Geeze, I’m not even sure where to start.

Amy and I have chatted via email about the sky is/is-not falling posts. I don’t know if we actually came to any real agreement but I think we both appreciate the other’s views better now. I was drunk in a pub emailing from a Blackberry so Amy certainly had the advantage :-)

I posted about Mansion changing the start time of $100K a Day tournaments and pondered if there was some sort of message in that. I’ve since heard that Mansion has stopped taking deposits from US customers. They claim it’s temporary and in response to Neteller pulling out.

As everyone scrambles to find a Neteller replacement it’s being reported that the #1 option, Click2Pay, has quit taking US customers. Existing customers are supposedly okay but no new US customers will be added. There’s some speculation that Click2Pay did this as a potential first step in also announcing an exit from the US. It may not matter anyway as several people have reported on 2+2 that Bank of America and Wachovia banks are declining Click2Pay transfers. That supports my earlier speculation that the real reason payment processors are exiting the US so quickly is because their ability to operate has been seriously damaged by banks sucker-punching them with declines.

In my email exchange with Amy she made a comment about waiting to see the contingency plans at the online poker sites. There are no contingency plans. In fact, in the private conversations I’ve had with my contacts at various sites I’ve heard words like “hope” (as in we hope it doesn’t get worse or we’re hoping no more processors leave), “total shock”, and “panic.” Professional Poker even pointed out how comical the industry’s reaction was:

Little evidence of crisis planning was evident this week as third party payment companies ran away from the US market in a domino-like effect. Others seemed to have trouble making their minds up, changing policies in a sequence of rapid moves that made it almost impossible to keep track of who was prepared to run with the lucrative US business…and who wasn’t.

Other companies seemed ill-prepared for the rush of US online players seeking to sign up with alternative providers. Players reported badly briefed support centers, unclear or inefficient sign-up procedures, uncertain and rapidly changing policies and poor communications and administration responses as willing companies were swamped.

How do you have a contingency plan for all of your payment solution providers bolting? See the problem is that there’s nothing you can do. That is why the UIGEA was so powerful. Many people have (and continue to) focus on the criminal penalties of the UIGEA while completely ignoring the most important part which was the flow of money. The eWallet solutions always had a flaw which was that they operated within the existing banking framework. You should always be cautious when someone who can’t even tell you what ACH stands for tries telling you how money transfers work. Unfortunately, all one has to do is go read some threads on 2+2 to see people with zero knowledge of payment processing pontificate their thoughts as if they were facts.

So you’ll likely see some pretty dodgey solutions start to spring up. The latest trend in sleaze has been the pre-paid phone card. The government’s take has typically been that if you only allow it to be used for a specific service (e.g. phone calls) you’re pre-paying for a service and not subject to banking regulations. On the other hand, if you have a phone card where the value can be used to purchase any sort of good or services then you’re acting as a money transfer agent and certain banking laws would apply. Most of the one’s I’ve seen are one-way. You can use them to get money onto a site but you can’t put money from the site back onto the card from the site.

Unfortunately, this is the contingency plan for many sites. Using shady payment solutions.

But since I’ve been so doom and gloomy the last few posts let me offer a possible way out. Unfortunately this will only work for some of the bigger sites like Stars and perhaps Bodog due to the sportsbook side of their business. I call it the “Let’s buy our own bank” plan. Stars could purchase their own offshore bank and make it very easy for customers to set up legitimate bank accounts there. Of course, everyone would then need to file extra tax forms declaring their accounts and any interest on them but it would certainly be possible. Once the money is outside of the US banking system the US laws regarding funds transfers no longer are a problem.

But just so as not to disappoint my readers who come here for my pessimism, there are flaws in that idea. First being you have to find a country that doesn’t have any banking laws making it difficult for foreigners to set up bank accounts. Most do. Second buy or setting up a bank can take a quite a bit of time. It might be a year or more before Stars could take in the first dollar from US gamblers. That’s a huge investment to make if you’re not even sure that your customers will still be around. And lastly, since the pipe that international transactions flow through is even narrower than the EFT system and there are already many existing laws regarding money laundering in place that allow the government to apply extra scrutiny to foreign funds transfers it would be trivial for the US regulators to stop all money going to or coming from that particular bank. That being said, it’s probably the only idea that has any chance of succeeding over the long term.

Related Posts

1. Payment Processor Quick Start Guides
2. What a Difference a Few Payment Processors Make
3. Chaos at Commerce
4. So What Happened To The Poker Rooms This Week?

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