This month, a wave of positive change comes to the world of Internet gaming. For years, card issuers have utilized unique Merchant Category Codes (MCCs) to identify Internet gaming-related transactions to enable financial institutions to protect themselves from unwanted regulatory scrutiny.
With new MCCs related to government-owned lotteries, real money casinos and horse and dog racing, there will be an all-new level of clarity and an expected increase in gaming-related authorizations.
Prior to the new forthcoming MCCs, MasterCard has used one merchant category code and Visa has used another merchant category code specific to the Internet gaming space. This scenario causes a lot of confusion for issuers.
Today, MasterCard uses MCC code 9754 for Internet gaming-based transactions (except lottery which is processed under MCC 9399) to identify Internet gaming transactions. Visa currently uses the notorious 7995 MCC code with a Merchant Verification Value (MVV) for regulated Internet gaming transactions. Typically issuers decline a 7995 MCC transaction as this has traditionally been viewed as a negative MCC, and by declining they avoid any unwanted scrutiny from regulators—issuers don’t have the ability to decipher which is an Internet gaming vertical that they would want to participate in versus one that they would decline.
In the U.S., some financial institutions have taken the route of declining these transactions altogether to protect themselves from any regulatory scrutiny. With new MCCs, however, their ability to identify regulated transactions will become easier, thus giving them the ability to navigate regulatory scrutiny.
Introducing the New MCCs
MasterCard, Visa, American Express and Discover, for one of the very first times, have now agreed on new MCCs related to Internet gaming. Effective April 17, three new MCCs will be unveiled for legal Internet gaming transactions in the United States.
The first MCC is 7800. This code is reserved for merchants that are classified under the MCC as government-owned lotteries. With the new 7800 code, cards will be allowed for the purchase of lottery tickets or recurring lottery subscriptions online and in retail locations.
Today, lotteries are processed under the MCC 9399, which is broadly described as government services. Because government services could be a whole host of services that are being provided on behalf of a government (i.e. filing taxes), there is some confusion. The new code will allow financial institutions to truly distinguish lottery transactions.
The second new MCC is 7801. This code is reserved for government-licensed casinos. These merchants are licensed by government entities or sanctioned and regulated by applicable legislation.
And the final new code is 7802, which is reserved for government-licensed horse and dog racing. Similar to 7801, these entities are licensed by a government entity and/or sanctioned and regulated by applicable legislation.
The Impact of the New MCCs
When looking at the Internet gaming space aside from a new state legalizing i-Gaming or laws changing at the federal level, this change is probably one of the biggest events to happen in the U.S. What everyone is hoping for is that the authorization rates will increase based upon the ability of the issuers to make better authorization decisions.
At Vantiv Gaming Solutions, we’re hopeful the influence of MCCs 7800, 7801 and 7802 will be positive and allow Internet gaming participants the ability to deposit funds via their credit/debit cards in a much easier manner.
From a bankcard issuer perspective, the MCCs will likely give them some much-needed clarity. As they’re making authorization decisions, they will be able to decipher between a legal business model versus one that may not be legal.
There will also be a significant movement in the lottery states. Quite a few states are watching what other states do today. A lot of the states that were concerned about authorization levels are now watching what is happening across state lines.
If a populous state such as California comes into play, financial institutions will realize that the acceptance rate has gone from 3 percent of the U.S. population (without California), to close to 20 percent of the population (with California). When larger states allow Internet gaming, we’ll see some of the financial institutions start to say, “I can’t sit by and not allow my cardholders the ability to use their cards.” If financial institutions sit out, cardholders will ultimately bury their cards. These cardholders, in turn, will turn around and find a financial institution that wants to play in the space in which they want to spend their money.
Education Remains Key
The new MCCs are certainly a step in the right direction, but there is still work that must be done. As the lead payment processor in the Internet gaming space, Vantiv has heard from our clients and carefully monitored authorization levels during the past two years.
We looked at which banks were not authorizing and we reached out to the financial institutions, or the brands directly, and talked about their primary concerns. The inability to distinguish one type of Internet gaming transaction from another was their top concern, and now that issue has been addressed.
We spent a significant amount of time educating the marketplace and establishing a level of consistency, especially around the MCCs. And now the new MCCs have arrived, and it’s time to educate the marketplace on what they mean.
Only through continued education can these MCCs positively impact as broad of an audience as possible.