(Bloomberg) -- For U.S. states ready to legalize gambling, banks hold many of the cards.
The Supreme Court ruled this week that states can allow betting on individual sporting events, but gamblers who want to place those wagers using a credit card face a major hurdle: The largest U.S. issuers, including JPMorgan Chase & Co., Citigroup Inc. and American Express Co., don’t yet allow their cards to be used for sports gambling.
“We will closely watch developments from the ruling and will consider any implications to our policy as the states put their own processes in place,” Mary Jane Rogers, a spokeswoman for JPMorgan, said in an emailed statement.
The stakes are huge. Americans illegally bet an estimated $150 billion on sports games each year, a figure that’s enticing for credit-card issuers looking to gin up extra spending by their customers. Still, allowing cardholders to fund their gambling habit with a credit card could create problems for lenders, which are left on the hook if a borrower can’t repay.
Gambling proponents might have some help in nudging card issuers along. Processors such as Worldpay Inc. as well as payment networks including Visa Inc. and Mastercard Inc. have spent years laying the groundwork to authorize card transactions for gambling. Now, they’re educating banks about how to modify policies to take advantage of the Supreme Court’s ruling.
“We are working with the card schemes -- meaning Visa and Mastercard -- on really putting together a SWAT team and really working with the issuing banks,” said Joe Pappano, a senior vice president at Worldpay. “Issuers have to modify their real-time decisioning tool, they have to update policies, they have to feel confident that the compliance and the framework and those consumer protections exist.”
Visa and Mastercard began in 2015 making changes to their so-called merchant classification codes for gambling companies. Licensed online casinos, horse-racing venues and government-owned lotteries were all given separate codes, which help lenders track risk and detect fraud. Banks could use those codes to limit the amount of money spent on such activities. So even if a consumer had a $25,000 credit limit on their card, a bank could restrict spending to $2,000 on merchants classified as gambling related.
“The market size will cause issuers to go back and rethink their acceptance strategy knowing that they are not going to want to be left on the sideline,” Pappano said. “The issuers now have an opportunity that they’ve never had before.”
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