Licensed but Unbankable: Choosing an iGaming Jurisdiction With Payments in Mind

If you are choosing a licensing jurisdiction this quarter, there is a good chance that you’re comparing the same two figures everyone else compares: the application fee and the time it takes to get the license. Those numbers are easy to find and easy to put next to each other.

What happens once the license is issued is harder to put on the spreadsheet. Which bank will accept it? What will the acquirer charge you for processing gambling transactions, and what will a compliance team ask to see when it reviews your AML controls one or two years later?

Those questions can have a much bigger effect on the cost of the license than the fee itself. In practice, some of the most expensive licensing decisions are made before an application is ever submitted.

Nothing starts until the license exists

A persistent question in the iGaming industry is whether banking and payments can run as a parallel workstream from week one. In truth, they cannot. No bank opens an operating account for a gambling company while their application is pending. At best, a pre-license company can get a limited administrative account funded by its own beneficial owner, good for paying incorporation costs and nothing else, but client money cannot touch it.

Consider a fairly ordinary launch timeline. An operator spends three weeks at the beginning of the year putting together the application, including the AML documentation. The license arrives in the first week of March, and the bank application goes in immediately, but the bank has questions first, so the account doesn’t open until early April. In my experience, three to four weeks is a normal onboarding period; six to eight weeks isn’t unusual when the review takes longer than expected. The first acquirer is signed in May, and actual processing begins in June.

That puts almost five months between choosing the jurisdiction and taking the first deposit. The regulator's processing time is only one part of that period. The rest depends on what comes after the license is issued, and the jurisdiction affects that too. A license can take longer to obtain, but it can also leave you with fewer banks and payment providers willing to work with you once you have it.

Your AML file has a longer life than your license application

Most operators build their AML and KYC documentation with the regulator in mind. The policy follows the application requirements, gets signed and submitted, and once the license is granted, it easily becomes something the business stops thinking about. That's when its other life begins.

The same documentation might later be reviewed by a bank, an acquirer, or another kind of financial institution or prospective buyer of the business. These people aren't checking the file against the same application checklist; they want to know how the controls work in practice: who’s responsible for compliance, what the compliance officers do when a case is escalated, and how transaction monitoring thresholds are set and approved. If a high-value player is flagged, they want to know what evidence supports the SoF decision. If someone asks about a decision made 18 months ago, the company needs to be able to show how they reached it.

This creates a problem for operators who chose a jurisdiction because the application was light only because fewer requirements make the filing easier. It works against them later on, because the file they were never required to make is now the one the bank wants to see.

The meter that nobody negotiates

Now, let’s discuss the money that goes into this kind of licensing.

Earlier this year my team compared six current fee schedules from banks and electronic money institutions that onboard licensed gaming companies. A regular corporate client pays a flat euro or two per SEPA transfer. A licensed gaming company pays a percentage of every transfer, and on the same rail the spread between the cheapest and the most expensive schedule runs from 0.15% to between 0.50% and 0.65%.

On a million euros of combined monthly flow, that spread is €42,000 to €60,000 a year – it’s larger than most of the license fees in that spreadsheet, and it recurs.

Which end you land on depends on which institutions will take you at all, and the license behind the account sets that shortlist. Operators negotiate license fees to the last euro and then accept the first banking offer they are given.

Why card payments care about jurisdiction

Visa's rules require an online gambling merchant to hold a valid license and to code every transaction as MCC 7995, even when gambling is not its primary business, and they require a transaction to be legal in both the cardholder's jurisdiction and the merchant's. Correct coding exposes a transaction to gambling blocks: issuers decline that code by policy or by a customer's own gambling block, and where the issuer treats the transaction as unlawful, the response code Visa provides is 93, "transaction cannot be completed, violation of law", a decline the merchant may not retry. Several countries hard-wire this outcome.

Your approval rate is therefore decided well upstream of your payment provider's skill, by whether the issuing bank's jurisdiction recognizes the license behind the transaction.

The tempting workaround is the most expensive option available to an operator: code the traffic as something other than gambling. That is miscoding . Visa's Integrity Risk Program treats gambling as a high-risk area. If a merchant changes their coding to avoid registration, Visa can charge the acquirer a $25,000 fee for each case. Also, if a merchant is placed on Mastercard's MATCH list, that record will stay with them for all future acquirers they try to work with.

When a cheaper license actually costs less

None of this means that the more demanding license will automatically be the better choice.

The calculation depends on the operator’s own numbers. For example, a jurisdiction that requires a local company and two resident officers might add roughly €15,000 a year compared to a jurisdiction that requires neither. 

The better question is what the additional local presence buys you. Suppose it gives you access to a payment route that preserves about a 1-percentage-point margin. At €100,000 in monthly volume, that is €1,000 a month, and the payback period is roughly fifteen months. The annual premium would start to make financial sense only at around €125,000 in monthly volume.

Those figures will obviously change from one operator to another, but the point is to run the calculation before choosing the license. At lower volumes, the additional costs may not be justified, but at higher volumes, the cheaper license can turn into the more expensive option once payment costs are included. You shouldn’t treat the license fee as the calculation, but as one input into it instead.

Changing jurisdiction means starting over

Changing jurisdiction means a new application, a new bank file, and a fresh set of acquirer integrations, often a new company, and a period of paying for two licenses at once, because letting the first one lapse before the second is live leaves the business with none. 

It can also create another kind of problem for operators. For example, if an operator is declared bankrupt because of not having a reputable local bank account required by the license, the operator can reject the ruling and move to another jurisdiction. This might not be a template for every operator, but it shows quite well what happens when licensing and banking don’t line up. Having a license doesn’t necessarily mean having the banking relationship your license was supposed to make possible.

Start with the end in mind

The jurisdiction question is settled long before the application goes in, by two things that never appear on a fee schedule: which licenses the payment providers in target markets are prepared to accept, and what the AML/KYC file will have to prove to a bank, an acquirer, or a buyer rather than to the regulator in about 3 years. 

The operators that end up losing money are not always the ones that chose the most expensive license, in my experience. The ones that chose almost entirely on the fee, and then discovered that the cheaper option came with a payment setup too expensive to maintain, are often the ones that end up with higher costs. The license is a part of the payment strategy, whether the operator treats it this way or not. 

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