GBGC has long recognised the importance of payments to the online gaming industry and has noticed a worrying trend in the results of some operators in 2009.
In our Credit Card Report of July 2009 we highlighted our concerns about the knock-on effects of the rising default and charge-off rates on credits cards on the e-gaming sector.
Some of these effects seem to have come to pass, based on the 2009 results of some leading firms. Several operators have reported rising payment processing costs and bad debts in the last year.
PartyGaming, for example, saw the amount of customer bad debts rise from US$2.1m in 2008 to US$6.1m in 2009, an increase of 190%. Bad debts accounted for 1.4% of PartyGaming’ total 2009 revenues, rising from 0.4% of revenues in 2008.
PartyGaming claims this increase in bad debts is “an acceptable side-effect” of a “conscious decision to make it easier for customers to deposit”.
GBGC’ opinion is that there is clearly some risk attached to this strategy. PartyGaming will have to be confident about the profile of the new customers it is attracting – perhaps from “riskier” markets – to ensure that the level of bad debts does not continue to rise.
888 Holdings, too, reported that its chargeback expenses also increased. 888′ chargeback expenses rose by 87.5%, from US$4.82m to US$9.04m between the years 2008 and 2009. This US$9m represented 4.6% of B2C net gaming revenues, up from 2.2% in 2008.
GBGC will continue to monitor closely the issue of payment processing costs and customer bad debts. It will be interesting to assess whether this rise is a feature of the recession or if it a symptom of companies entering markets where it is more difficult to undertake KYC checks on new customers.
Read more on this and other e-gaming topics analysed by GBGC in the new Interactive Gambling Report (April 2010)