What’s wrong with existing affordability checks?

If you wanted to know how much an individual could spend on any given product or service, how would you find out?

What might sound like an academic exercise is nothing of the sort for gambling operators, and certainly not for those regulated by the UK Gambling Commission. In guidance published in June 2020, the Commission gave the following advice relating specifically to higher-value customers:

“Licensees should be taking steps to ensure all customers are gambling with money they can afford to lose (lawfully acquired disposable income) and without experiencing harm”

I think the key word in that sentence is “ensure”. Not ‘attempt’ or ‘try’ or ‘make best efforts to’. Ensure. Both in terms of public statements, and in the regulators direct communications with operators, the trend is clear: it is necessary to know the affordability status of customers. Not guess, or estimate. 

How to establish affordability

That brings us back to the question we started with. What is the best way to know? And are the approaches that are often used today up to the task?

The short answers to those two questions are as follows:

  • The best way to know affordability status is through direct access to financial information via a product like ClearStake. 
  • No.

Now here’s the longer answer to that second question: 

the checks currently used by most gambling operators are just about acceptable as best guesses, but certainly don’t suffice when it comes to ‘knowing’ what any customer can afford to lose.

Let’s very quickly take each type of commonly used check in turn and discuss them. Of course many operators will combine these checks, which is fine - but doesn’t solve the underlying problem. 

Geo-affordability checks

These check typical property values within the postcode supplied by a customer and infer a customer’s financial position accordingly. In the UK, data from the Office of National Statistics (ONS) may be used to overlay average income for residents of a particular area, for example. Whilst this might give some very broad indication, there are so many exceptions, both in terms of income and housing status, to the average that in terms of learning anything concrete about affordability, geo checks are almost worthless.

Credit bureau data

Credit scores are available for every citizen in the UK (but may not be for other countries). They are an estimate of how ‘credit worthy’ an individual is, based on a number of data points relating to an individual’s financial history. These might include total number of months in arrears, date of most recent loan account created, number of successful payments - and so on.

This data (sometimes, but often not, including the score itself) can be checked by operators to determine affordability. But for a variety of reasons they aren’t a particularly accurate measure:

  • Many high-net-worth individuals don’t have significant amounts of credit data to check, because they don’t have the credit history required.
  • Individual missed payments in the past are interesting to know, and can help evaluate an individual for the purposes of offering credit, but tell us almost nothing about current financial realities.
  • Most significantly, credit data is, again, only ever an estimate. It is not based on up-to-date financial information and cannot give us a definitive position on affordability.
Court judgements, debt judgements and bankruptcies

Last, many operators will pay for checks to ensure that a customer has not been the subject of a court judgement, or been declared bankrupt in the past. This is, obviously, a sensible and expedient thing to do. But I hope it is also obvious that it won’t tell us a huge amount when it comes to affordability today on its own.

Essentially, all these checks suffer from the same central weakness: when it comes to affordability specifically, they are guesses, not actual reality. As such, they are unlikely to satisfy the regulator, which is why enhanced due diligence tends to involve documentation relating to actual finances - something we will talk about in a future post on this blog.

I want to make one final point about checks of this nature, which is this: they all tend towards the negative. A missed credit payment some time in the past, or a court judgement, are red flags, rather than any positive or helpful information about an individual’s affordability status. 

Broadly speaking, in each case, we are looking for reasons to stop a customer spending. And the reason for this is that the data we get from these sources could never be confidently used to allow a customer to spend more.

The type of information that is delivered by ClearStake, however, is real-time, accurate data straight from a customers bank account, and gives operators the ability to automatically allow staking up to a certain level, in the certain knowledge that they can afford it. 

ClearStake also enables ongoing background checking of real affordability, reducing or eliminating the need to go looking for additional data in a hurry when the customer goes past a specific deposit limit.

In other words, with ClearStake, it is possible to allow your customers to bet, and know that every one of them can afford to do so. If that sounds like something you need - talk to us.