Michael Tew, an analyst at Bear Stearns, which recently published a report predicting revenues at gaming sites will drop sharply next year.
PayPal and eBay are the latest in a long list of payment companies that have decided to get out of the gambling business.
Many large credit card issuers, such as Bank of America, Fleet, Direct Merchants Bank, MBNA, and Chase Manhattan Bank have already started to block online gaming transactions. More recently, Citibank, which controls approximately 12 percent of the U.S. credit card industry, also joined in.
Keith Furlong, deputy director of the Interactive Gaming Council, ranks the increasing credit card rejection rate as “the most important issue affecting the growth of the gaming industry.” In order to survive, gambling sites will need to find new transaction methods.
With PayPal out of the picture, gamblers are apt to turn to competing online payment services. Furlong cites Neteller and FirePay as two of the better-known alternatives.
Gambling sites also often allow Judi Slot Online payment through debit cards, which take cash directly out of a user’s bank account. However, customers are wary of the lack of security features debit cards offer, in contrast to the security credit cards afford. The fact that gambling sites like to incorporate in exotic locales like Antigua or the Isle of Man only adds to the sense of unease.
Payment options will be reduced further if lawmakers pass one of two similar bills pending in the U.S. House of Representatives. The bills, introduced by Rep. Bob Goodlatte (R-Virginia) and Rep. James Leach (R-Iowa), seek to prohibit online betting and make it illegal for companies to process gaming transactions.
Against that backdrop, it’s understandable why U.S. payment processing companies are staying out of the gaming arena, Tew said. The odds for staying in business are not good.