Thursday, March 26, 2009

Offshore Credit Card Processing

I remember back in the 90's when I was setting up an online casino, one of the toughest things to get together was the banking.

Although we were operating "offshore" from the sunny confines of Costa Rica, factions of the US were less than amused with the fact that US citizens were going online to play casino games and place wagers -- and the casino wasn't paying taxes to anyone in the US.

After signifcant pressure in the US Senate, the banking industry decided on a course of self-regulation.

First, paypal decided that it would stop funding offshore gaming by its members. It is presumed that this was perhaps one of the prerequisites of the Ebay buyout.

Next, and altogether more damaging, were the banks.

Banks who had issued credit cards to their banking clients decided to stop allowing transactions that were coded as "gaming" on the Visa or MasterCard network. What had been a reasonably difficult job of finding processors for offshore banking transacitons, became very difficult, bordering on impossible overnight.

A lot of offshore credit card processors went out of business overnight, and more than a few disappeared with their clients deposits and the "float". You see, due to the high risk of chargeback, anyone involved in offshore credit card processing was holding back up to 1/2 of the funds being run through the accounts for 30 days, and not releasing the last 10% until up to 6-12 months later.

What this meant was that credit card processors were holding literally hundreds of thousands of dollars from all of their even average sized casino clients.

Dozens, if not hundreds of casinos had not only their cash flow cut off, but had processors disappear with money that had already been "earned". It created a big washout in the industry that was only equalled in severity when google, yahoo, and the other search engines decided to stop taking casino and gaming clients in their US properties.

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