Credit Cards and Gambling: You Betcha

by Brian Riley 0

Woman hand holds a credit card and uses a laptop computer to shop online.

Gambling and credit cards are a terrible proposition in my book but generating incremental transaction volume at payments network is not about personal feelings on life’s vices.  If the payments are legal, permitted by the networks, irrefutable and auditable, they should be considered for inclusion.

Payment networks agree, as evident by the merchant category codes (MCC) that define this business sector.  Those codes are: 7800, for government-run online lotteries; 7801, at regulated online casinos; 7802, indicating regulated events for online horse and dog racing set the stage for the U.S. card market.

While at least 20 countries permit online gambling, the U.S. lagged for reasons that I’d call practical but many would call obtrusive.  Issues like KYC, money laundering, ruining households stand out.   However, when the Supreme Court makes a decision, that is the rule we follow.  As the Wall Street Journal editorializes today, this is not about gambling, this is about liberty.

  • Reasonable people can disagree whether sports gambling should be legal.
  • But everyone who favors individual liberty should agree with the Supreme Court’s 7-2 decision on Monday in Murphy v. NCAA that the Constitution prevents Congress from giving orders to state legislatures.
  • As more states legalized gambling, Congress in 1992 passed the Professional and Amateur Sports Protection Act (Paspa) that made it illegal for states to authorize, promote or operate sports gambling.

Expect card networks to react and issuers to set up their own rules.  Legalizing interstate gambling, or modernizing gaming laws is one thing, but how do you control social issues? Alternatively, should you control social issues?  Will bankruptcies allow people who chance $10,000 in Superbowl gaming impact issuer profitability? Is our KYC process good enough to shelter the system from money laundering? What do you do with the knucklehead that squanders their credit on bad betting?

Some estimates go as high as $150 billion a year, which translates into close to $2 billion in interchange, so card companies have an interest.  Be certain that the IRS will watch this evolve to ensure the U.S. Treasury gets their due.

For now, I will wait until the Superbowl and reluctantly pull out a $20 bill to buy one of those betting boxes, and hope for the best.

Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group