30. Payments in — Gaming Industry

This chapter is about online Rummy and Fantasy Sports… The gaming industry is way more interesting and cut throat than people care to notice… So is the payment solution for this industry.

Let’s start with basic question… aren’t online rummy and fantasy sports equivalent to gambling?

No… online rummy and fantasy sports are ‘skill based games’ and under Supreme Court and other Courts rulings are exempted from Public Gambling Act (1867). Gambling is a betting and wagering on ‘games of chance’ but in ‘game of skill’, success depends on superior knowledge, training, attention, experience of the player but not just chance. On the other hand, Poker is only game of chance so it is not exempted.

Online Rummy:

Most of us have played card games… with cousins during summer vacation, while travelling in train or in hostels… The same rummy game is online where you play without money for fun or play with money to win some more money.

As per Supreme Court the online rummy is legal but enforcing the ruling is State Legislature’s responsibility .At present, few States do not consider Online Rummy as legal (E.g. Telangana, Sikkim, Nagaland etc.) <Refer>

Gaming platforms are not simple… they are designed to make sure cheating or collusion is not allowed so everyone has equal chance to win. Example: If I create 2 different user ids and join the game then I can see two sets of cards and have upper hand. Such things are detected and addressed with technology and processes.

Fantasy Sports:

Fantasy Sports is where you select players and get rewarded based on your team’s performance. Scoring is done with complex logics and algorithms. Refer here to know more.

Fantasy Sports are quite big in Western Countries… Only few years back Fantasy Sports entered India. As ‘sports watching nation’, Fantasy Sports has seen great growth and Supreme Court’s exemption from Gambling Act has boosted further growth of the sector. <Refer>

Requirements for Gaming Merchants:

Requirement 1: Use Case

• User has to deposit money to participate in these games

Requirement 2: Channels

• Website and mobile Apps (Android and iOS)
• Gaming merchants do not put their Apps in Play Store or App store. Reason: Merchant need to give 30% or more of load amount to Google and Apple. So they usually keep dummy apps (non-money) in these stores but real Apps can be downloaded from merchant’s website

Requirement 3: Payment Modes

• Merchant is ready is accept all types of payment modes as long as they are practical (E.g. there is no point of having EMI on credit cards for gaming merchant)
• Although these sectors are legal, but still it is difficult to get bank approvals for these merchants (e.g. HDFC Bank, Axis Bank doesn’t give MID for this sector)

Why So? A merchant gets MID approval when it satisfies rules or regulations that are laid out by (1) regulatory bodies (2) the Government (3) Card Schemes (4) Bank’s own compliance. Although gaming merchant satisfies points 1, 2, 3 but bank may decide not to issue MID due to high risk (payment is online and service is online)

Requirement 4: Charges

• Similar to eCommerce rates (all Payment Instruments will have MDR as % of transaction value)
• Typically charges are bit higher than standard eCommerce rates (High risk merchants so rates will be higher). Also difficult to get bank MIDs so whoever gets MIDs from banks and give good success rate, commands better rates
• Charges are configured in upfront deduction model where merchant bears the charges

Requirement 5: Settlement

• Standard settlement time of T+2 Days with Net-settlement to merchant

Requirement 6: Success Rate

Super crucial… you may ask how so as user can play the game any time.

User behaviour is different in this sector as intent or urge of purchase (or payment) is very high and also, rules of the game makes it essential to have better success rate

• Rummy: User wants to play at that moment (has gut feeling he will win). So the transaction has to be successful
• Fantasy Sports: User has to make payment to participate in the tournament 1 hour before the game starts. As it is time-bound activity, success rate becomes crucial. Users typically starts paying closure to the deadline (as human tendency to do things at Nth moment) so merchant needs robust ‘payment service provider’ who can deliver better success rates and handle the spikes in transaction volume

Other Requirements:

Refunds: Typically not required as user is loading wallet. And merchant expects user to play and won’t allow withdrawals.

Auto-Refunds: As covered earlier, transactions may go into pending state so merchant will set-up auto-refunds to handle the pending cases so customer can transact again without waiting (If timer is set for 5 mins then any transaction which converts from pending to success will be auto-refunded)

Winnings:

User would need mechanism to withdraw winning / prize money.

• Winning amount is kept in separate account than deposit account
• User has to provide bank account details (a/c number, IFSC etc.) during KYC process and winning amount is credited to that account by IMPS/NEFT push (either bank or aggregator can give those APIs)
• Win amount is disbursing after deducting the tax and winner receives TDS letter. User is expected to show the winning amount in Income Tax returns but there is no mechanism to check it.

Chargeback: As service is consumed online so gaming industry is prone to chargeback. So merchant needs to put more stringent processes and clearer Terms & Conditions to defend chargeback.

Payment Solutions:

• For Deposits: Standard online payment solution with multiple payment aggregators, wallet providers, banks etc. is sufficient and card vault to provide seamless experience for repeat users.
• For withdrawals: IMPS/NEFT/UPI/wallet payout solution provided by payment aggregator or banks

Schematic of deposits and withdrawals

• Account Set-up: Merchant maintains two nodal or escrow accounts; one for deposits and one for withdrawals.
• Deposit: When user makes Rs.1000 transaction, payment processor with deposit Rs.976.40 to merchant’s nodal a/c after deducting PG charge (assuming 2%) and GST amount
• Bridge the fund gap: User deposited Rs.1000 and expect to see Rs.1000 in wallet balance. But considering PG has deducted its fees so merchant has to bridge the gap of Rs.23.60 by transferring funds from its current a/c to nodal a/c
• Playing: When user participates in the game, the wallet balance will be reduced and amount will be moved to current a/c
• Winnings: If user wins the game then the prize money is credited to ‘winning a/c’. And user can withdraw amount from this account

You can see the complexity in the money movement and reconciliation for one transaction. Now imagine millions of users depositing, playing, winning and withdrawing money. On top, different PGs charging different rates on different payment instruments. Now that is how ‘complex’ looks like.

Closing Notes

Gaming is booming industry…. With 50+ online rummy merchants and 70+ fantasy sports merchants…. At present, enjoys the status of ‘skill based game’ but still industry is on thin ice. If one merchant breaks a rule, the whole industry will be criticised. So the industry follows many steps to self-regulate and follow fair play practices… Even they have consortium (E.g. IFSG) that engages with sports fraternity or society and sets example for best practices.

While speaking to Senior Executive of a gaming merchant about importance of self-regulation and leading by example, I remembered scene from movie ‘A Beautiful Mind’ where John Nash says “The Best results come when everyone in the group doing what is best for themselves AND for the group”.

This is something, Payment Industry can learn while they under cut each other’s rate or ignoring fund management rules … hope they realise that such practices followed by few companies will attract more stricter guidelines for the whole industry.

Bored of reading about payment?? so here is the clip from the ‘A Beautiful Mind’ movie that I referred earlier… Enjoy