What do affordability checks cost you today? Probably more than you think.

In the gambling industry, enhanced due diligence (EDD) is a fact of life. And it is important to understand that nothing in the gambling whitepaper is ever going to change that. 

For better or worse, higher-spending customers will still have to go through some sort of EDD process in order to establish, in the simplest terms:

  • That they have sufficient funds or income to cover their staking levels, and
  • That these funds or income come from legitimate sources

The former is what we might call an ‘affordability’ check, the latter a ‘source of funds’ check, which in turn is part of a broader anti-money laundering (AML) remit. The important thing they have in common is that at a certain level of staking, both decisions must be made in reference to real financial data.

And to complete our introductory definitions and ensure everyone is on the same page, ‘real financial data’ means bank statements or similar, as opposed to credit data or geographical checks (for example) that at best provide approximations of an individual’s financial health, and aren’t good enough for EDD.

One final note: an EDD check - particularly for AML purposes - will also include a requirement to check third party sources such as Companies House, Linkedin, Zoopla, the land registry and so on. For now, I’m excluding these from the analysis in order to allow a tight focus on the cost of processing personal financial data. There’s only so much that can reasonably be covered in one blog post!

So, what does EDD cost?

Think of all the times you ask for, and check, a customer’s bank statements today. Do you know what that costs? In fact, is that number even there if you went looking for it?

I am going to hazard a guess that the answer to both those questions is ‘no’. 

So let’s talk about how we might find that number. In the spirit of this being a short(ish) blog post I intend to keep this relatively high-level: I won’t pretend this is an exhaustive ROI analysis, but rather a list of the costs you incur thanks to your EDD process today. Some may be relevant, others perhaps less so. But when we understand these costs, we’re in a position to understand how much we save by implementing a more streamlined and fit-for-purpose process.

Here’s just a few of the costs you will want to consider. For the purposes of this calculation I am assuming that an operator requests 500 EDD checks a month, on customers staking an average of £2,000 a month.

Customer churn when requesting statements

Let’s talk about this first, because all other calculations stem from this. The sad fact is that somewhere between 70% and 80% of customers asked for financial data are lost to the business. Let’s take 75% as a fair number. This means that every month our sample operator is losing 375 customers.

At an annual stake of £24,000 a year, applying a 10% margin, that equates to £900,000 annual gross gambling yield lost each month, or £10,800,000 in a year.

Your numbers may vary of course. In fact they may vary by a significant amount: this is just an example. But it is imperative to know them, because the single greatest cost of poorly implemented EDD is this churn. We’ll consider the benefit of possible improvements later in this piece.

Time taken to analyse paper bank statements and supporting documents

Perhaps the most straightforward cost to quantify. Today, most statements are analysed manually. That means a team member must work through a statement, calculate disposable income, and in addition look for suspicious transactions from a source of funds perspective. This takes time. Most operators tell us that 2-3 hours per review is a fair average.

In addition, these calculations and decisions often need to be signed off by a senior team member (or indeed more than one). Let’s assume 4 hours at a fully loaded hourly rate of £20, which means £80 for every single EDD check a company makes. 

As per the calculation above, this will be 125 statements per month, which is a monthly cost of £10,000 or £120,000 a year.

Time taken to get paper statements and other supporting documentation

Less often considered, but certainly a cost of the EDD process, is the time taken to actually get your hands on the right financial data from customers. Unlike the process above, this is harder to quantify, but it consumes a fair amount of time and mental load.

Consider this common scenario:

  • A case is created and an individual either makes a phone call or sends an email in order to acquire a bank statement.
  • Some time later a statement is received, but doesn’t contain the necessary information (for example it is for an account used for gambling or similar spending only)
  • The case officer reaches out again to explain that further documentation is required
  • A statement is received that does include relevant financial information (ie it includes salary or other income, and shows costs such as utility bills etc)
  • A particular transaction such as an inbound transfer found on the statement needs clarification 
  • This documentation is sent over, and the case is now ready to be processed

If we added up the time actually spent on these communications, it might not be much. But we all know this isn’t how the world works. The time spent thinking about the case, having to return on a regular basis to check for updates, hand over to colleagues where necessary, and keep track of everything that is happening all adds up*. 

Of course some cases are relatively straightforward. But many are more complex again. Let’s assume 2 hours of time to handle the process of acquiring these documents, an amount of time that applies to the whole 500 checks (because we still make these attempts even if our customers don’t respond).

That equates to £20,000 a month, or £240,000 a year.

Investment in generation and storage of EDD reports

Analysing a statement (after gathering information) is one thing. Writing up a summary of the information and decision, that can be stored and shared later (for example with the regulator), is another. The truth is that there are two costs involved here: some form of case management system, whether purchased or built internally, and the manual work of writing up the report in the correct format.

It is hard to estimate the cost of the former, but let’s allow a fixed cost of £5,000 a year for the creation and maintenance of such a system. And 1 hour for the creation of the report. That adds up to £2,500 a month, or (taking both requirements into account) £35,000 a year. 

Putting it all together

Summing all these costs, the conclusion is stark:

Our sample operator spends £395,000 a year to lose £10,800,000 in revenue.

Of course, we understand that the EDD process isn’t optional. But it is optimisable. What is your organisation doing to reduce the costs associated with EDD? And to reduce the number of customers who churn when asked for financial documents?

If the answer is ‘nothing’, then it may be time to think again about what can be achieved in this area. At ClearStake we are confident (because we’ve seen the numbers) that we can dramatically improve both those numbers, and significantly reduce the costs of EDD for our clients. 

We’re working on proof-of-value trials right now with operators throughout the UK. If you’d like to join them, drop us a line!

*This protracted back and forth, of course, is one reason why so many customers churn at this point.