Using debt to fund gambling activities is a highly risky proposition, even more so when transaction fees are involved. That’s why online betting giant FanDuel will no longer allow customers to fund accounts with credit cards.
The ban will apply to the company’s U.S. sportsbook, casino, and racing segments and follows mounting industry pressure and regulatory scrutiny. Senator Elizabeth Warren recently urged the company to halt credit card payments, noting that nearly a quarter of American bettors used credit cards to fund their accounts and that many incurred fees as high as half of the original wager.
Rival online betting platform DraftKings cited these fees as the main reason it stopped accepting credit card payments last year. Funding a gambling account with a credit card is often treated as a cash advance rather than a purchase, allowing interest charges and fees to accumulate quickly.
“This is actually a win-win for both FanDuel and consumers,” said Jordan Hirschfield, Director of Prepaid at Javelin Strategy & Research. “For FanDuel, they get some modest per-transaction cost savings, which add up over time. And they can utilize the stored-value accounts to encourage responsible play, but also to incent and reward new deposits at rates less than the transaction and interchange fees.”
“For the players, they can continue to play and use readily available funds, meaning they will not be incurring credit card debt to fund their gambling activities,” he said.
Incentivizing Betting Behaviors
FanDuel’s stored-value accounts exemplify a model that has reshaped a prepaid industry once centered largely on gift cards. In effect, these accounts function like digital gift cards purchased for self-use. Such products have surged as more organizations recognize the pivotal role stored-value accounts can play in loyalty and rewards programs.
Amid the broader expansion of the prepaid market, digital gaming and gambling have emerged as standout segments. This growth is partly driven by platform incentivizes, including deposit matches and rewards tied to specific betting behaviors.
Gambling on Prepaid
Beyond loyalty optimization, there is a more practical factor behind the digital gaming and gambling market’s recent growth: legalization. Now that online betting is legal in 32 U.S. states, the pace of expansion may begin to moderate as the market matures.
Still, the elimination of credit card payments by the two leading U.S. online gambling platforms is likely to keep digital gaming and gambling among the top prepaid segments. While some gambling platforms still permit credit card deposits, that option may diminish. Eight of the 32 states have already banned credit card funding for betting platforms, and additional states could follow.
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