Introduction
3.1
This chapter unpacks the online payments system and the current regulations and prohibitions to provide context for the policy options considered in chapter 4.
3.2
It begins by summarising the various methods of paying for online gambling using either debit or credit. It then provides an overview of how the online payment system works, including briefly describing Bank Identification Numbers and Merchant Category Codes. Next, it covers the definition and regulation of the various types of credit for online gambling before giving an overview of current bans on using credit for gambling in Australia. The chapter finishes by considering the limitations and issues with how the regulatory system currently operates.
Debit and credit payment methods for online gambling
3.3
To gamble online, a person must open an account with an online gambling service provider. Online gambling can be done using either debit or credit. Debit payment methods include debit cards, and transfers from savings or cheque accounts using BPAY.
3.4
To use credit, a gambler can deposit funds into their online gambling account through one of the following methods:
credit integrated with payment methods:
credit card on a website or via an interactive voice response system;
Buy Now Pay Later (BNPL);
payment methods that link to credit accounts and which may pass through or store value from credit:
digital wallets, such as Apple Pay, GooglePay or PayPal;
travel and entertainments cards;
credit that is not integrated with payment methods, such as home loans, personal loans, car loans, and business loans.
How credit payments are processed for online gambling
3.5
In most online payment processes, merchants receive payments via the internet. This section summarises:
a typical online payment system that online gambling service providers may use;
the Bank Identification Numbers that are used to identify the credit and debit cards issued by card issuers; and
the Merchant Category Codes used by card networks to classify businesses and their transactions.
The online payments system
3.6
Figure 3.1 illustrates the flow of payment information and funds when a customer pays using a credit card.
3.7
The steps in Box 3.1 explain how funds are transferred when a customer pays using a credit card:
Box 3.1: How funds are transferred when a customer pays with a credit card
(a)
A Customer submits the credit card transaction to the Payment Gateway via a secure connection from the Merchant’s Website.
(b)
The Payment Gateway receives the secure transaction information and passes it via a secure connection to the Merchant Bank’s Processor (a financial partner that provides credit card processing on behalf of the credit card networks).
(c)
The Merchant Bank’s Processor submits the transaction to the Credit Card Interchange network (a network of financial entities that communicate to manage the processing, clearing, and settlement of credit card transactions).
(d)
The Credit Card Interchange network routes the transaction to the Customer’s Credit Card Issuer (the customer’s bank).
(e)
The Credit Card Issuer approves or declines the transaction based on the customer’s available funds within their credit limit and passes the transaction results, and if approved, the appropriate funds back through the Credit Card Interchange network.
(f)
The Credit Card Interchange network relays the transaction results to the Merchant Bank’s Processor.
(g)
The Merchant Bank’s Processor relays the transaction results to the Payment Gateway.
(h)
The Payment Gateway stores the transaction results and sends them to the Merchant and the Customer.
(i)
The Credit Card Interchange network passes the appropriate funds for the transaction to the Merchant’s Bank, which then deposits funds into the Merchant’s Bank Account.
Source: Microsoft, Online payment flow, http://mqs.gtpl.net/mqsubscribe/Help/
Online_Payment_Flow.html (accessed 17 September 2021)
Bank Identification Numbers
3.8
A Bank Identification Number (BIN) is the number (up to 19 digits) found on the front of a credit, debit or other type of payment card. The first four to six digits represent the BIN, which uniquely identifies the bank that issued the card and the card network used for processing transactions.
3.9
The remaining digits on the card are the Primary Account Number which is used to identify the cardholder and link the card to a particular account with a financial institution. Every time a card is used in a transaction, a card processor uses the BIN and Primary Account Number to go through a series of verification steps to ensure the cardholder is authorized to make the transaction and that the account has sufficient funds.
3.10
A total of 44 card-issuing banks in Australia issue credit and debit cards under 78 different BINs. The BIN enables participants in the payments process to identify whether the card is a credit card or a debit card, because credit and debit cards have different BINs.
Merchant Category Codes
3.11
A Merchant Category Code (MCC) is a four-digit number that indicates the line of business and the types of goods or services a merchant provides to its customers. The International Organization for Standardization (ISO) sets out the global requirements for MCCs including the codes and meanings.
How MCCs are assigned
3.12
The MCC is chosen by the acquirer or payment processor when the merchant applies for service. The MCC is assigned based on the type of business activity of the merchant. Where a merchant has multiple lines of business, the MCC should align with the activity that accounts for most of the merchant’s business. Merchants can request a specific MCC, but they only get that MCC if they qualify for it.
3.13
When providing the merchant with an MCC, a financial institution must follow card network rules and ISO standards. Each card network has its own list of MCCs.
3.14
MCCs are used by acquiring banks and payment service providers to set fees and assess risk. Payment services companies use MCCs to identify prohibited industries that they will not take on as customers.
3.15
Card networks use MCCs to determine interchange rates fees, charge convenience fees, identify high-risk industries, calculate credit card rewards, and approve payment service providers.
MCCs in the gambling industry
3.16
MCC 7995 is assigned to betting, including lottery tickets, casino gaming chips, off-track betting, and wagers at racetracks. Visa noted that for merchants with businesses using the MCC 7995, the requirements differ for card-present and card-absent (including telephone and internet) transactions.
In a card-present environment, a merchant that conducts gambling transactions must use MCC 7995 for those transactions. If the merchant also sells other goods or services, it must use the appropriate MCC for the other services.
For the card-absent environment, if the merchant conducts online gambling transactions, it must use MCC 7995 for all transactions, even if gambling is not the merchant’s primary business.
Introducing a new MCC
3.17
Visa noted that while MCCs are set globally, the justification in the application for a new MCC can be based on a national requirement in laws or regulations.
3.18
To introduce a new MCC, a merchant, issuer, acquirer, or card network applies to the ISO. The ISO is presently reviewing applications within 90 days. If an application is approved, changes are then implemented to the card network standards and network systems, a process that would take a further nine months. A merchant’s acquirer will assign a new MCC to the merchant.
3.19
The Australian Banking Association suggested that switching to a pre-existing MCC is easier and faster, provided it still fits the purpose of the merchant’s business.
Definition and regulation of types of credit for online gambling
3.20
Section 11A of the Interactive Gambling Act 2001 (Interactive Gambling Act) defines credit for online gambling:
For the purposes of this Act (other than Part 7B), credit is provided by a person (the creditor) to another person (the debtor) if, under a contract, arrangement or understanding:
(a) payment of a debt owed by the debtor to the creditor is deferred; or
(b) the debtor incurs a deferred debt to the creditor.
3.21
Section 15C of the Interactive Gambling Act provides that credit is not to be provided to customers of certain interactive wagering services:
(1) A person commits an offence if:
(a) the person intentionally provides a regulated interactive gambling service that is a wagering service; and
(b) either:
(i) the person provides, or offers to provide, credit in connection with the service to a customer, or prospective customer, of the service who is physically present in Australia; or
(ii) the person facilitates or promotes the provision of credit (other than by way of an independently issued credit card), by a third person, in connection with the service to a customer, or prospective customer, of the service who is physically present in Australia.
Credit cards
3.22
Section 15C(b)(ii) of the Interactive Gambling Act states that the provision of credit does not apply to independently issued credit cards. Subsection 15C(7) of the Interactive Gambling Act ensures the exemption for credit cards does not apply in relation to credit cards issued by gambling service providers or by related companies.
Digital wallets
3.23
According to the Australian Banking Association, digital wallets as a payment method are not classified as credit. However, digital wallets can have multiple functions. Firstly, a digital wallet can hold a representation of a credit card and make payments using the credit card online or at a physical point of sale. Secondly, some digital wallets can store value, allowing users to load currency into the digital wallets and then use it to make payments. The user could potentially use a credit card (cash advance) or other forms of credit as the source of funds.
Buy Now Pay Later
3.24
It is uncertain whether gambling using credit via Buy Now Pay Later (BNPL) would be contrary to subsection 15C(1) of the Interactive Gambling Act. The broader definition of credit in section 11A of the Interactive Gambling Act may apply to using credit via digital wallets, BNPL, or travel and entertainment cards. However, the Australian Communications and Media Authority (the ACMA) indicated that it would depend on the individual case.
3.25
The Australian Finance Industry Association (AFIA) launched its BNPL Code of Practice in March 2021. Signatories to the BNPL Code of Practice will not provide BNPL products or services for online gambling, retail gambling or gambling at domestic or offshore casinos by taking reasonable and appropriate actions with their merchants or retail partners. AFIA noted that the BNPL providers could make this commitment because their products, services, and technologies have not been offered or used in the gambling industry.
Travel and entertainment cards and vouchers
3.26
Travel and entertainment cards (T&E cards) are charge cards used to pay for a hotel, airline, and other business-related expenses. T&E cards use 30-day charge accounts, with payment due in full before the next billing cycle. The Australian Banking Association suggested that as T&E cards are payment methods and are not classified as credit, they are not banned by the Interactive Gambling Act. Tabcorp argued that betting vouchers and bonus bets should not be classified as a form of credit for online gambling because Australians are not able to buy vouchers with credit and then use them to deposit into a gambling account.
Credit betting (the provision of a line of credit by a gambling service provider)
3.27
Credit betting refers to the provision of a line of credit by a gambling operator to allow a customer to place bets without using deposited funds. Section 15C of the Interactive Gambling Act prohibits online wagering operators from providing credit to Australian customers or facilitating credit via third parties (including the provision of a line of credit by a gambling operator).
3.28
The ACMA noted that while the term ‘line of credit’ is not a term used in the Interactive Gambling Act, accepting bets when there are insufficient funds may be considered the provision of a line of credit.
Overview of current bans on using credit for gambling in Australia
3.29
In the early 2000s, Australian state and territory governments began introducing bans on the use of credit cards for gambling and cash advances on credit cards in casinos, racetracks and in gambling areas of licensed venues.
3.30
Online gaming gambling services as defined in clause (e) of section 4 of the Interactive Gambling Act, such as online casinos and online pokies, are prohibited in the Australian market by section 5 of the Interactive Gambling Act. Such services are offered by illegal offshore gambling websites.
3.31
Under the Interactive Gambling Act, it is also illegal for gambling providers to promote or offer credit for online sports betting, in-play sports betting, sports betting services that do not hold an Australian licence, advertise banned services, and betting on the outcome of a lottery.
3.32
Table 3.1 provides a high-level summary of the existing bans on using credit for gambling in Australia.
Table 3.1: Existing regulatory bans on gambling with credit
|
|
|
|
|
|
|
Providing a line of credit for gambling
|
Banned under IGA S15C(b)(i)
|
Banned under IGA S5
|
Exempt under IGA S4 & S5
|
Banned by states & territories, except for Casino high roller rooms ‡
|
|
Facilitating gambling with credit from third parties
|
Banned under IGA S15C(b)(ii)
|
Banned under IGA S5
|
Exempt under IGA S4 & S5
|
Banned by states and territories
|
|
Facilitating gambling with credit integrated with payment methods such as BNPL §, digital wallets and travel & entertainment cards ‖
|
Uncertain under IGA S15C(b)(ii) #
|
Banned under IGA S5
|
Exempt under IGA S4 & S5
|
Uncertain under state and territory laws
|
|
Facilitating gambling with credit integrated with payment methods via most independently issued credit cards) **
|
Exempt under IGA S15C(b)(ii)
|
Banned under IGA S5
|
Exempt under IGA S4 & S5
|
Banned by states and territories, except for lotteries
|
|
Facilitating gambling with deposits derived from credit not integrated with payment methods
|
Not in scope
|
Banned under IGA S5
|
Exempt under IGA S4 & S5
|
Not in scope
|
Source: Interactive Gambling Act 2001.
Key: IGA = Interactive Gambling Act 2001. Grey sections are the focus of the inquiry.
3.33
The ACMA indicated it was not aware of the existence of any interactive gambling services that fall under clause (f) of section 4 of the Interactive Gambling Act.
Using credit for in-venue gambling services is banned by states and territories, with some exemptions for high roller gaming gambling and lotteries (casinos extend lines of credit from their own credit facilities to their customers in VIP rooms, but they do not provide credit cards in those areas).
Most online gaming gambling services are banned under section 5 of the Interactive Gambling Act, regardless of how they are funded.
The current credit betting provisions of the Interactive Gambling Act as shown in Table 3.1:
exempt online wagering with independently issued credit cards;
exempt online lotteries, including tickets from newsagents and lotteries that are not highly repetitive or frequently drawn keno-type lotteries;
ban online wagering with certain types of credit;
may be uncertain about bans on online wagering with credit that is integrated with payment methods (digital wallets, BNPL, travel and entertainment cards).
Bans imposed by financial institutions
3.35
In addition to the above regulatory bans, several financial institutions in Australia do not permit gambling using credit cards. These include Macquarie Bank, Citibank, Suncorp, Bank of Queensland, Virgin Money, American Express, CUA, IMB, HSBC and Latitude Financial.
3.36
In the US, it is illegal for banks to enable gambling on their credit cards. In addition, Citibank imposes a ban on its subsidiaries in all jurisdictions. Citibank provides white-label credit cards for Suncorp, Bank of Queensland, and Virgin Money and therefore, gambling is not permitted on those credit cards. At the time of writing, it was not known whether the ban on the Citibank and its white-label credit card use for gambling would continue under the agreement announced by the National Australia Bank (NAB) to acquire the Citibank consumer banking business.
3.37
The four major banks (Westpac, Commonwealth, National Australia Bank, and ANZ) give customers the option to restrict or completely block spending on gambling with their credit or debit cards. ANZ prohibits gambling transactions where the purchases take the customer over 85 per cent of their credit limit.
Limitations and issues with how the system currently operates
3.38
The key limitation with how the regulation of online gambling currently operates is the explicit exemption in the Interactive Gambling Act that allows a person to use an independently issued credit card for online wagering.
3.39
This limitation was not addressed in November 2018 when the Commonwealth, state and territory governments launched the National Consumer Protection Framework (National Framework). The National Framework applies to around 131 wagering service providers and around 2.5 million active online wagering accounts in Australia. The 10 measures in the National Framework consolidate certain prohibitions (lines of credit, inducements) with measures that provide information, staff training, and voluntary tools (see Appendix 4).
3.40
For example, the tenth measure in the National Framework is the National Self-Exclusion Register, a voluntary tool expected to begin trials in late 2021. It allows people to exclude themselves from licensed interactive wagering services in a single step for a minimum of 3 months and up to a lifetime period.
3.41
If a person self-excludes, a wagering provider will not be able to let the person place a bet, open a new account, or send the person marketing messages.
3.42
Nevertheless, voluntary tools appear inadequate for addressing the ease with which a person engaging in problem gambling can ‘shop around’ for a credit card when they require more credit to gamble. Financial Counselling Australia, the Consumer Action Law Centre and the Financial Rights Legal Centre submitted:
…we see people with gambling addictions shopping around for banks that will give them more credit cards. That is the nature of addiction. A few people receiving help for their addiction might seek out a bank with suitable products with embedded blocks, but when relapsing will move funds to one of the other banks.
Our current patchwork of protection is still allowing too many people to fall through the cracks.
3.43
Financial Counselling Australia, the Consumer Action Law Centre and the Financial Rights Legal Centre submitted that it is not difficult for problem gamblers to apply for and receive extensive lines of credit by using multiple credit cards.
3.44
Further, a recent review of the current system was limited by only focussing on existing bans, not the gaps in the regulatory system. The ACMA credit betting review, tabled in Parliament on 25 October 2021, found that the credit betting prohibitions in the Interactive Gambling Act are generally operating effectively.
3.45
However, the scope of the review was restricted to the operation of the current legislation for credit betting. Therefore, it did not address the use of independently issued credit cards.
Views on banning credit for online wagering in Australia
3.46
There was broad support among submitters and witnesses for banning credit for online wagering in Australia.
3.47
As noted in the previous chapter, various public health, research, and community financial counselling and consumer and financial rights organisations, urged prompt action to ban the use of credit for online wagering.
3.48
In December 2020, the Australian Banking Association released its consultation report on the use of credit cards for gambling transactions. Among other things, the report found most respondents considered the use of credit cards for online gambling should be prohibited.
3.49
The submission from not-for-profit and charitable organisations supported controls on online gambling with credit. In addition, Responsible Wagering Australia indicated its support for preventing online wagering with credit, and Mr David Attenborough, Managing Director and Chief Executive Officer of Tabcorp indicated Tabcorp did not oppose a ban on the use of credit cards for online wagering.
Committee view
3.50
The committee welcomes the existing implementation of the Buy Now Pay Later Code of Practice that prevents the use of Buy Now Pay Later for gambling.
3.51
The committee also welcomes the positive views expressed by industry for preventing online gambling with credit, particularly from the industry peak body for online wagering, Responsible Wagering Australia, and from Tabcorp. The committee considers the endorsement from Responsible Wagering Australia to be timely as evidence to the inquiry overwhelmingly supported action to ban online gambling with credit.
3.52
However, the committee is concerned that the limited protections currently available—such as the Self-Exclusion Register, opt-in credit card blocks offered by the Big 4 Australian banks, and the Buy Now Pay Later Code of Practice—do not sufficiently protect gamblers or their families and friends. It is still too easy to gamble online with credit, with the all-too-common harmful consequences for individuals, their families, and the community.
3.53
The committee is of the view that the exemption that permits independently issued credit cards to be used for online wagering is the glaring omission in the current regulatory system. The next chapter considers policy options for closing this loophole, with the aim of significantly reducing the harm suffered by a substantial cohort of vulnerable citizens.