How does the UK credit card ban impact modern challenger banks? Source: pixabay.com
The financial world is constantly in flux and often changes to payments occur without people realizing it. Anyone involved in the industry will know that in April 2020, the UK issued a credit card ban for use in online casinos and gambling. But those who aren’t as familiar with the economic landscape could be unaware of this and the ramifications it may have for how we manage and use our money online. So, what is it and what does it mean for the future of payments, particularly for challenger banks?
What is the ban?
24 million adults in Britain take part in some kind of gambling activity, with 10.5 million of these doing so online. An estimate from UK Finance places 800,000 of this group as using credit cards when gambling. With such a ripe market, the Gambling Commission was concerned that there could be some difficulties for those who use credit cards. After a review throughout 2019, they decided that online gamblers in Great Britain would no longer be permitted to use credit cards. Following this ruling, banks decided to have a rethink as to how their services should operate in the gambling sphere.
Modern banking bans
Modern banking provider Revolut followed suit and also banned gambling activity for people who used their service. The decision didn’t come lightly, and Revolut must be aware of how it changes their potential user base, as some people may have been with the bank for their online entertainment. But the move is also positive for their image as this decision demonstrates that they are abiding by the credit card ban and getting behind the official regulations. Having gained $4.5 billion in a round of funding in early 2020, this could be part of the bank’s strategy going forwards.
Source: pixabay.com
How does this affect challenger banks?
As Revolut is a challenger bank – a digital payment method to combat the traditional banking providers – this move places it in an interesting position. The benefits of modern banks, which include Starling and Monzo, were that they are more flexible and attempt to make transferring money across borders easier while simplifying the banking processes.
Some suggest that, as Revolut is a challenger bank, the ban impacts how it creates its differentiation. Indeed, challengers must offer something far beyond what the established brand offers in order to stand out and gain customers who may have been loyal for decades.
While Revolut itself has a simplified often fee-free process for making overseas transfers, the ban on some entertainment options could see people flock elsewhere. However, we can also see that other challenger banks are beginning to lose their benefits as a challenger – such as the additional fees Monzo began charging in September 2020.
Indeed, the gambling industry is fairly advanced when it comes to the payment methods that people can use to engage with the provided services. These methods include e-wallets such as Skrill and Neteller, as well as PayPal and standard banking services. If people are unable to use challenger banks for entertainment online, then they may move towards an e-wallet. If people were using a separate digital-only bank for their online entertainment, then they may no longer have any use for the service at all.
However, others suggest that Revolut is merely ahead of an inevitability. Now that credit cards are banned for gambling in the UK, there is a chance that other banking methods could follow suit. Making the move first is a gamble itself, but it could pay off, especially if Revolut sets itself up on its strengths (the overseas payments and currency abroad).
Financial changes have implications for consumers that they probably don’t even know about. Unless you were actively looking into it, you might not realize that Revolut didn’t allow gambling in the UK using its services. For challenger banks who do, this could be a point of differentiation that sees Revolut out of the game.
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