What’s Up (and Down) with Internet Gaming Credit Card Transactions!

You’re ready to make the leap from bricks-and-mortar casinos to gambling online. You’ve done your homework—read some advice columns and perused the Internet message boards to figure out which Internet casinos and sportsbooks seem to have the best reputations. You’ve looked at the games and betting lines available, read the FAQs, and downloaded the software from the site where you’ve decided to play. You’re pumped, ready for action.

You give the site your credit card data and make a deposit for $100. Then you get a message that says, “transaction denied.” For players living in the U.S., this is an increasingly common occurrence. Most of the time, it’s got nothing to do with the credit status of the would-be player. You may have a perfect record of paying your credit card bills on time. It’s just that somebody out there has decided that you cannot use your credit card for online gambling. Associations of member financial institutions manage Visa and MasterCard, the most popular cards. These members, mainly banks, issue the credit cards to consumers and/or sign up merchants to accept the cards. The Visa and MasterCard associations have developed methods to block Internet gambling transactions, based on the codes that they require e-commerce merchants to use to identify the type of transaction.

In fairness, consumers should realize that there is plenty of risk both to banks and to merchants when credit cards are used in any online transaction, because such transactions are never final. When you use a credit card at a store, it’s a face-to-face transaction and you provide a signature. On the Internet, neither of those conditions is met. Consumers can claim later that they never authorized the use of their credit card. In that case, the bank that issued the card will usually void the transaction. The online merchant is then hit with what’s called a “chargeback.” Visa and MasterCard levy stiff fines if merchants have too many chargebacks, and may even cancel their right to accept the card.

Credit card fraud is also an ongoing problem for Internet gambling sites. If the banks have to sue to collect delinquent card debts that were incurred from gambling, they may be blocked legally because some U.S. states and Canadian provinces follow an English common law tradition that holds that gambling debts are not enforceable in court. For these reasons, by May 2002 more than 400 banks that issue credit cards were forbidding their use for online gambling. Then in June, under pressure from the Attorney General of New York, Citibank, the world’s largest issuer of credit cards, also began denying use of its cards for online gambling. So What’s the Solution?

For a time, it seemed that third-party payment processors such as PayPal would be the answer to the problem. PayPal, whose customers often fund their accounts with a Visa or MasterCard, served as a financial middleman for scores of gaming sites. But PayPal too began to get pressure from MasterCard and then pressure from the New York Attorney General. Finally, eBay bought PayPal and said PayPal would no longer be handling gambling transactions.

Scores of entrepreneurs have been working feverishly on a new payment method, something that would be convenient for online players, practical for the websites, and safe from the long arms of U.S. banks and government officials. Many experts believe that credit cards will disappear as a means of funding online gambling transactions, even in countries where such gambling is clearly legal. They believe the solution will involve some type of debit card. Currently your odds of completing a gambling transaction with a debit card seem to be better than with a credit card. A friend of ours in the Midwest recently tried to play at a poker site with his Visa credit card. The transaction was rejected. Then he tried his Visa ATM card, which is a debit card, and it was promptly accepted, even though the same bank issued both cards!

Remember that using a credit card is equivalent to borrowing money from the issuing bank. When you use a debit card, money is instantly taken from your account. This reduces the risk to the website and to the bank. Plus, it’s better to gamble with money that you already have. It’s too easy to get in over your head when you gamble on credit. When most of us visit a land-based casino, we take cash or ask the casino to cash a check. It makes sense to approach online gambling in a similar way.

Above all, when you visit an Internet casino or sports book, explore the alternatives to credit cards. Most sites explain the options that they accept under headings such as “Banking Info” or “Deposit Methods.” Some accept Neteller, which is a third-party processor that’s picking up many accounts that used PayPal. Similarly, there’s a payment service called FirePay and another called SecureBuxx.

Some sites encourage the use of a cashier’s check, but they want you to send it by Fedex or UPS. Some accept deposits via Western Union, and others give instructions for wire transfers from your bank to theirs. These other methods may seem inconvenient at first, but they may prove to be more effective than credit cards at helping you manage your gambling budget. You won’t find nasty surprises when your monthly credit card statement arrives, and risk having to pay interest if you can’t pay the card balance in full.

Some sites offer a bonus if you use a deposit method that saves them the costs of credit card transactions. But read the small print! Some of these methods entail extra costs. Your bank, for example, may charge you $20 or $30 for a wire transfer. The casino or sportsbook may or may not reimburse you for that fee. One group of offshore sports books offers to transfer funds from one book within the group to another. But they charge a $30 fee, and have a $1,000 minimum amount to be transferred.

Explore all options. If the website doesn’t clearly explain the costs involved in its various methods of depositing and withdrawing money, call customer support. If you don’t get a detailed answer, go to another site.