Analysis: Assessing the possible crackdown on credit cards

Data published by the Bank of England in January showed that UK households owed a staggering £72.5bn on their credit cards last November – up from £70.1bn 12 months earlier and £57.2bn five years beforehand. That equated to an average of £2,688 outstanding on credit cards per household. But while Britons appear to be increasingly relying upon their flexible friend for those big-ticket items or simply to make ends meet, the days of using a credit card to gamble could be about to come to an abrupt end. And quite rightly so, some will say.

A 12-week consultation launched by the UK Gambling Commission (UKGC) got underway on 14 August and will conclude on 6 November. The regulator is gauging the opinions of the public and industry stakeholders on either banning the use of credit cards for all forms of remote and non-remote gambling or enforcing limits and restrictions on their use. The consultation comes after the UKGC published a ‘summary of responses’ in July to its call for evidence on gambling online with credit cards. In total, 110 responses were submitted by members of the public, operators, banks, debt relief charities, faith groups and those who had been harmed by gambling, among others.

Perhaps the starkest argument for a ban came from a number of respondents who each said they had incurred debt of between £10,000 and £40,000 on credit cards solely from gambling. Matt Zarb-Cousin, director of gambling blocking software company Gamban, is one advocate of credit cards being scrubbed from payment pages on gambling sites and apps. “Gambling with a credit card deposit is in the vast majority of cases a consumer wagering money they don’t have, which is a sign of gambling harm. There is no suitable ‘limit’ that can be set for gambling via a credit card, other than zero pounds. For this reason, it should be prohibited entirely.”

Credit where credit is due  

The UKGC revealed in March 2018 that operators had reported credit card payments can amount to between 10 and 20% of all deposits. However, GVC Holdings told EGR Compliance that around 6% of its UK customers use this method to fund accounts. “The use of a credit card on its own is not necessarily an indicator of harmful gambling behaviour,” says GVC’s head of corporate communications, Jay Dossetter. “While credit card usage can be a risk factor, this is built into our player protection system flags, so we can effectively monitor if a customer using a credit card may need to be interacted with and action taken to avoid a problem gambling issue.”

One of the main arguments against imposing a ban is that players may instead elect to use other forms of credit to circumvent restrictions. For example, they could dip into their overdraft or turn to pay-day lenders, who usually demand far higher repayments than a credit card debt. Another option is for players to use a credit card to load up an e-wallet and make deposits that way at an egaming site.

That would mean the operator has reduced visibility regarding the origin of the money transferred via an e-wallet. Research by Isle of Man-based gambling consultancy GBGC shows that 11% of gamblers use e-wallets to bet online, compared with around 6% who use credit cards. “If a gambler has a pathological addiction,” says GBGC’s Warwick Bartlett, “I suspect they would turn to high-interest, short-term loans. So, I’m not sure a ban will make any difference.”

Spotting the warning signs 

The Responsible Gaming Strategy Board (RGSB) has previously advised the UKGC that gambling with borrowed money, including on a credit card, is a well-established risk factor for harmful gambling. Indeed, it relates to one of the questions on the Problem Gambling Severity Index: “Have you borrowed money or sold anything to get money for gambling?” Moreover, Zarb-Cousin suggests credit cards are the “last resort” when chasing losses. “Given the disparity in interest rate between an overdraft and a credit card, a consumer – particularly one experiencing harm – will likely have maxed out their overdraft before progressing to credit card deposits when engaged with loss chasing.”

So, when a player deposits with a credit card it should raise a red flag with the operator that he or she is betting with borrowed money, and perhaps trying to reverse a losing run. The industry might argue that a ban would remove a ‘marker of harm’ (a credit card deposit) that could be used in their customer interaction algorithms. At the same time, many people are perfectly comfortable gambling using this form of plastic, even if they may have to pay interest on potential losses. And they do so safely and within their means, all without developing or having an existing gambling problem.

After all, banks conduct affordability checks in the first place to ensure their customers are suitable for this type of loan. It was also suggested in the ‘summary of responses’ from July that some people also opt for credit cards in order to mask their gambling transactions when applying for a mortgage. That’s because lenders don’t routinely ask to see itemised credit card statements. Consumers also enjoy the extra level of protection you get with a credit card over a debit card and e-wallets in this age of cyber-attacks and online fraud.

“If your [credit] card is compromised by a criminal hacker,” Bartlett explains, “they can only spend up to the credit limit, whereas a debit card gives the criminal on opportunity to clear out your bank account.” Above all perhaps, credit cards have long been consumers’ go-to payment method when it comes to ecommerce. “Credit cards are a common form of payment for all legitimate internet-based transactions, including gambling,” Dossetter says. “Some customers enjoy the extra protection this form of transaction provides.”

What’s the probable outcome?

At the end of the consultation, it does seem likely that the voices calling for a ban or restrictions will probably outweigh those arguing for the status quo to remain.

With the intense scrutiny currently on the gambling sector, as well as banks like Monzo, Starling and Barclays allowing customers to block gambling transactions through their apps, a crackdown does seem inevitable. Perhaps even an ante-post odds-on certainty at this stage.

In fact, Bartlett suggests this consultation could be a fait accompli and that the regulator is simply going through the motions. “I think that the Gambling Commission has already made its mind up that credit cards should be banned and is following the normal protocol of ‘consultation’ in case it throws up something not previously considered,” he says.

While the RGSB and others insist gambling on credit cards is a risk factor, which is probably true, doubt remains as to whether a ban would address the problem when players can borrow money through alternative channels. Opponents like Zarb-Cousin, on the other hand, insist this deposit option should be barred, especially to prevent people chasing losses with borrowed money. If a ban is introduced, though, Dossetter doesn’t “anticipate any material impact” on the FTSE-listed business going forward, while adding: “We would expect customers who currently favour credit card deposits to transfer to other methods, but it is very difficult to say which methods will be their preference.”