Hi Paul, since you are one of the key speakers of the REGULATORY UPDATE for the Isle of Man, but will also be speaking in the “Protection Against Fraud & Money Laundering” panel on the Fraud prevention of e-payments topic at the Eastern European Gaming Summit this year in Sofia, we would like to pick your brain and get a sneak preview about what the discussion and presentation will be all about.

EEG: Isle of Man has a long-standing independent statutory board which has been established in 1962 and has since than kept the industry crime free, protected the young and those at risk, not to mention ensured that the services offered by license holders are fair and players receive their true winnings. How has the industry evolved in 2015? Has Isle of Man seen a larger growth in terms of new gaming start-ups opening their activities? And in which sector have you seen the most innovations?

Paul: The Isle of Man has not seen a gold rush of new gaming start-ups, and in fact my impression is that this year there have been less than previously. There are just not that many new ideas around, and for a small operator, particularly one that is under-funded, the Island may not be the best choice of jurisdiction. The license is relatively expensive and we are selective about who and what we license, which is a differentiator from some jurisdictions who seem to be very open to less attractive propositions. In particular I would stress our:

• Risk Appetite – The business and political environment on the Island is quite conservative (some say risk averse).
• Player Protection – The requirement to ring-fence and protect player deposits is unique to the Island and can be seen as a barrier to business, (inhibits cash flow for some!) the GSC and the IOM more broadly view it as a consumer protection and reputational risk mitigation tool and are content to have in place;
• Reputation – While the online sector is a significant contributor to the IOM economy, it is only one of a number of important sectors. The Island’s reputation across all sectors stands and falls by the businesses located here.  We are keen the sector grows with the type of business that fits the prevailing conservative, political and the economic environment. Not all business we see fits this criteria.

On innovation, the best developments have all come from the mobile and mathematical areas, that is to say, there are not a lot of truly new products coming to market but the mathematics and technology underlying presentation of, for example, slots, has moved ahead significantly and we host some of the best players in this arena (Microgaming, Playtech).

A lot of conversations (at a regulatory level) are about business that may or may not cross over into the gambling sphere with lottery messenger, social gaming,  e-sports and fantasy sports all being topical. Binary options could also be thrown into this as well, the debate over gaming vs financial services is not over.

EEG: As we are aware, you are an editor at PacNet World Payments Guide. Has the industry seen growth in the payments sector? There have been many takeovers and mergers this year, with Optimal Payments becoming one of the largest payment processors of the industry? What’s next? Where can payment processing companies improve?

Paul: The Payment Processing industry, as a whole, is going through a period of consolidation and maturation which is characteristic of all high-growth industries. Payment processors come in many flavors, from the highly regulated and reputable to the downright criminal and disreputable. Between the market, the regulators and the courts, the ranks get thinned out over time and the weaker, less well-governed players tend to disappear. Betimes they make a lot of money in a short time then disappear because they can’t personally handle the stress that goes with the risk.

Quality is a big watchword in the industry, and we’ve seen the growth from strength to strength of SafeCharge following its IPO, and the termination of more edgy product lines and jurisdictions by Optimal as they have taken several specialist processors under their wing.

Where payment processing can really improve falls into three areas: (1) continuing to enhance anti-fraud and pro-security products, as criminals evolve ever more sophisticated ways of cheating operators; (2) best regulatory practices, and (3) pricing, which goes hand in hand with technological advances.

EEG: Newly regulated markets demand a license to be granted on their territory for online payment processors. How do you feel this affects local economies, wouldn’t it be easier to tax the profit?

Paul: The onward march of regulatory control brings much to local economies especially in terms of assisting in the quest for an appearance of greater legitimacy. At the same time over-regulation can be a barrier to market entry or indeed to progress and re-investment in products and technology. Not all new markets demand local licenses for processors; the UK is a great case in point where an “or equivalent” provision has prevailed for the requirement of using only licensed processors for licensed operators. In the EU this is less of an issue because a processor licensed in one jurisdiction can passport to all the other jurisdictions in which it provides services, and the process is seamless and free.

Taxing the profit of payment processors is probably a bridge too far, in that the profits made for processing are generally, genuinely earned by the work done “at home” in the processor’s centre of operations. I would think it’s close to impossible to figure out what part of a processor’s profits are made on traffic in each jurisdiction, and tend to think that the current regime of taxation where people are in seats, doing the work, is the correct approach.

Paul Davis, is a Canadian barrister and solicitor, is MD of Counting House (IOM) Ltd., a payments consultancy which works closely with most of the world’s major gaming sites. He is editor of the renowned biennial bible of payments, the PacNet World Payments Guide, and in the last three years has engineered payments solutions for over 40 gaming start-ups on five continents. He was formerly MD of a major cross-border payments institution in Ireland, prior to which he founded the world’s first physical currency exchange on the internet, cashbycourier.com. He is also a qualified airline pilot and rare breeds farmer, and says that his life is governed by the four Fs – Family, Finance, Flying and Farming – in that order!

The company which he manages is involved in offshore licensing, and offshore operations, are of interest to all operators worldwide. For several reasons, but one of the principal motivations is tax-efficient structuring. Just because a company is operated, for example, from Bulgaria or Russia, does not necessarily mean that this is the ideal place to have its registration and head office; and licensing is increasingly applicable, in mainland jurisdictions, only to local markets. For example, a Slovak company selling into Italy would need an Italian license; but certainly would not want to use its Italian licence (with Italian taxation) to operate into Central or South America. In fact there are a large number of Eastern European iGaming companies licensed in offshore jurisdictions, particularly the Isle of Man, Alderney and Malta. The landscape for offshore licensing and structuring is changing very markedly, and I think that your attendees may be very interested in learning first-hand about what’s happening.

Be sure to attend the Eastern European Gaming Summit in which Mr.Paul Davis shall give his expert opinion on Fraud prevention of e-payments. For 8th consecutive year on 23 – 24 November 2015, Inter Expo Center in Sofia, Bulgaria will bring together under one roof world’s leading figures and companies from the industry to present and outline current market developments and future trends with global vision and focus on the Eastern European market.