Online Gaming Business: Is It Gambling?

March 16, 2021

Online gaming is becoming the leading form of entertainment in many households. More than 214 million Americans play video games, spending at least 6.6 hours per week on online gaming. The popularity of online gaming extends beyond the United States. The ever-increasing global internet penetration rates are contributing to the exponential growth of online gaming businesses around the world. Online gaming is a popular and lucrative industry that is projected to generate $196 billion by 2022.

Despite its profitability and popularity, most banks and financial institutions are reluctant to work with the online gaming industry. The association of online gaming businesses with gambling makes these merchants too risky to work with. Many popular casino and gambling games ⎼ such as craps and blackjack ⎼ are indeed offered by many online gaming websites. The blurred lines between online gaming and gambling force most banks to shun internet gaming merchants to reduce the risk of legal trouble.

Why is Online Gambling Called Online Gaming?

There are many similarities between gaming and gambling. The resemblance of these two activities causes many people and online gaming businesses to use the terms “gambling” and “gaming” interchangeably. In both gaming and gambling, people participate in the activity to win a reward or other favorable outcome. Many people associate playing games for money or other valuable items with gambling.

While many games have gambling-like features, the factors that determine the outcome of the play distinguish gaming from gambling. In gambling, the outcome of the play is determined purely by chance or luck. The outcome of gaming, on the other hand, is determined by skill. Chess and video fighting games are classified as gaming because they require skill to win the play. Slot machines, roulettes, and craps are considered to be gambling as pure luck determines the outcome of the activity.

Game-Like Gambling

While there is a clear distinction between gaming and gambling, some popular casino games can also be classified into the gaming category. Popular casino games like poker and blackjack require some degree of skill as well as luck to win the play. As skill plays an important role in determining the outcome of these activities, these gambling plays can arguably be referred to as gaming.

Two dies and three stacks of casino chips on a laptop

Online gaming businesses use the terms “gambling” and “gaming” interchangeably as many popular casino games require a decent balance between luck and skill to win the play. However, federal and some state laws restrict game-like gambling plays like poker, which can cause legal trouble for online gaming businesses that operate in regulated jurisdictions.

What is the Legality of Online Gambling Businesses?

Many popular games offered by online gaming businesses are considered to be gambling by some federal and state laws. Gambling falls into a legal grey area. While there are no universal regulations on online gambling legality, many states have adopted their own laws on internet gaming businesses. The Unlawful Internet Gambling Enforcement Act of 2006 specifies that online businesses should not knowingly accept any form of payment from people participating in bets or wagers in jurisdictions that outlaw games of chance.

Different states and jurisdictions have their own regulations on online gaming and gambling businesses. While some states permit online gambling games, others crack down on the industry to restrict their activities. Online gaming businesses can legally operate and offer their services in the states of New Jersey, Nevada, Delaware, Pennsylvania, and West Virginia. Other states, such as Louisiana and Iowa, prohibit online gambling and can charge violators with a felony.

Online Gaming is High-Risk Business

Federal and state regulations on online gambling legality categorize internet gaming merchants as high-risk businesses. There can be severe penalties for entities that provide financial services to online gaming businesses in regulated jurisdictions. Penalties for violating a state’s online gaming laws include five-year imprisonment, hefty fines, and getting barred from involvement in gambling activities. The complexity of adhering to different laws governing online gambling legality compels banks to avoid internet gaming and gambling businesses to reduce the risk of legal trouble.

How to Start an Online Gambling Business?

Despite the legal risks of operating in a regulated industry, many merchants are still eager to establish online gaming businesses. Online gaming and gambling businesses are exploding in popularity and are fast becoming some of the most profitable industries in the world. The development of new gaming technologies such as virtual reality and real-time personalization will further contribute to the unprecedented growth of the online gambling industry.
A happy businessman looking at a tablet with dollar bills raining on himWith more than one billion online gamers around the world and growing, many entrepreneurs see an opportunity for making big money. If you’re a budding gaming entrepreneur, you’re probably wondering how to start an online gambling business. Starting an online gaming business can be complicated as you will be operating in a very risky industry. Along with the issue of online gambling legality, the gaming industry is also notorious for its high rates of fraud.

Establishing and operating an online gambling business is no easy task, but it can be a very rewarding enterprise. Follow these tips to help you launch an online gaming business:

Research the Market

Before starting any business, you should have a good understanding of the ins and outs of the target market. Research the competition, consumer preferences, and the best gaming software provider for your business needs. It is best to seek the advice of business consultants with experience and expertise in the online gaming and gambling businesses to help you better navigate the complexities of the industry.

Obtain a Gambling License

Online gambling legality is an issue for gaming entrepreneurs as games of chance are prohibited in many jurisdictions. Establishing an online gambling business in an outlawed jurisdiction can land you in legal trouble. To run your online gaming business legally, you need to obtain a gambling license and register a server in a jurisdiction that permits games of chance.

Find a High-Risk Payment Processor

Besides regulatory issues, the high rates of fraud and chargebacks in the gambling industry make online gaming merchants high-risk businesses. To run a successful online gaming business, look for a high-risk merchant account provider with global payment processing capabilities so you can accept credit cards from customers all around the world.

Partner With T1 Payments for a Profitable Gambling Business

Many online gaming merchants offer popular game-like gambling plays like poker and blackjack on their platforms, blurring the lines of their business between gaming and gambling. Gaming is a very lucrative industry, but its association with gambling can create many legal and financial barriers to business growth. If you want to establish and run a thriving gambling business, T1 Payments can help.

T1 Payments is a global high-risk processor, allowing online gaming businesses to accept credit card payments from customers all around the world. Our payments platform uses the most advanced fraud and chargeback mitigation technology to protect your merchant account and reduce financial loss. Contact us now to learn how we can help you run a profitable online gambling business.