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NETeller exit impacts U.S. Internet gambling market

18 January 2007

By Aaron Todd

Last night, just two days after NETeller founders Stephen Lawrence and John LeFebvre were arrested and charged with money laundering, the popular e-wallet NETeller stopped allowing American players to use its services to transfer money to and from Internet gambling sites.

NETeller, a publicly traded company listed on the London stock exchange, processed more than $7 billion in financial transactions annually, according to the company's interim report for 2006. Seventy-five percent of the Isle of Man based company's revenue came from the United States, and the vast majority of those transactions involved Internet gambling.

The decision has resulted in several popular Internet gambling sites scrambling to promote alternative third-party payment processors on Thursday.

"It must be difficult for (Internet gambling sites that allow U.S. players) to continue doing good business without NETeller," said Jez San, the president of PKR.com, an Internet poker room that decided not to allow U.S. players to play real money games when it launched last fall. "Whoever they end up using to replace them in the short term will no doubt not be around in the long term either."

NETeller isn't the only payment processor pulling out of the U.S. Citadel Commerce, Central Coin and Nexum Financial's (Full Tilt Poker's "Instant eCheck" provider) have all decided to stop allowing U.S. players to conduct transactions with Internet gambling companies.

"This decision was made by the ESI Board of Directors in the light of recent US Department of Justice enforcement actions against financial processors executives," reads a press release from the parent company of Vancouver based Citadel Commerce.

When the Unlawful Internet Gambling Enforcement Act passed in October 2006, a wave of Internet gambling giants such as PartyGaming and Sportingbet voluntarily left the U.S. market. FirePay, a publicly traded third party payment processor similar to NETeller, decided to stop allowing Americans to make transactions with Internet gambling sites in the aftermath of the UIGEA, while NETeller and others adopted a wait-and-see attitude.

"The (UIGEA) doesn't seem to have really impacted how much people gamble," said David G. Schwartz, the Director of UNLV's Center for Gaming Research. "It has hurt the companies that were publicly traded or the companies that have more exposure legally, but I don't know that it has really changed behaviors that much."

Sites such as Poker Stars and Full Tilt Poker actually benefited from the UIGEA, seeing their player bases surge when PartyPoker left the market. But while many Internet gamblers were willing to switch to new platforms, it remains to be seen if they will be just as willing to switch to new third party payment providers. Most sites still operating in the U.S. are trying to limit any damage that might be caused by NETeller's exit.

"NETeller's decision has no impact on our business here at Full Tilt Poker, and we remain committed to our U.S. players," the Full Tilt Web site read on Thursday morning. The site also highlighted other money management options still available to U.S. players.

San, however, believes that the shrinking options for payment processors will have a lasting impact on Internet gaming in America.

"Anything that's 'illegal' is also extraditable, on a federal level," San said. "No executive is 'safe' in a first world country that has extradition treaties with the U.S., which is most first world countries. And few banks in third world countries will be trusted by customers, for good reason."

NETeller exit impacts U.S. Internet gambling market is republished from Online.CasinoCity.com.
Aaron Todd

Home-game hotshot Aaron Todd has covered the gambling industry since 2006. While he is happy to play Texas Hold'em, he'd rather mix it up and play Omaha Hi/Lo, Razz, Deuce-to-Seven Triple Draw, and (his personal favorite) Badeuci.

Since graduating from St. Lawrence University, Aaron has worked as a journalist covering the gambling industry and as a communications specialist in college athletic departments.

A native of a small town in New York just south of Ottawa, Aaron lives in Needham, Mass., with his wife and three children. Write to Aaron at aarontodd@casinocity.com, and follow him on Twitter @CasinoCity_AT.