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Wednesday, May 23, 2018

Will sports betting win its own MCC?

A May 14, 2018 U.S. Supreme Court ruling allows states to legitimize betting on individual sporting events. The decision effectively ends the 1992 Professional and Amateur Sports Protection Act (PASPA) that restricted sports betting and imposed strict penalties on activities outside the State of Nevada. Card brands and merchant acquirers said they expect the ruling to motivate issuing banks to establish new merchant category codes for sports betting. JPMorgan Chase & Co., Citigroup Inc. and American Express Co. currently restrict card usage at sports gambling events, analysts noted.

Mary Jane Rogers, a spokeswoman for JPMorgan, advised media outlets, "We will closely watch developments from the ruling and will consider any implications to our policy as the states put their own processes in place."

MGM Resorts International said it will work with legislators to achieve regulatory compliance. "Having spent decades building trust with regulators, successfully operating sports books in Nevada, and hosting the world's leading sporting events, MGM Resorts International is extremely well positioned for a post-PASPA environment," company representatives stated.

Divisive issue

In rendering the decision, U.S. Supreme Court Justice Samuel Alito acknowledged legalized sports gambling remains a thorny issue. "Supporters argue that legalization will produce revenue for the States and critically weaken illegal sports betting operations, which are often run by organized crime," he wrote in the six-to-three decision. "Opponents contend that legalizing sports gambling will hook the young on gambling, encourage people of modest means to squander their savings and earnings, and corrupt professional and college sports."

Alito further noted that opposition to legalized forms of gambling reached an inflection point during the 1990s, prompting opponents to push for legislation to protect young people and the integrity of athletics. Senator Bill Bradley of New Jersey, a former college and professional basketball player, was a leading PASPA advocate. Twenty-six years following PASPA's 1992 passage into law, the State of New Jersey led the effort to successfully repeal it, winning all 50 states the right to legalize sports gambling at casinos and horseracing tracks, Alito stated.

Alito pointed out that Congress can regulate sports gambling directly, but the U.S. Constitution gives each state the right to act on its own. "Our job is to interpret the law Congress has enacted and decide whether it is consistent with the Constitution," he stated. "PASPA is not."

NAICS, MCC codes revisited

In a May 18, 2018, interview with Bloomberg News journalist Jenny Surane, Joe Pappano, senior vice president at Worldpay, said he expects sports betting to unleash new payment card processing opportunities. The segment's impressive market potential has prompted payment card issuers and merchant acquirers to work toward removing market barriers and establishing new guidelines and additional North American Industry Classification System (NAICS) and Merchant Category Codes (MCC) codes for the sport betting category, he said.

"We are working with the card schemes ‒ meaning Visa and Mastercard ‒ on really putting together a SWAT team and really working with the issuing banks," Pappano stated. "Issuers have to modify their real-time decisioning tool, they have to update policies, they have to feel confident that the compliance and the framework and those consumer protections exist."

Federal agencies use the NAICS for business classification and statistical analysis. Payment card brands use MCCs to classify merchants by industry type and products and services sold. The Standard Industrial Classification (SIC), the original four-digit business classification system, was established by the U.S. government in 1937 to classify industry types. It has been broadly adopted by other countries, including the United Kingdom's Companies House.

Visa's Merchant Data Standard Manual stipulates that merchant data must be consistent with comparable data throughout a transaction's life cycle and transaction receipt. A merchant's MCC is a primary consideration during a merchant account onboarding process. Gambling and other MCC codes are considered high-risk due to their increased potential for fraud and chargebacks. The manual states that Visa retains the right to require corrections to noncompliant or confusing merchant data. The manual provides the following guidance to gambling industry merchants:

"In a card-present environment, a merchant that conducts gambling transactions must use MCC 7995 (Betting, including Lottery Tickets, Casino Gaming Chips, Off-Track Betting, and Wagers at Race Tracks) for those transactions. If the merchant also sells other goods or services, it must use the appropriate MCC for the other services.

Card-absent environment: If the merchant conducts online gambling transactions, however, it must use MCC 7995 for all transactions, even if gambling is not the merchant's primary business." end of article

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