Processing credit card transactions is a necessary part of every consumer-related business. This is especially true online. Without the ability to process your customers' credit cards through your website, you'll sacrifice the majority of your sales. If you're operating a sports betting company, you'll need to contend with other issues. Below, I'll explain how online betting works with payment processors. Then, I'll describe the problems that plague the industry.

Basics Of Sports Betting Payment Processing

Sports betting websites are in a unique situation. They process credit cards whenever bettors want to deposit money into their accounts. In that sense, they're similar to other online businesses. However, when their customers win bets, these websites must transfer their winnings back to them. Those winnings can't simply be transferred back onto the customer's credit card. That typically happens only in the case of a refund or chargeback. The easiest alternative is for the betting website to send checks to customers with their winnings. And that can be a problem...

Coping With A Challenge

First, sports betting websites deal with the challenge of processing payments by using an overseas merchant account. The reason is due to congressional legislation that prohibits banks from transferring money to an online gambling site. Known as the Unlawful Internet Gambling Enforcement Act of 2006, it's actually used to prevent banks from dealing with gambling sites at all (which I'll explain in a moment).

Sports betting websites fall under the umbrella of "online gambling." As a result, banks within the U.S. will not extend a merchant account to them. Further, remember that these websites need to send customers' winnings by check. The congressional act mentioned above precludes banks from allowing the transfer of money through those checks. If discovered, it's plausible that the U.S. DOJ (Department Of Justice) will impose fines on that bank.

The challenge for sports betting sites is to find a bank that is either unaware of the type of business for which they're issuing checks or is willing to take the risk (not unheard of in some countries). Keep in mind that a popular site might issue hundreds of checks each month, especially for popular events like the NBA Finals. So, it's not a small risk.

Enter The Payment Processor

Often, betting websites need to use a payment processor to not only accept deposits, but to also distribute winnings. It's becoming more challenging to accept major credit cards (specifically, Visa and Mastercard) for wagers because of the congressional legislation. To fill that gap, several payment processors have emerged. But, using them is, in itself, a challenge for betting sites. Many of these processors are "fly by night" operations and disappear once customers' deposits are received. Others are actually reliable and will process payments until they're caught, which can happen without warning.

Finding A Payment Processor

If you're thinking about starting a sports betting website, you'll have some obstacles to clear. Not only will you not be able to process credit card payments through a domestic merchant account, but you'll need to find a bank to process checks for you. If you're unable to find a bank that is willing to work with you (remember, it's a risk for them), you'll need to find a dependable payment processor.

Bodog, a high-profile presence in online sports betting, reportedly uses JBL Services to process payments. While JBL was profiled in a recent Forbes article that mentions legal action being taken against them, most experts suggest the article was misleading. Another payment processor with a good reputation in the industry is Zippayments.com. Whichever company you choose, keep in mind that the industry changes very quickly, exposing all parties to risk.