Luck Be A Lady Tonight: How Digital Identity Verification Can Level Up KYC Compliance to Prevent Underage Gambling and Other Abuses

When the COVID-19 pandemic drove crowds out of the casinos of Atlantic City, many New Jersey bettors turned to the state’s recently legalized online gambling websites, providing the Garden State with an unexpected $970.3 million boost in tax revenue in 2020. However, as more states race to legalize online gambling, also known as iGaming, some advocates are raising concerns that it could lead to increased rates of unhealthy gambling for both adults and children in addition to increasing financial crimes like money laundering. Digital verification technology is one way the nascent iGaming industry can prevent problem gambling and protect its reputation.

As states come to terms with budget shortfalls caused by the pandemic, many are looking to follow in the footsteps of New Jersey by legalizing iGaming: “New Jersey went full-steam ahead with iGaming and has really embraced technology,” explains former Nevada Gaming Control Board Chairwoman Becky Harris. “The state has shown that online wagering can be done safely, that they can appropriately regulate it, and they’re realizing the benefits from tax revenues as a result. Other states are looking to capture some of that revenue stream for their state budget.” By 2025, industry insiders expect the number of states to legalize gambling to go from six to twenty-seven. As iGaming continues to grow in popularity, however, some advocates warn that it could lead to an increased rate of problem gambling.

The story of David Ownes, a UK-based journalist, illustrates the dark side of iGaming. After spotting an advertisement from an iGaming website that offered £88 in free bets, David created an account and won £750 within just 30 minutes. Soon, David became obsessed with gambling and eventually became addicted. David explains, “I was displaying the classic characteristics of a compulsive gambler—mood swings, irritability, not looking after myself—all markers, but not immediately obvious if you don’t know there is a problem.” After destroying his credit and losing much of his income to his addiction, David joined Gamblers Anonymous and has since been able to avoid gambling altogether and rebuild his life. 

As David’s story illustrates, the very characteristics that make online gaming dangerous are also what make it popular; because iGaming is accessible 24/7 on your phone or computer (no need to travel to a casino), you can gamble non-stop without your loved ones even noticing. Furthermore, iGaming enables an accelerated rate of play which means it’s easier to lose more money quicker. While “[brick and mortar] casino card games have an average rate of play of around thirty hands per hour, compared to online poker, which can average sixty to eighty hands per hour.” In addition to promoting gambling addiction amongst adults, iGaming also has the potential to increase rates of underage gambling dramatically.

With its flashy graphics and playful sounds, iGaming appeals to children and teens in the same way that videogames do. Of course, the difference being that underage gambling is illegal, and for a good reason, as the harmful effects of underage gambling on children are well-documented. Studies have found that underage gambling can lead to “higher rates of depression, increased risk of alcohol and substance abuse disorders, increased risk of suicide ideation and attempt, higher anxiety, and poor general health.” To protect vulnerable populations from the adverse effects of iGaming, government regulators are placing iGaming sites under increased scrutiny.

Because iGaming sites have the potential to serve as a vehicle for money laundering, government regulators have implemented strict KYC (know your customer) and AML (anti-money laundering) standards. Since iGaming sites typically generate over $1 million, they are classified as “non-bank financial institutions” and face steep fines if they are found non-compliant. When Cantor Gaming, a sports betting site based in Nevada, was found to be committing “egregious and systemic violations of the anti-money laundering (AML) provisions of the Bank Secrecy Act (BSA)” by allowing a criminal syndicate known as the Jersey Boys to place illegal bets, the company was slapped with a hefty $12 million fine in lieu of criminal prosecution.

In order to avoid similar fines, digital casinos must invest in cutting-edge digital verification solutions that protect vulnerable individuals and improve KYC and AML compliance. Rather than rely on expensive and time-consuming step-up challenges like requiring consumers to scan their driver’s licenses, iGaming sites can simply ask customers to provide personal information that the customer know offhand (i.e., first name, last name, social security number, and address) and use phone-centric technology to verify it using a “truth set,” or a bank of accurate consumer data. iGaming websites could also use this technology not just to determine a customer’s age and identity but also to cross-check that information with a state’s opt-out program. Opt-out programs empower problem gamblers to essentially ban themselves from entering casinos in-person or online. Phone-centric technology is a great way for iGaming sites to prevent problem gambling in all its forms.

Although it has been an economic boon for cash-strapped states suffering from the economic devastation caused by COVID-19, iGaming poses unique risks to the community, including exposing minors to gambling and increasing gambling addiction rates. As state regulators and online gambling companies prepare for rapid expansion, digital authentication technologies can protect vulnerable individuals while making onboarding a breeze for legitimate customers.

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