Open Banking and gambling regulation: will it work?

OK, it is only a leak. But the details published on Earnings & More today certainly feel authentic. The proposals are broadly in line with what the industry expects, and the language feels right. There is still time for things to change of course, but the general direction is by now apparent.

The question now is what does it mean, and what plans do operators need to make in order to survive (and thrive) in this new reality? With an unapologetic focus on the affordability side of things, here’s our take on what happens next.

Firstly there is clarity on the need for passive checks when any customer passes through a loss of £125 a month. But these are explicitly called out as passive checks (CCJs, credit data etc). Based on our conversations with operators, this is unlikely to have serious implications for the industry: most do checks of this nature during or soon after registration already.

Things get more interesting when we get to the checks for higher-spending players, or what we might call enhanced due diligence (EDD) checks. The key passages in the piece are below. First on when EDD affordability checks will be required:

“Higher level of spending affordability checks: £1,000 in 24 hours or £2,000 within 90 days.”

And second on what those might look like: 

“Largely frictionless: Again, according to what we have seen this is where “there should be more detailed consideration of a customer’s financial position”. The intention is that these checks should be “largely frictionless for customers” and conducted online via credit reference agencies or via other means “such as open banking in the first instance”.

Let’s look quickly at each of these in turn.

Levels of spend/loss

I suspect most operators will be breathing a quiet sigh of relief about the numbers being quoted. A loss of £2,000 in a 3 month period is probably not miles away from where ‘enhanced’ affordability checks kick in today, and indeed customer due diligence is already mandated at this point. 

Even allowing for the slightly more stringent requirements for new customers (on which more below), these are not numbers anywhere close to some of the scare stories we have seen over the past year or so. And just having a number at all will in many cases give operators the certainty they need to plan for the future and put in place systems they know are compliant.

What affordability checks might look like, and where Open Banking fits in

Here things get significantly more interesting. 

Without wanting to sound overly critical, to me there feels like a central contradiction between the desire for “a more detailed consideration of a customer’s financial position” and checks conducted via “credit reference agencies”. 

I may be wrong, but I suspect that in the transition from theory to practice it will be understood that credit checks really are not good enough to make affordability decisions relating to losses in the thousands of pounds. So that leaves us with “other means, such as Open Banking in the first instance”.

Well, this is what ClearStake does, and we are at present (to the best of my knowledge) the only enterprise-ready Open Banking solution that was built specifically for the gambling industry. So clearly this looks like good news to us. But what does it really mean for operators?

My sense is that this is the government gently encouraging those operators who need to perform more comprehensive affordability checks towards what is and always was the obvious solution: Open Banking.

We’ve beaten this drum before, but we will say it again: the industry needs to understand that affordability checks don’t have to involve emails back and forth, pdf bank statements, biros and calculators, and large teams of individuals paid good money to do the sums. And Open Banking is the alternative.

It is, as the leak suggests, “largely frictionless”. It can take less than a minute not just for a customer to share their financial data, but to make a decision and allow them to keep playing. Once data has been shared, it also allows for continued assessment and review so that when circumstances change, so can spend limits. In terms of load on the customer, we’re talking about a couple of taps on a screen. That’s it.

Which leaves the million dollar question: will people actually do it?

Is the consumer ready for Open Banking affordability checks?

In a word: yes.

In a few more words: the moment consumers understand that a financial check is required in order to perform some particular action (like renting an apartment, or spending more than £2,000 when gambling) then most objections to the process, and the sharing of data, melt away. As per the example above, it is now considered completely normal to share financial data (often via Open Banking) when renting a property. Why would gambling be any different?

And public acceptance of Open Banking is increasing all the time. Just yesterday it was announced that the UK topped Yapily’s Open Banking adoption table. Payments via Open Banking have increased 500% YOY. As consumers get used to it, Open Banking will become a fact of life for most of us, just as KYC checks (another thing that would never happen) have done. 

We have seen this in action. Even today, acceptance rates for Open Banking when we put ClearStake to the test with real punters are over 50%. And it is worth bearing in mind that a sizable chunk of the remaining half are almost certainly those who do not complete a check because they know they will fail. The industry should not be taking that money in the first place.

I believe the whitepaper mentions Open Banking quite deliberately. It is a reminder that affordability checks do not have to be invasive, and do not have to be long and drawn-out affairs. They can be, indeed, “largely frictionless”. And with apologies for the plug, ClearStake is ready to demonstrate that today to any operator interested.

A final word on 'velocity'

Before outstaying my welcome let me make one more observation. The leak suggests that a £500 loss within 24 hours at any time in the first month of a customer’s life must trigger a “higher level of spending affordability check”.

This is a reminder of what (even today) is a huge problem for the industry: the requirement to stop valuable players in mid-flow, in some cases very shortly after registration, when they play quickly or like to bet in large stakes. 

Today this triggers an affordability process that takes days (or weeks) - by which time most of these customers have decided to look elsewhere. Their very value was what caused them to have a poor quality customer experience

With Open Banking checks, as discussed above, this need not be the case. A check can take a minute, and the player is free to play on. In fact, if the check was conducted at registration, there need be no obstacle at all. If the industry embraces these recommendations, and particularly those around Open Banking, it may find that revenue goes up, not down.

It’s worth restating the core value behind affordability checks via Open Banking. They allow players who can afford it to stake freely. They protect vulnerable players. And - as this leak suggests - they keep the regulator happy. The industry should embrace this approach with open arms.