In this week’s Regulus Partners‘ Winning Post update, the consultancy and analysis firm looks at the last week’s changes announced by the Gambling Commission.

UK: gambling regulation – nothing minor about age verification changes

The GB Gambling Commission has confirmed a tightening of age verification rules for licensees to protect minors. From 7 May (three months), licensees will need to age verify all players either through a third party of by direct ID checks before allowing customers to deposit or even play free games or use bonuses. This replaces a far less strict verification minimum of 72 hours after withdrawing, with no requirements on play.

These changes merely codify best practice for some operators (although it would represent a material change if the rule were to be retrospective on all current actives vs. new customers), but it is likely to represent a significant change for many licensees and, especially, customer user experience.

We believe that this change will have three important impacts on the GB market and a potentially significant one on wider regulatory development: growth is likely to slow further, organic consolidation is likely to increase, licence risk has almost certainly increased, and; (potentially) liberal regimes are likely to be increasingly thinking twice about avoiding strenuous regulatory interventions.

We estimate that the GC’s change will have about a 2ppt impact on GB remote growth – a figure that would have been marginal only a couple of years ago, but now represents a material delta on waning demand.

The cause of this slowdown is not in driving behavioural change in the majority of customers, which it is unlikely to, in our view, but in the habits of the heavier user, in gaming especially. Trying a near unheard of casino on a whim / in response to a big sign-up bonus is the reason why heavier users often have more than a dozen accounts each. Equally, casinos with low levels of brand development and product differentiation (most, by far), tend to have material gaps down in signup to deposit and then first-time depositors to continued play (over 50% of ‘actives’ is not uncommon).

This spend was easy to come by in the old regime and few players would bother to withdraw their depleted balances (and those that did might find it unnecessarily difficult as a ‘retention tool’). That cycle is now, if not broken, sufficiently disrupted as to diminish that level of ‘over-trading’ significantly.

The disruption of ‘easy’ signup of harder gamblers will inevitably hit the ‘long tail’ of supply much harder than established brands. In betting, this represents only c. 10% of supply, but in gaming a much more significant c. 40% (and with promiscuous harder gamblers forming a key part of the 60% of more consolidated revenue also).

We estimate that the GC’s change will have about a 2ppt impact on GB remote growth – a figure that would have been marginal only a couple of years ago, but now represents a material delta on waning demand

We believe our 2ppt estimated revenue hit will overwhelmingly fall in this 40% of gaming, implying a c. 10% negative impact on ‘long tail’ casino revenue (already struggling to grow). The flip side of this impact is greater market share for more established brands, but of a smaller pie: further organic consolidation.

A final GB-specific impact is that the Commission is likely to be watching for breaches very closely. Implementation time is relatively short (albeit the required systems are essentially already in place) and for many operators this will represent a commercial requirement to change marketing strategy at just as much as a regulatory requirement to change verification processes.

Mistakes are almost bound to occur, but the regulator is unlikely to be lenient on such a high profile (and essentially common sense) issue. If there was one licensing change likely to catch operators out and have them in licence review territory, we would say this was it.

Finally, the UK has been a posterchild of liberal fiscal-regulatory regimes. This change follows a series of tax rises and (voluntary) advertising restrictions which collectively thoroughly test the central premise of the hyper-liberal model. If gambling operators wanted to point to the UK as a haven of effective self-regulation based upon operators commercially incentivised to behave themselves, then this latest change erodes that position further.

The key to a liberal regime surviving the test was a mature licensee environment (in the sense of behaviour) – the series of increasingly severe interventions in the world’s most mature online gambling market (in the sense of development) demonstrates that we are still not there yet.

In our view this makes both existing liberal regimes increasingly under threat, while the likelihood of newly regulating POC markets choosing open licensing and light regulation is also diminishing.

Global: payment processing – walking the high wire

Wirecard’s offices in Singapore were raided by police last week, this is a considerable step up in the authorities’ investigation brought to light when the FT alleged that an internal probe had found accounting irregularities, deliberately misleading movements in funds and forged documents.

The police are believed to have seized electronics, including laptops, however the police did not confirm which unit carried out the operation, or what materials, if any, were taken in the raid.

The raid came after the FT published reports that raise questions about the integrity of the accounting the company, which prompted a statement by the Singapore police earlier this week saying it was “looking into the matter”.

Wirecard regards the FT’s statements as defamatory and based upon misunderstood and/or misused old evidence, and is taking legal action. Wirecard’s external compliance audit is soon to be completed, which is likely to provide much clearer evidence of any issues.

It is too early to say for certain what, if any wrong doing, has taken place in this context. However, in broader terms it does highlight the fact that in many markets operators are heavily reliant on ‘alternative’ payment providers that may not be governed with the same level of probity as mainstream banks (although their track record is far from unblemished).

There has been a recent push to get banks engaged in harm mitigation by regulators, especially in the UK, but if banks are not equally willing to treat regulated online gambling as an acceptable business activity, payments and banking is likely to remain the ‘soft underbelly’ of the remote sector on a number of business critical levels.