Credit card processing is the first priority when running an online sportsbook and casino business. A customer will use his/her credit card to make a purchase for virtual chips ("v-chips"). He/she enters their credit card number, name and address and the information is then forwarded to a payment processor for verification. A payment processor is usually a third party financial company which will provide the internet wagering (the merchant) with a Secured Socket Layer (SSL) page to use on their web site for customers to enter credit card information. The Payment Processor also verifies the credit card for authenticity and credit approval. Once approved, the transaction is then sent to a clearing house (a bank which processes the transaction). Some payment processors also serve as clearing houses as well. The funds are then sent to the bank account of the merchant from the clearing house.
Payment Processors usually charge a set fee per month or a percentage of the transaction. Considerations include: software compatibility, discount rates and offshore bank accounts. Each company has different programs, and it is worth shopping around. Keep in mind a credit card company and/or bank charges about a 2.5% fee per transaction to companies that use online credit card orders. There are also chargeback fees and other issues around merchant accounts.
In early 2001, we reported that Visa/Mastercard was "cracking down" on internet gaming credit card transactions by denying credit approval. The article can be read HERE. Denials of credit card transactions were taking place because the clearing houses were "coding" the merchants with an identification number that identified them as an online wagering operation. The code is known as "7995" that specifically identifies known internet casinos. Once this number is seen by the clearing house computer system, the charge will be rejected altogether. Recommended reading on this is a statement by Mark MacCarthy (Sr. VP - Public Policy at VISA) on July 12, 2001 to the US House of Representatives (adobe .pdf format). On October 13, 2006, the UNLAWFUL INTERNET GAMBLING ENFORCEMENT ACT of 2006 basically requires US credit card institutions to employ this system. An important note here is that between the years 2001 and 2006 the industry tripled in size despite the "7995" (this is a very resilient industry).
On November 25, 2002, Paypal has permanently halted the online gaming transactions within its payment network.
While online gaming revenues have been negatively affected by Paypal, Visa and Mastercard, alternative payment processing has emerged as a rapidly growing industry. Casino operators are keen to offer new payment options in order to survive. This article discusses more on the subject.
The list below is of companies believed to offer both traditional and alternative payment processing for an internet sportsbook and casino operation. Note that company policies change rapidly in the online payments industry:
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