|PayPal, the popular Internet payment service, is becoming the preferred method of payment for online casinos now that credit card companies are blocking or selectively denying credit card transactions involving Internet gambling.|
Almost 500 gambling sites signed up to accept PayPal in the first quarter this year, almost doubling the company's roster of such merchants, which stood at 1,022 as of March 31, according to PayPal.
There is a potential pitfall for PayPal however, and as usual it involves the threat of litigation from the US:
“If you help to facilitate or promote gambling, you could be found guilty of breaking the law. We're trying to get the message out to intermediaries that there's real liability there,” said Ken Dreifach, head of the Internet bureau at New York State's office of the attorney general. New York estimates that offshore online gambling sites take wagers of $4 billion annually from Americans.
Although efforts to pass federal laws specifically prohibiting online gambling have stalled, Citibank, the US’s biggest credit card issuer announced earlier this month that it has agreed to ban the use of its credit cards for Internet gaming.
Now, New York and other state and federal regulators are looking at non-bank financial services such as PayPal, according to Dreifach.
PayPal expects to earn more than $16 million from Internet gaming in 2002. Already this year, its revenues from such merchants -- who pay higher fees to offer the PayPal service -- have more than doubled, accounting for 8% of its total income.
But PayPal concedes that any enforcement action against the firm could mean “material penalties and fines, both of which would seriously harm our business.”
Anthony Lupo, head of the contests and sweepstakes practice at Washington, D.C., law firm Arent Fox, said loopholes in PayPal's and card issuers' authorizations systems could make it easy for unscrupulous sites to evade a gambling ban.