An email arrives from SoftSwiss, the B2B online-gambling-platform provider, trumpeting the growth of crypto transactions for online gambling. SoftSwiss offers an integrated crypto payment solution and not surprisingly is promoting the idea that crypto payments are a must for any online-gambling operator.
Modern interbank payments can be instant and at almost no cost to the merchant and usually free for the consumer. In countries where debit and credit cards have low penetration rates, other payment mechanisms, such as Pix in Brazil and UPI in India, have been developed that are simple, fast, and cheap.
In June 2023, there were 9.3 billion UPI transactions with a total value of US$177 billion. Clearly, consumers and businesses are pretty happy with this method and trust it to be reliable. Standard payments using debit or credit cards work well, not as quickly or as cheap as Pix or UPI, but they’re efficient and people have trust in the mechanism.
Crypto can cost merchants as much as 10% of the value of the transaction and payment can be much slower. So why would a merchant use crypto when standard payment methods are effective, cheaper, and trusted? Obviously, the acceptance of crypto as a payment mechanism has to overcome some barriers and they must be pretty big to justify fees at this level.
I have just completed an assignment looking at payment methods in various markets and not surprisingly, crypto featured, though not heavily, in almost every “grey” and “black” gambling market.
According to various surveys, the proportion of the UK population owning crypto is between 6% (3.3 million) and 18% (10 million). I hope they did not buy it in 2021 when Bitcoin and other crypto currencies were at their peak.
But just because people own crypto, this does not mean it’s used for payments. Crypto is seen by many (over 80%) of owners as an asset rather than a means to pay for things. People buy crypto in the hope that it will go up in value or sell thinking that it will decrease in value.
According to 26 surveys of their populations undertaken on behalf of national governments and central banks, of all online payments, crypto accounted for 0% (Sweden) 0.1% (Netherlands), 1.6% (UK), 2% (U.S.) and up to 3.1% (Slovenia). Most coalesced around 1.5%. The total value of digital payments in the UK in 2023 is projected to be £740 billion, growing to $740 billion by 2027.
Crypto as a payment mechanism is not very efficient. It is energy costly and does not do anything that other payments methods do, except that it allows people to move value from one entity to another and more important, jurisdiction to jurisdiction, possibly evading currency controls and providing anonymity in many cases.
We all live in a world where we have to pay for things: food, fuel, car maintenance, mortgages, leisure activities, etc. The last time I looked, these require fiat currencies. This means that if you are a person or business that transacts in crypto, at some point, you will need to exchange your crypto for a fiat currency and possibly your fiat currency for crypto.
In addition, crypto has proved to be highly volatile. The value of Bitcoin has gone from less than $10,000 in 2020 to more than $60,000 in 2021; it dropped back to $16,000 in 2022 and now it hovers around $35,000. The daily change is often minimal, but then suddenly, the value can rise or fall by 10%, all in a day. It’s hard to run a business when your costs vary by as much as 10% in a day and this is hardly ideal for the consumer too.
Given all of the foregoing, who would use crypto? Apart from drug and arms dealers where anonymity and deniability are prerequisites and crypto fans who think they are creating a brave new world, it is used by people in countries where online gambling is controlled and the gambler for whatever reason does not want to gamble on legal sites, or it is illegal or legally questionable and the authorities have requested that banks deny the processing of transactions with offshore gambling sites.
Though I have no proof, it appears to me that the growth of crypto as a payment mechanism for online gambling is being fuelled by a combination of at least two factors. Firstly, governments that turned a blind eye to the regulation of online gambling are now legalising, regulating, and taxing it and in order to channel customers away from the offshore operators are putting pressure on financial institutions to refuse to transact with these operators.
Secondly, governments have decided to get serious about enforcing a ban on online gambling and are employing the “whack-a-mole” game of IP blocking, pressuring ISPs, and prohibiting banks from accepting online gambling transactions.
It is a bit like one of those long balloons used by balloon benders to make animals. If you squeeze them somewhere, they just balloon out somewhere else. The more you restrict people’s ability to do something they want to do, the more they will use an alternate measure.
Until governments get serious about regulating crypto and licensing exchanges, requiring proper AML processes for all entities that open accounts on an exchange, people will continue to use crypto as a mechanism to get around restrictions imposed on financial transactions.