Operators Hunt for the New PayPa

17 July 2002

PayPal's departure from the I-gaming industry is the latest blow for a business that for the last year has struggled to find effective ways for its consumers to pay for Internet gambling.

PayPal competitor NETeller Inc. said last week it had already seen an increase in demand from both consumers and operators for its service.

One source close to the payment solutions industry feels that the PayPal news could be an overdue wake-up call for operators who rely on only one payment mechanism.

But other alternative services are seeing this as a perfect opportunity to get the online gaming industry behind new systems.

GoldMoney is at the forefront. For more than two years, the firm has been putting the groundwork in place to develop an e-commerce payment solution using gold currency.

John Lee, the marketing director for GoldMoney, said the online gaming sector is a key area of focus for his team as it lays the groundwork for a system he hopes to see up and running by the end of the year.

Consumers would buy pieces of gold that would then be accepted through a network of sites. People would spend their gold on items or add to their amount through winnings at a casino or sports book. When they wanted to cash out, they would then be able to withdraw their money through another account.

The system has its problems, though. Lee said there needs to be a mechanism in place that allows players to buy the gold and then turn it into usable currency, such as through an ATM card.

"It is ideal for online gaming since gold is an international currency," he said. "It bypasses all the currency exchange laws. It allows people to gamble with gold and not worry about what currency will be paid out. So it saves you a lot of money in exchange costs."

Lee said gold is viewed as real money throughout Asia. He is confident that the idea of gold will catch on. When William Hill introduced the British Sterling Pound as a currency option, its traffic doubled, Lee said.

"So just imagine if a Dr. Ho or another Asian casino operator allowed people to play with gold," he said. "There are a lot of people that would never use the American dollar again."

Lee said progress is being made with credit card merchants and ATM card manufactures to put those pieces in place. He hopes to have a system ready for use by the end of the year or earlier.

The news that PayPal will be leaving the online gaming market will expedite that process, Lee said.

"Online gaming is one of our important verticals that we are focusing on," he said. "The PayPal news opens doors for us to talk to the casino operators, but the problem isn’t getting access to them."

Regardless of whether operators decide to sign up with a service like GoldMoney or not, the PayPal news will force many to look for new options.

More than a year ago, when credit card companies tightened their restrictions and made sure that gambling transactions were coded properly, operators began struggling with payment solutions.

One industry insider said the search for a new payment alternative has been going on for some time.

"To be honest, the hunt has been going on aggressively for other methodologies for quite some time, about the last two years actually," the source said. "The 7995 (transaction coding) issues spurred it more."

The difference with PayPal though, the source said, is that it was the leader in penetrating the gaming market and was a system that was liked by both operators and users.

"PayPal hurt some of the efforts because the site operators liked it, bought into it heavily and did not really seem to think they needed to diversify," the source said. "They did not embrace some of the newer payment methods when they came out."

According to the insider, some sites are almost 100 percent reliant on the PayPal system for processing their transactions.

"Unfortunately the sites have tended to look more for 'under the rock' solutions, small uncoded banks, hidden Web pages, etc.," the source said. "PayPal closing the doors will bring more business to all of the alternate payment companies."

Nobody knows where Kevin Smith came from. He simply showed up one day and started writing articles for IGN. We liked him, so we decided to keep him. We think you'll like him too. Kevin can be reached at kevin@igamingnews.com.