Three U.S. states are making online gambling an honest pastime, with Nevada and Delaware opening Web casinos in April and October, respectively. New Jersey gets on board next week. Unfortunately, there is one problem that could sink this burgeoning industry: Institutions like Bank of America (BAC 2.95%), Wells Fargo (WFC 3.38%), and eBay's (EBAY 1.11%) PayPal are limiting players' bankrolls by refusing to process online gaming transactions using credit cards.
For Bank of America, at least, this stance is a surprising one considering the bank recently signaled its willingness to handle Washington state's revenue from another newly legitimized enterprise -- the legalized recreational marijuana industry.
Concerns about federal law, underage gambling
Banks are worried about running afoul of the Unlawful Internet Gambling Enforcement Act of 2006, which prohibits persons or businesses "from knowingly accepting payments in connection with the participation of another person in unlawful Internet gambling." Though the operative word would seem to be "unlawful" -- which is not the case in Delaware and Nevada -- the two banks and PayPal still aren't interested.
Banks, not surprisingly, are concerned that underage bettors or players from outside the states with legal online casinos will use their branded credit cards to place bets. Although both Visa and MasterCard have updated their own policies to allow these types of transactions in states where they are legal, it is of little use if the card-issuing banks won't go along.
A state-by-state endeavor
Remarkably, the authorization for states to create Internet-based casinos was bestowed by the UIGEA, the selfsame law that forbids entities like banks and PayPal from processing illegal online bets. In 2009, Nevada was officially leaning away from setting up online gambling within its borders, and the feeling was that California would be the first to take the online gamble. Currently, that state, as well as Illinois and Pennsylvania, are poised to set up their own Web-based casinos.
The journey of online gambling mirrors that of marijuana legalization, also a state-by-state effort to set up a legal business at the state level -- even though the enterprise is still considered illegal by the federal government. Wells Fargo, Visa, and MasterCard have all decided against dabbling in legal pot businesses in Colorado and California, most likely because of the Fed's viewpoint.
Only a matter of time?
Like legal pot, online gambling isn't going away, and the money involved is expected to be phenomenal. Bloomberg estimates Internet betting revenue to top $7.4 billion by 2017, and Morgan Stanley has predicted that amount to swell to $9.3 billion by 2020.
With that kind of cash flying around, it's unlikely banks will stay away for long. I predict Bank of America will be one of the first to take the plunge, based on its inclination to handle the legal marijuana revenue for the state of Washington. B of A could use some new sources of income, too, and it's keen to expand its credit card business.
The bank is reportedly looking at changing its current policy toward online gambling; I'm betting Bank of America isn't going to leave all that money just sitting on the table.