GPWA Times Magazine - Issue 29 - July 2014

THE EXECUTIVE CORNER Whengraymarkets turnwhite: Paymentprocessing ina regulatedenvironment P ayment processing – and the pay- ments system in general – is one of those thingsmostpeople take forgranted. Moneymoves fromonepersonor compa- ny to another, and you don’t really think about the steps in between. You don’t think about how your credit card trans- action is processed because it just works. Until it doesn’t. Unfortunately for the on- linegaming industry, the“itdoesn’t”part isa factof life that the industryhas todeal withon a regular basis. InNew Jersey,whichbegan licensingand regulating online games in November of last year,Visahas a66percent fail rate for online gaming transactions. MasterCard hasa27percent fail rate forgaming trans- actions. Even in the more global online gaming ecosystem, where online gaming has been established for years, problems with payment processors are often cited when payments are late in arriving or missing altogether. One of the companieswith the best repu- tation in thepayment processingbusiness is Optimal Payments. Optimal Payments is a global provider of online andmobile payment processing services, and is pri- marily known for their NETELLER and NETBANXproducts. Optimal Payments CEO Joel Leonoff sat down with GPWA Editor-in-chief Vin Narayanan earlier this year to offer in- sights into thepaymentprocessingworld, describe thepayment processingenviron- ment as regulations change, and discuss their (re)launch in theU.S. VN: Howdo regulatedmarketschange the business environment you’re work- ing in? JL: Today, therearen’t a lotof regulat- edmarkets for themost part. There’s the U.K., Italy, France – theU.S. now is start- ing to get regulated. Spain andGermany are kind of playing around a little bit. So it’s (regulation) still in its early stages. In our world of processing for Internet gaming, it is a gray world for the most part, so all the markets we process in – close to 200 countries as far as accepting currency and deposits from consumers around the world – are basically a shade of gray. Some are a darker shade of gray. Some are a lighter shade of gray. When regulation enters into themix, what hap- pens typically is thegraymarketsbecome whitemarkets sowe just endupprocess- ing for white merchants that used to be gray and it has very little impact for us. We’re going toprocess payments in those communities and jurisdictions on awhite basis exactly the same way we process for them on a gray basis. So our world is unaffectedby thewhite tograyor gray to white typeof process. The one part of the process that is incre- mental to processing in gray markets is that there is a procedure or process to be deemed suitable through the regulatory groups in those jurisdictions. Sowhether it’s Italy or France or theU.K. orwhether it’s the U.S. and sitting down with New Jersey, ultimately it meanswe have to go through (due) diligence and we have to prove that we’re suitable, credible about our ethics and the waywe conduct busi- ness in thosemarkets, and it’snot an easy process and some of the applications are a bit onerous, and there’s a lot of detail, but I think for us, we believe we are a very credible andprofessional group.We thinkweadda lotofvalue to the industry. Ultimately, we believe we’ll get through all of the regulatory processes. So from ourperspective, even thoughwe think it’s a little bit inconvenient, it also keeps out the riffraff, so to speak, so it tightens up the community. VN: How much education do you have todo as yougo into thesemarkets? For example, in New Jersey, I’ve been hearinga60percent fail rate forprocess- ing– thathas todoasmuchwith theU.S. banking system as anything else. JL: It’s funny because leading up to the legalization of U.S. (online gaming), I had been to a lot of shows consistently professing my sense that when it does finally turn on, so to speak, that there would be significant problemswith some of the credit cardprocessing. Theprimary reason for that is that some of the major issuingbanksdon’twant their cardmem- bers using their cards to incur gambling debt online so they just refuse the trans- action.Whether it’s legal or not is not the issue. It’smore amatter of how they feel their card shouldbeutilizedand forwhat purposes.Wekindof anticipated that.We figured itwasnot going tobeas cleanand neat as everyonebelieved it tobe. And there’s some complex coding with respect to Visa. There’s a merchant veri- fication value before theCVV code and it requiresbanks toopt into thatprocessand many probably aren’t. So that all culmi- nates in very high rejection rates. For us, we are imminently launchingNETELLER again in theU.S. ( Editor’snote: NETELLER launched in the U.S. on March 4, 2014.) And NETELLER really is a tool that we believe will provide merchants the abil- ity to get 100 percent conversion of their customers – whether it’s a credit card transaction,whether it’s anACH thatwill provide on a guaranteed basis, whether it’s a cashdeposit at a corner convenience storewhere you get a voucher.We’ll pro- vide options that ultimatelywill help the merchants secure those customers. VN: Are you working exclusively with any (operator) in theU.S.? JL: We have no exclusivity tied into any one merchant or any one supplier. Ultimately the reality is we believe we’ll process for 100 percent of the industry. If I’m a merchant, the value NETELLER brings to the table, not only in the pay- When graymarkets turnwhite: Payment processing in a regulated environment