Introduction
4.1
As noted in previous chapters, there is both widespread recognition of the substantial harm caused by online gambling with credit, and broad support, including from the industry peak body for online wagering, for effective measures to ban the use of credit for online wagering to alleviate the associated harm.
4.2
Accordingly, this chapter considers policy options for banning online gambling with credit while still allowing the use of credit for lotteries. The chapter considers three options to achieve this goal:
using BINs to block credit for online gambling;
using MCCs to block credit for online gambling;
industry self-regulation.
Using Bank Identification Numbers to block credit for online gambling
4.3
As noted in the previous chapter, a BIN enables participants in the payments process to identify whether the card is a credit card or a debit card, thereby allowing a merchant (or their payment processor) a choice about whether to accept or block a credit transaction.
4.4
Blocking online gambling with credit using BINs could occur close to or at the point of sale, in the merchant’s software or the merchant payment processor. Therefore, regulation to implement a ban using BINs may place the onus on the gambling service provider.
4.5
Mastercard advised it would expect gambling operators to work with their acquiring banks to ensure they are not accepting credit cards.
4.6
Responsible Wagering Australia advised that its discussion with the Australian Banking Association indicated that blocking BINs may be feasible:
RWA is currently consulting with the Australian Banking Association (ABA) as part of work to develop a technical solution to prohibit credit card wagering. Blocking of Bank Identification Numbers (BIN) is being examined as one option that could facilitate this. Our discussions to date with ABA member representatives suggest that this could be one feasible method of achieving a block on credit cards and work is currently underway to examine this potential solution in further detail.
4.7
Tabcorp advised that its wagering business and its lotteries payment provider could identify credit card payments using the BINs.
Using Merchant Category Codes to block credit for online gambling
4.8
MCCs enable particular transaction types to be blocked by blocking the relevant MCC code for categories of merchants. In this case, the onus for implementing the regulation (blocking transactions using MCCs associated with online gambling services) would fall on one or more participants in the payment system to identify the relevant transactions. This could be either the card issuing banks, or the card networks.
4.9
Mastercard advised that in most cases, cardholder relationships belong to, and are managed by, the bank or financial institution. Mastercard advised it would have a limited role in blocking online gambling transactions using MCCs and could not easily implement a ban because it does not see all transactions on cards carrying its brand:
Only the card issuer—who authorises transactions and has the direct relationship with the cardholder—sees all transactions on their cards.
For this reason, if any form of payment blocking was to be mandated in Australia, then responsibility for imposing the block should reside with the issuing bank rather than with the card scheme.
4.10
In contrast, Visa indicated that it could block transactions but, to date, that has occurred as a backup to the card-issuing banks which provide the primary MCC blocking role:
Visa is a business-to-business entity and, although we do not have a direct relationship or engagement with consumers, Visa actively supports our issuing bank clients (hereafter referred to as issuers) to implement controls on gambling transactions. In certain cases, our issuers in Australia apply blanket blocks for gambling transactions—whether on credit or debit products—and we assist them where they wish to introduce such measures following a review of their existing processes and rationale for the support. Furthermore, Visa carries out instructions to decline gambling transactions in cases where we stand in to authorise on a client’s behalf in the event that they experience an outage.
Application of Merchant Category Codes to Digital Wallets
4.11
The Australian Banking Association suggested it may be difficult for MCC based blocking to address all digital wallets, particularly those that provide stored value features.
4.12
Apple indicated the ability to distinguish between a debit or credit card already exists in digital wallets such as Apple Pay. Therefore, online gambling service providers can switch off the option to pay with credit cards. Gambling service providers have implemented this approach in the United Kingdom. If a customer is on an app or website that does not accept credit cards, those cards show up greyed out in the Apple Pay payment sheet and unavailable for transactions with that gambling service provider. As a result, Apple Pay is compliant with the United Kingdom Gambling Commission ban on credit cards that came into force in April 2020.
4.13
Visa indicated that for tokenised mobile wallets, such as Apple Pay and Google Pay, the card issuing bank will be able to manage the block as they do today in offline venues. Where a card is used for loading a digital wallet, this is under a different merchant category that provides the issuer visibility when credit is used for the load. Only the digital wallet operator knows how the funds in the wallet are used and if they allow them to be used for online gambling. As those transactions do not pass through the credit card networks, they are not subject to the same level of controls provided by credit card network rules and monitoring for illegal or prohibited activity.
4.14
Visa indicated that for travel and entertainment cards, the issuer will be able to manage the block as they do today in venues.
Impact of Merchant Category Codes blocks on lotteries
4.15
This section considers:
the impact on lotteries from using MCC 7995 to ban online gambling services with credit; and
whether different or new MCCs could be used to separate for-profit and not-for-profit online lotteries from other forms of gambling.
Impact of Merchant Category Codes blocks on for-profit lotteries
4.16
The Australian Lottery and Newsagents Association (ALNA) was concerned that a block on MCC 7995 for lottery sales in retail outlets would negatively impact add-on sales.
4.17
Tabcorp expressed similar concerns about the impact on lotteries of a block on MCC 7995:
When it comes to lotteries and lottery products, our position is that these need to be expressly excluded in any consideration of a credit card ban…It would significantly impact the income of lottery agents and newsagents—by over $44 million per annum, we estimate—if a credit card ban were implemented. Customers, typically the older ones, use their credit cards to purchase lottery tickets at their local store for convenience, and they often do it as a bundle purchase with newspapers and magazines.
4.18
ALNA and Tabcorp suggested that MCC 9406 (Government-Owned Lottery Non-US region) could be used by government-owned lotteries instead of MCC 7995.
4.19
Visa noted that MCC 9406 has been available for Visa transactions since October 2019. ALNA advised that from 15 October 2021, Mastercard is expanding MCC 9406 to include government-owned lotteries and licensed lottery sales agents. When merchants refresh their terminals, they can adopt that code on their terminals.
4.20
That said, the Australian Banking Association indicated that only a government-owned and operated lottery would be able to use MCC 9406. Only in Western Australia is the lottery (Lotterywest) owned by the state government and operated as a government business enterprise. In all other states and territories, lotteries are operated by Tabcorp under licence.
Impact of Merchant Category Codes blocks on not-for-profit and charitable organisations
4.21
Not-for-profit and charitable organisations were concerned that a block on MCC 7995 would adversely impact their fundraising activities. Therefore, charities and not-for-profit organisations requested that they be exempt from any ban on online gambling with credit.
4.22
Not-for-profit and charitable lotteries requested that MCC 8398 (charitable or social service organisations) be expanded to cover ‘charitable or social services organisations and their respective fundraising activities including fundraising lotteries’. Not-for-profit and charitable lotteries argued that such a designation would allow them to use MCC 8398 and avoid the current issues when banks and card schemes seek to apply MCC 7955 to payment processing based on the lotteries they operate.
4.23
The Australian Banking Association agreed that MCC 8398 is used by charities for their core business and donations. However, the Australian Banking Association argued that MCC 8398 specifically excludes fundraising activities involving gambling such as lotteries. The prize raffles are classified as gaming or gambling activities by state and territory regulators. The Australian Banking Association, Visa and Mastercard indicated that, at present, transactions used to purchase raffle tickets or prizes must be classified with the MCC 7995. The websites used for these entries are generally separate from the primary website accepting payments for the charity's work or any other donations.
4.24
Given the different purposes, risk profiles and transaction costs that apply under MCC 7995 and MCC 8398, an alternative approach may be to seek a new MCC for charitable and not-for-profit lotteries.
4.25
While there may be obstacles in trying to use MCCs to block online wagering while exempting not-for-profit and charitable organisations that fundraise with lotteries from being caught in the ban, there are some options. These options are summarised below:
it may be possible to use MCCs to block the use of credit for online wagering and online gaming gambling services and other online gambling services;
Government-owned, operated or licensed lotteries could be exempt and use MCC 9406;
Not-for-profit and charitable organisations can use MCC 8398 for their operations that do not involve lotteries;
Lotteries run by not-for-profit and charitable organisations could be exempt, but would need to seek a new MCC.
Responsible Wagering Australia’s self-regulatory proposal
4.26
During the inquiry, Responsible Wagering Australia announced it would begin to implement a self-regulatory approach to harmonise the online environment with in-venue gambling where credit card use is prohibited:
Australia's major online wagering operators will support development of measures to prohibit credit card wagering. RWA members have agreed to develop technical solutions to deliver this reform in a timely fashion and will seek the assistance of banks and payment processing providers to ensure the change can be delivered without any adverse or unintended consequences.
4.27
Responsible Wagering Australia noted that while it had an agreed policy position, the technical solutions were yet to be determined in consultation with banks and payment systems providers.
4.28
It is important to note that the Responsible Wagering Australia proposal would only cover wagering and its members which include Australia’s major wagering service providers: bet365, Betfair, Entain (Ladbrokes and Neds), Sportsbet and Unibet.
4.29
Tabcorp estimates that around 67 per cent of the online wagering market (calculated by revenue volume) is represented by Responsible Wagering Australia members. Around 33 per cent (including Tabcorp) of the online wagering market service providers are not members of Responsible Wagering Australia.
Committee view
4.30
The committee acknowledges gambling is a legitimate form of entertainment for many Australians. The committee considers that both for-profit and not-for-profit lotteries (as defined under the Interactive Gambling Act) lead to relatively lower harm than other forms of online gambling, and therefore should be exempt from any ban.
4.31
This committee notes the recent inquiry into the Interactive Gambling Amendment (Prohibition on Credit Card use) Bill 2020 by the Senate Environment and Communications Legislation Committee found:
A lack of research on the extent of the harm from online gambling;
Uncertainty in the definition of credit;
Unintended consequences of the Bill, including:
the potential impact on the broader gambling community and lotteries;
the possibility consumers would seek out other payment mechanisms;
the possibility some consumers may shift towards greater use of unregulated offshore wagering; and
increased use of third-party payment mechanisms.
4.32
However, as this inquiry has highlighted, while the number of people suffering substantial harm from the use of credit to gamble online may be comparatively small, the consequences are significant and life changing. And those harmful impacts can spill out onto family members and the broader community.
4.33
This committee also notes that the industry peak body for online wagering, Responsible Wagering Australia, now supports a ban and Tabcorp did not oppose a ban on the use of credit for online gambling. Further, this committee has identified a policy option for blocking credit cards for online gambling services that:
does not affect lotteries;
does not affect debit payment mechanisms;
would minimise credit card credit passing through digital wallets or other payment methods; and
creates regulatory consistency between the online and in-venue environments.
4.34
In addition, measures are already in place under the National Framework to address illegal offshore wagering. Finally, as discussed below, the cost benefit trade-off for policy action is now favourable.
Costs and benefits of a ban on the use of credit for online gambling
4.35
There are significant benefits from a ban on the most harmful forms of online gambling with credit. In the decade since the 2010 Productivity Commission inquiry, the committee considers the harm from online gambling credit has increased substantially, and therefore, the benefits of a ban have increased. In addition, the impacts of a ban on online gambling with credit identified by the Productivity Commission have decreased substantially in the last decade because:
credit card use in online wagering is not the dominant payment method;
alternative ways to pay exist as customers can use debit cards or make online cash transfers into their accounts with gambling service providers using BPAY; and
some digital wallets are now able to distinguish between debit and credit cards.
4.36
The committee considers that online wagering is the primary type of harmful online gambling with credit. The legislative ban on online gambling with credit is consistent with the government driven regulatory approach to
in-venue gambling with credit. Online gaming gambling services are currently banned in Australia, and other online gambling services defined under the Interactive Gambling Act are not presently offered in Australia. The Interactive Gambling Act also prohibits gambling providers from promoting or offering credit for online lottery betting services (also referred to as ‘synthetic lotteries’) which allow customers to bet on the outcome of a lottery draw.
Policy options for banning the use of credit for online gambling
4.37
The committee considered the following aspects to construct the policy options as shown in Table 4.1:
which types of gambling services to regulate;
whether a ban is based on legislation or gambling industry self-regulation;
whether the legislation places the regulatory onus on online gambling service providers or the banking and finance industry and payment system participants; and
which payment system mechanisms could be used to implement a ban.
4.38
The following policy options are drawn from the summary in Table 4.1.
4.39
Option 1: Legislate to require gambling service providers to block credit card BINs.
Provides flexibility to block credit for harmful online gambling services (wagering, gaming and other gambling services).
Puts the responsibility on the gambling services provider (aligns with the regulatory responsibility in in-venue gambling in Australia)
Exempts lotteries as defined in the Interactive Gambling Act.
Not limited by the memberships of industry peak bodies.
Digital wallet providers can be required to block credit for harmful online gambling services.
4.40
The committee recognises that the optimal application of this regime requires card issuers to provide an up-to-date list of BINs to gambling service providers on a regular basis.
4.41
Option 2: Legislate to require card issuers to block credit cards using MCC 7995, move for-profit lotteries onto MCC 9406, and create a new MCC for not-for-profit lotteries.
Could exempt lotteries as defined in the Interactive Gambling Act.
The path to separating for-profit lotteries from MCC 7995 appears to be viable using MCC 9406.
The path to separating not-for-profit lotteries is less certain. MCC 8398 can only be used for charitable activities that do not involve gambling activities. A new MCC would need to be sought from and approved by the International Standards Organisation and the credit card networks. While that appears possible, significant time and negotiations may be required.
Could assist in reducing the use of credit cards for offshore online gambling.
4.42
Option 3: Responsible Wagering Australia self-regulatory proposal
Only applies to Responsible Wagering Australia members (not Tabcorp).
Only applies to wagering services.
Would not affect lotteries.
Public commitment by Responsible Wagering Australia to implement.
No guarantee it will be successful or rolled out in a reasonable timeframe.
4.43
When considering a regulatory approach, the committee believes that it is important that the recommended option:
maximise the benefits of harm reduction by covering online wagering, gaming and other gambling services;
be relatively straightforward and cost-effective to implement;
avoid perverse incentives; and
aim to create regulatory consistency between the treatment of online and in-venue gambling with credit.
4.44
While the committee welcomes the self-regulatory proposal by Responsible Wagering Australia, the committee notes it would only cover Responsible Wagering Australia members, and there are no guarantees it will be successful.
4.45
There are also obstacles in trying to use MCCs to block online wagering while exempting not-for-profit organisations and charities that fundraise with lotteries.
4.46
Therefore, the committee considers that option 1, legislation to require gambling service providers to block credit card BINs for online gambling, is the most attractive option because:
It is relatively simple to implement and limits the regulatory burden on the banking, finance and payments sectors.
It is consistent with other bans on gambling with credit in physical venues.
It provides a straightforward way to exempt lotteries while banning other more harmful forms of online gambling with credit.
4.47
The committee recommends the government legislate to ban online gambling service providers of wagering, gaming and other gambling services (but not lotteries) as defined in Section 4 of the Interactive Gambling Act 2001:
from accepting payment by credit, including by credit cards, credit via digital wallets, Buy Now Pay Later and travel and entertainment cards;
by requiring online gambling service providers or their payment processors to block transactions based on Bank Identification Numbers linked to credit card accounts; and
4.48
In the interim, the committee considers Responsible Wagering Australia, its members and other providers should continue to work with the Australian Banking Association and other relevant financial services organisations to fast track the mechanisms for implementing a block on credit for online gambling by the use of BINs.
4.49
The committee recommends that the Australian Government develop and implement legislation to ban online gambling service providers of wagering, gaming and other gambling services (but not lotteries) from accepting payment by credit cards, including via digital wallets.
4.50
The committee recommends that the Australian Government ensure that, in designing and implementing recommendation 2, these measures have no adverse consequences for lotteries, including the activities of not-for-profits, charities and newsagents.
Mr Andrew Wallace MP
Chair