ongress made good on its threat to shut down Internet gaming with the passage of the Unlawful Internet Gambling Enforcement Act of 2006 (H.R. 4411). The legislation prohibits U.S. banks and processors from accepting or transferring payments in connection with online gaming. Tacked onto the Safe Port Act, it was signed into law Oct. 13.

The law directs the Federal Reserve and U.S. Treasury to draw up regulations to identify and block illegal transactions. Christiansen Capital Advisors estimates that U.S. online gaming revenue reached $12 billion in 2005 and was expected to double by 2010, according to the American Gaming Association. An estimated 23 million people gambled online last year.

According to Mark Jensen, Chief Executive Officer of MGN Technologies Inc., the number of Americans gambling online has grown 20% every year, and Americans now wager $6 billion annually. MGN created a free sweepstakes online gaming platform where players compete for points and prizes. While many U.S. processors and ISOs have already gotten out of this high-risk category of transaction processing, a few remain.

Internet wallets

Electronic Clearing House Inc. (ECHO), a provider of back-end payment processing services to merchants across many industries, announced it is working to identify the impact of the law on its "Internet-wallet" merchants, as well as on its own business. Internet-wallet merchants permit consumers to use their stored funds to engage in gaming over the Internet, according to the company.

Based in Camarillo, Calif., ECHO estimated that Internet-wallet services accounted for less than 10% of its total revenues. It expects losing that revenue will hit its business hard. ECHO subsidiaries include Merchant America and XPressCheX Inc. As of Oct. 12, ECHO had found that several of its Internet-wallet merchants planned to stop U.S. consumers from using funds to gamble online. In addition, the company stated "some merchants will gradually phase in those restrictions before the expiration of the 270-day regulatory determination period."

ECHO has also decided to phase out any services related to check processing for Internet gaming before the nine-month determination period elapses. The company was aware the law would impact its Internet-wallet merchants and recognized its check-processing business would also take a hit, stated Joel M. Barry, ECHO's Chairman and CEO.

"However, with the continuing growth of our credit card processing volume and our sales focus on building other channels for new check processing revenue, we anticipate being able to recover the lost check revenue from the Internet wallets in the coming year," he said.At least one small ISO in Las Vegas, American Merchant Systems, which caters to high-risk merchants, still advertises services to online-gaming merchants. President Jack Daryanani, reached by phone, confirmed the legislation would affect his business.

Outside the United States, processors publicly acknowledged the pain the law would cause their operations, which were heavily dependent on U.S. customers. One of the hardest hit is Optimal Group, based in Canada. Its FireOne Group subsidiary announced it would immediately suspend process settlement for transactions that may be viewed as online gambling originating from U.S. consumers. The law has pushed the company into a restructuring of its operations, according to FireOne.

UK-based DataCash Ltd., a payment processor for authorization and settlement of credit and debit cards, direct debits and online cash, stands to lose nearly one-third of its revenue due to the act.

Anticipating the legislation, DataCash redirected its marketing, reducing the U.S. share of its revenue from 45% to 30% since December 2005. U.S. gaming still accounted for 26% of revenue growth, but non-U.S. gaming grew at a much faster pace, accounting for 74% of new revenue.

PartyGaming Plc, which claims to be the world's biggest online gambling concern, suspended its real-money gaming activities for U.S. customers Oct. 13. The majority of the group's revenue up to now has been generated by U.S. players.